WHAT ARE INVESTING MISTAKES YOU NEED TO AVOID? | Meet Kevin PT III

When you buy an asset that's illiquid, like real estate, sometimes that is its diverse in the sense it's a different asset class. But it does not provide for liquidity in times of stress. You need to understand where there's risk. You can't value every asset the same way. I need skin in the game, so for those of you that are sending me all these prospectuses that are not willing to give up 9.8, don't bother.

Now, I want to go back for a moment to what your mother told you about diversification. Some folks, you know, we've got Warren Buffett's view on diversification. We've got other folks' views on diversification that maybe when somebody starts out, they shouldn't diversify much so they can build wealth and then protect their wealth later. How do you respond to that?

You know, diversifying less when you're starting out? No, I understand diversity is important, but so is liquidity. I mean, you've got to balance both of those. When you buy an asset that's illiquid, like real estate, sometimes that is its diverse in the sense it's a different asset class, but it does not provide for liquidity in times of stress.

One of the tests I ask everybody to do when they look at their net worth is: How much of this is liquid? How much of it, if a catastrophic outcome occurred to my family—a car accident, catastrophic illness, whatever—where's the liquidity for me to survive with? If everything I own is a liquid asset that's not diversification. So, you need to have some liquidity in your model. You need to understand where there's risk. You can't value every asset the same way, and liquidity is very, very important and not given enough respect, because in times of financial stress, it's the liquidity that provides you the opportunity to redeploy capital.

So, when I say cash, cash is pure liquidity. When something corrects and I want to buy it, I'll have the firepower to do it. I'll have that dry powder waiting to redeploy, and I'm waiting now. So far, there's been no correction. But I've lived through a lot of volatility, and I know just when it seems to be safe, poopoo happens.

That's a good point. A lot of people are going to hear that and they're going to think, okay, so what you're saying is all in on stocks because I could just swipe up and they're liquid. Can you speak?

Well, not every stock. I mean, obviously large cap. I only own 100% of the S&P 500 because I care about the quality of the balance sheet above all—the ability for the business model to be sustained. I want to participate in the cash flow profits in the form of distributions. You know, you can find companies paying 1.5% to 2% of their profits in the form of dividends and have potential growth of their value. And so, I do that, but they're generally very liquid. But when you get into the micro stocks or take very speculative positions in things like junior pharma, you have to understand that there's volatility there, and you need to mitigate that risk.

This comes from experience. I've always said I'm a big fan of Robinhood, because even though it's got a lot of criticism, it helps 22 million people learn about stocks. You can't even short a stock on Robinhood. People don't know that. So, I think Vlad, the CEO there, I had a chance to meet recently, expressed to me his heartfelt concern that people didn't blow themselves up on his platform. They've done a lot of work to try and help people protect themselves from themselves.

I'm a big believer in learning the ways of the stock market in that way. Even if it's only $100 you're playing with, you can buy fractional shares and start to understand portfolio management.

To one positive note there on Robinhood, you had talked about any of these apps you can download probably paying big fees for crypto, and I noticed that in the crypto space, there are huge spreads, large fees; you know, the spot price is way off from what you're able to buy or sell it for. Robinhood has been one of those that, even though you can't transfer your coin (I don't even think you're actually getting a coin; you're getting like, you know, an index), it is the one that seems to be the cheapest out of all of them. It just consistently has the cheapest price every time I run experiments.

Are you bullish on the Robinhood IPO?

I am. I think it's going to do very well. I think, you know, Coinbase is going to do very well. There's a lot of interest in crypto, a lot of interest in trading platforms. You know, it's again, financial services in the end is valued by EBITDA or cash flow multiples. Right now, because the growth of those platforms looks so fantastic, when you go and look at banks and book values—in the end, you can really hype it up, but unfortunately, over time, if you don't grow into those expectations of free cash flow, the market re-values you. Financial services are generally commodities; banks are commodities. They don't have anything proprietary from one to another other than brand. So, it does level the playing field eventually.

How would you value a Coinbase? I mean, obviously their numbers here in Q1 have been insane. I mean, phenomenal growth and insane cash flow. I mean, you're talking about cash flow; they got cash flow. Does this mean you're plowing into Coinbase?

I think as a trade, it'll be interesting. But, you know, when you start to value cash flow past 17 times, well past the market value, you really got to believe the growth. The assumption about Coinbase is what else can they sell these people? It's sort of like the SoFi model. What else can they sell? Can they sell insurance? Can they sell mortgages? Can they sell credit rating services? Can they sell whatever? Once you've captured the customer, how far can you go is the whole idea—that's why it's interesting to investors. It's very hard to amass a base of that many wallets—really, really hard. Getting just past the first ten thousand is almost impossible. But then past that, you can grow into the millions of them because you found a way to acquire customers on an economic basis, which they have. So there is value there, no question.

It sounds like you're probably not all in on Tesla. The way to play Tesla is to use the thesis of diversification, keeping it at a five percent weighting. I bought Tesla at $238 pre-split when my son became an intern there. He now works there as an electrical engineer, and he made me look at the company a different way. He said, “It's nothing; it's not a car company. It's a data company. It gathers data; it has tremendous value long-term.” If you view it that way, you should own some. So, it convinced me to buy some one day when it was downgraded. That stock obviously became one of my best performing positions.

But every time it would go blow past five percent, I sold it down to five percent. Now my cost base in Tesla's zero. That's the discipline I have. I don't let stocks be more than five percent for very long, and I continue to sell into the strength, but I keep my position. You lose out on all the upside, but the diversification metric you get is very, very good. In volatile times, you don't participate in the full drawdown because you profited from your winners. It's just a philosophy that you learn to appreciate every time a big position takes a big nosedive and you let it grow more than five percent.

Now, I don't recommend what I'm about to say, and it'll be a little embarrassing saying it to you, but I'll say it, and I don't recommend this—so about half of my net worth is in real estate; about half is in stocks. So, the portfolio—because there's debt obviously against the real estate and a little bit against stocks as well, which I know you're not a big fan of—but of the half that's in stocks, about 48% is Tesla. Is that really bad?

Yeah, it is. That's really bad. So, I get roasted by Kevin O'Leary. I had to do it; that is a very bad idea because you saw a drawdown of 25 or 23, and it's come back a bit. You know your cost base is probably very low on Tesla. I would never ever let that happen in my portfolio, ever. So, if anything happens to Tesla, you're going to really be crying the blues.

Thank goodness we met; you can fix this, Kevin.

That's true, yeah, exactly. That's a good point. So, okay, well, so what would—let me ask you—what would you do with the portfolio? We'll lay it out there.

Well, you didn't tell me your sectoral weightings. I mean, you know, I could go to town on your portfolio and tell you where you're under-invested, where you're over-invested at the stock and sectoral level. I mean, I would prefer, in a portfolio, to have exposure to at least five sectors, you know, and at least 20 stocks. I own way more than that, but you know, I've got—the only sectors I don't have exposure to right now are duration risks, like REITs. Energy stocks I don't have any exposure to right now. I do have exposure to banks, but you know, just JP Morgan. I have some exposure to financial services. I'm looking for companies that are really in the sweet spot for America 2.0—the consumer stocks, the technology stocks, the healthcare stocks. My weighting is a little bit, you know, full weightings into those three sectors, and so then 40% of the sectoral weighting to others.

But I also have geographic exposure. I'm up to 20% in Europe now, which is a first for me because the values are so interesting there. It's a zip code that people have hated for a long time, but I think Europe, low growth—right? Sorry, low growth is oftentimes what people think when they think of Europe, right?

Yeah, but all that's going to happen there is there's going to be tremendous stimulus poured in by their government too and frankly, there are 50 stocks in Europe, like Roche and Nestlé, that are really, if you think about them, domestic stocks just happened to be headquartered in another place. So much American tobacco sold in the U.S. So, I try and find those companies that are representative of sectors I already own here, and I'm just getting them at a PE discount in Europe. I don't mind having some currency; I buy them in the native currency, so I've got some exposure Swiss Franc to Euro to British Pound. There's nothing wrong with that. If you're going to take exposure to Bitcoin, you might as well own some other currencies too. So, we'll see how all that plays out, but I think it's early; I think this is going to be a very good year for equities, and I'm very optimistic.

So why no REITs? You had mentioned REITs were a no-no for you.

Well, REITs tend to have a duration risk, so I wouldn't want to own a REIT that just has a bunch of malls in it right now because they have to go through conversion. There's a lot of optimism that they'll—you know, there's some—not to name names, but I owned all those REITs, I've sold all of them, and I'm glad I did when I sold them because they’re down significantly from where I sold them. I don't see any reason to get back into them right now. We've got to go through this transitional period over the next 24 months. I can see where in commercial real estate I should redeploy, and I will. I just don't see anything attractive. You know, you've got an empty building with no tenant being—people trying to sell it for a four cap? I don't think so; I'm not going to do that. That's not a good idea. There's a reason it's empty.

We've got to wait this out a little bit. That's one of the reasons you're being patient. I mean, oftentimes people's cash burns a hole in their wallet. Oftentimes, for the negative, they spend it on things they don't need. Like you mentioned, I have this problem where when I get cash, I spend it right away to invest in.

Yeah, I don't have that problem. I've learned that a long time ago; cash is just another asset on the balance sheet. It's where it's overweighted right now. We are overweight, and that's a problem. It's pushing down returns, pushing down IRR. But I've learned through conditioning in markets like this to keep some powder dry—there'll be great opportunities coming. I don't know where they're going to be. I'm looking at deals every day—every day. I spend about, I don't know, 90 minutes a day going through the new. Our deal flow's insane right now; we just have a huge amount of—but, you know, I try and work with others and say, let's categorize these into buckets: something we'd look at, something we won't touch. We look at a lot of different things, and we have certain core strengths we're very good at. We have a tremendous due diligence team.

We are a sustainable investor not because it's a marketing scam, but because the people that we invest beside have those mandates and the consumer goods and services company. We've already learned through the Blue Lands. I'm an investor in Prime Six. This is like to give you a good example; I'll just hold it up. This is the first charcoal company in America that is sustainable. It takes the wastes of hard grain mills or hardwood mills, the sawdust, compresses them into these incredible, incredibly efficient logs that don't have any waste material and consistently burn at the same temperature every time they sell. When they plant a tree, that used to be a corny marketing scam; now it's the number one in-demand charcoal in America. Every grocer has customers coming in saying, “Where's my Prime Six? I want to buy Prime Six. I don't want to buy this stuff that pollutes; I want Prime Six.” So, that happens, right? And we're a big investor in that.

That's incredible. What do you think about—I know you mentioned energy, like utilities, you weren't enthused about. What do you think about like an Enphase, the solar revolution, and even to some respects, Tesla in the energy business?

Well, Tesla's different. I mean, it's a data company and a battery company and a technology company and has also captured the imagination of investors worldwide. So, it's getting an index weighting as an EV company as well. But a lot of the solar companies have yet to prove profitability without government subsidy, but I think that's coming. The wind is even worse in some cases; there are municipal restrictions and all kinds of issues. Yet those are sustainability mandates, and they will get better and better as time passes in terms of technology.

The sector that does look like it's really going to get killed is hydrocarbons because you've got GE declaring they're going to phase out the combustion engine or GM—I should say; and you've got this mandate from every federal government level and state that they want to get out of hydrocarbons. I would say that the companies will be more efficient at spending less in CapEx, but the PEs of all of these once-great energy stocks—Schlumberger, you know, Chevron, Exxon—I used to own those; I don't own them anymore because I think their PEs will just keep getting compressed, and frankly, when I have institutional clients say, “Did I see Schlumberger on your balance sheet?” Now I don't have to be embarrassed about it. I say, “No, no, you do see.”

One of the things I didn't like about the S&P 500, like a straight-up S&P 500 index fund—which is probably where you stand as well—is you get more money allocated to tobacco companies than you get like Starbucks or Target. Is that kind of like that same feeling you had when folks are saying, “Why are you investing in these oil companies?”

Yeah, but I believe in the sustainability model is now perpetual and remains so. As Larry Fink said a few months ago, you know, he’s really pushing on corporate mandates to fund sustainability and climate change issues. You can debate that till the cows come home, but the point is that the reality of what is going on. I don't want to have to answer to an institutional client anymore that yes, we have Schlumberger on our index. We don't, and there's a reason they don't want to see it there, and they won't do business with us.

This is right down to retail investors; they don't want to see it. They don't want to own it. So, I am not telling them what to own; I index for them, and so that's sort of the way I look at it.

Tesla, you mentioned almost has an index weighting, as you mentioned. You just mentioned four or five different sectors it's in. Does that mean I could put five percent into each of those and justify my 48?

Well, it's a five percent into a stock. I mean, your Tesla stock, you know, your stock should be five percent of your weighting, maybe six at best, and then you would take the money you made there that you diversified and you invested in other sectors that appeal to you. For me right now, that's consumer, healthcare, and technology. But it doesn't mean it stays that way forever; it's just that the allocation I probably own in aggregate close to 900 stocks around the world, and probably the largest position I might have is five percent in one of them.

It's really a diverse index of ownership across multiple sectors, multiple geographies, and that's my equities. Then I do all these very highly risky investments in these small private companies, but I've had some great outcomes there. I think I add a lot of value as an investor in terms of helping them grow and acquire customers, and I know I'm worth that.

When people approach me, I always have a good time when someone calls me up and says, “You know, we're just closing around; we have sales of two million dollars. We're closing around at a 25 million dollar pre-evaluation; we'd love to be an investor.” I say, “Look, that's wonderful. I'm very appreciative you made this offer to me. I understand it's a private syndicate you're forming. I'll make you an offer based on my value to you, and you can accept it, or you don't have to, but I couldn't care less what your valuation is. I don't care if you want me to be an investor.”

It's a very simple rule: I want 12.5% of the company before the employee option pool, which will drop me down to 9.8% if your pool's 21% or 22%, which it often is. In some cases, you will give me that stock and put a long hold period on it or in other cases, I will buy it or a combination of both. But if I don't have 9.8%, I'm not really interested, and their answer is, “That's outrageous. What do we tell our investors?” And I say, “I don't care, but if you want me and all the power I have to get your story out there and all the customers I can acquire, this is what it takes to engage me.”

Fifty percent of the time, they tell me to go, you know what, and the other half, we end up, another halfway, end up doing deals. I know my value; I'm extremely good at helping companies grow. I have a fantastic team that does the same. This is the power of social media; I have five million followers, which I think the majority of them are investors or want to be investors, and follow, you know, my muses about where I go. That doesn't mean they have to invest the way I do, but they're interested, and I bring these issues to the fore. In doing so, we create a community of people that want to become investors in various companies, and I think that's a great job for me to have. It's a useful productive use of my social media, but I don't do it for a two percent holding. I don't care about that; it doesn't even get me out of bed in the morning. I couldn't care less; I wouldn't even—it wouldn't matter. I need skin in the game.

So, for those of you that are sending me all these prospectuses that are not willing to give up 9.8%, don’t bother.

Great messaging. So, it sounds to me, because when you mentioned you're in 900 different stocks, that sounds extremely diversified. I think studies show that if you have 30 to 50 stocks, you almost mirror like 95% of the diversity of an index fund.

Yeah, 900—it's incredibly diversified. Are you being so conservative, if I can say that, on stocks because you're taking larger risks in private equity?

It's an interesting point, but no. The reason I own so many stocks—that can vary from a few hundred to, you know, multiple hundred—is that I study the drawdown. In other words, I look at the history of a stock in a correction. If there is a massive correction, 30%, 40% correction, I want that stock to only participate in maybe two-thirds of that correction. I define my ownership base not on upside, but on downside protection. I don't need more money; I need to keep what I've got, and I want it to be productive and I want to be able to distribute six percent. So, my attitude is saying I would covet much more protection to the downside than I do out performance.

The reason I'm so diversified is those holdings, those individual stocks have tended to have a history of very good performance in drawdowns. That's much different than an investor says, “All I care about is beating the indexes.” I don't care about beating the indexes at all.

Is that unique to you, though, that you've already established wealth?

Why? I mean, for the 20, 25, 30-year-old watching right now and they're looking at their portfolio going, “Dang, I'm 25% in on Tesla,” and every time it dips I'm buying more of it, you know, the buy-the-dip culture. Isn't that potentially a great way to build wealth?

It is. It's more rock and roll, but what invariably happens to that kind of investment style is you go through a massive correction, and you learn a very important lesson. The generation that is trading right now has never gone through a sustained correction—it hasn't. That's okay because it's coming. I don't know when; I don't know how, what will trigger it, but they will learn their lesson. It generally happens in your 30s. If you have a lot of leverage on, it's a hell of a lesson because you end up in a negative net worth position, but you do learn it.

I learned that lesson in my early days. I shorted Yahoo when it was 35 and watched it go to 280 and never covered the short. I had to wait four years for it to get back down to twelve dollars. That was a very stupid investment, but it taught me a very important lesson about the power and the risk of shorting stocks. I'm very, very concerned about that now when I do hedge trading, and so I'm very—you learn that lesson; it gets ingrained in your DNA. I don't make those mistakes anymore.

What I concern myself now with—and it happens to anybody once you turn 40—preservation of wealth becomes part of your investment metric, and the various things you do like diversification and sectoral diversification we talked about are part of that. I don't need to beat the market; I did that already. I need to keep what I've got.

What do you think about folks who are very enthusiastic about options these days? Robinhood is right there; it very much makes options trading extremely easy, and these derivatives used to be pages that people would never go to in the TD Ameritrade or Scottrade days.

The thing about options, particularly writing calls for example—I mean, most people who use options do not understand how they work and how they should be used. I don't want to sound negative on the use of options, but let me tell you, you know, in a bull market when you're writing calls, you get called away long before the potential of your stock is realized. You're just timing—you're trying to time the market when you use options; very hard to do.

I'm not against it, okay? But I don't use them anymore; I don't use leverage and I don't use options. It doesn't mean you shouldn't; it's just that I've learned over a long period of time that there's an additional risk in using options, particularly if you're using leverage on options because you're ghosting the mechanics of it dramatically, and that's where people blow themselves up. So, if you're going to use options, it's really worth, you know—the Jarrian brothers are very good at teaching you how to use options. I would recommend them to anybody; they're really strong at that. But I don't need to use options anymore; I don't have to.

If I'm going to go long a stock, I'm going to go long a stock until it's a six percent weighting. I'm going to trim it down; I don't need an option to do that. I have an expression about investing. I teach everybody that I guess lecture with now: Keep it simple, stupid. When you get into these complex straddles and callers and all of this stuff with leverage, sometimes you wake up with a hangover after going out to a party and you forget the position you have on, and at 9:45, you just blew yourself up. I mean, it's—that's actually what happens; you've got to be careful.

Yeah, that's interesting. You know, another thing that kind of goes along with this portfolio building that I want to touch on or ask you about at least is I have this theory that you go through a phase of life—you go through your growth phase, and then you go through like the cash flow phase. Sure, you can have both, but people regularly ask me, oh, should I pay down my mortgage? A belief I have is that in your growth phase, you don’t—it's inexpensive money, 30-year fixed rate debt. You don't go for that 15-year loan when you're in that payoff phase, that retirement phase where you're getting close to that retirement phase where you want dividends and cash flow and your income is going to go down because you're going to work less hours. Then you go for that 15-year mortgage. Can you speak to that idea?

I would agree with you, as long as it's a fixed mortgage, not a variable rate mortgage. Where that where that blows up is when rates make a big move, and all of a sudden, you readjust it up on your monthly payment by 20%, 30%. That can't happen; it hasn't happened recently, but you know, if you're not going to be paying down your mortgage, which is often your best investment because it's a certainty when you pay it off, versus the volatility and risk of the overall markets, it should be fixed rates.

So, you know, you're not—and if you're doing that, then I would agree that you start putting some aside into the indexes where you have volatility. But when you pass 45, you really should try and have your mortgage paid off because you have to be in the gathering mode, and the debt on your house remains a liability, and it will forever until you pay it off. My models are generally, you know, I got out of debt when I crossed into my 40s, and I never looked back. I pay off my credit card amount; there’s no scenario where people offer me debt where it makes sense. If I have cash to deploy, why would I take on leverage? It makes no sense.

So, I just don't, and I go to sleep at night. I have risky positions on, but you know, I don't put it all into one basket. That's the whole point.

Are you not leveraging your real estate at all then?

I much prefer—I met a really interesting guy years ago. You're making me think back when I started buying my first homes, renting them out. He used to buy homes the same way I was doing it, and he took me outside and showed me the house I owned and the one beside it. He said, “Your home is a pasta home. This home beside you is a steak home.” I said, “What the hell does that mean?” He said, “Your home has a mortgage on it. This home that I own—because he only was a landlord that was renting houses beside me—is a steakhouse. It has no debt. Every dollar that comes out of it, I can go buy a steak with. I can cook it on the barbecue, but I can't eat steak when I have a mortgage because I don't know what's going to happen until I pay it off. So, you're a pasta guy; you can't eat protein yet.”

It was a brilliant analogy because he basically said use the steakhouse to pay off the pasta house, get rid of the debt, move down the street—which he was, you know, he was an older guy; he owned the whole street. I was just a new kid on the block who just bought one. I overpaid; he was trying to buy the house that I overpaid for, but it ended up being a great investment. The point was he was right.

So, when I stabilize a storage facility, let's say, as I did years ago, I use that cash flow to pay down the debt. And then when you get the big correction, where there's total illiquidity, and all of a sudden guys that are over-leveraged are blowing up and having to sell their places at discount prices, there you are, waiting to pick up the pieces. It's pasta versus steak; now you get it.

Honestly, it's a great argument. I think of—I never did refinances on the original properties that I bought, and they're all in Southern California, which you're probably not happy about that. But when the pandemic happened and the Federal Reserve on a Sunday reduced rates to zero, I immediately called my lender and said, “Refinance everything.” So I figured I'd need cash for what was to come, and it ended up—probably, I think it could very well—I think it sounds weird to say—but it could end up having been one of the best decisions I've ever made or ever will make because I had all of this cash that came to me at the end of March, beginning of April, which is the bottom of the market, and I put it all in.

Yeah, but you lived through a period of unique time when for 30 years, rates did nothing except go down. That's probably not going to happen for the next 30. So, you were an opportunist; you did the right thing. But the reduction of leverage is always a long-term strategy that works, and so you use these opportunities as you did to reduce leverage or at least pay a lower rate on the leverage you had.

But at this point in my investment philosophy, I don't use it. I don't need to use it; I don't want to use it, and I don't want the covenants associated with it. They reduce liquidity and diversification. I look at all these—you know, I don't even sign NDAs anymore. I don't sign anything. No, people are always saying you have to sign this NDA before I show you my deal. I said I'm not signing anything. If you want to show me your deal, that's great. If you don't want to show the deal because—and NDAs have all kinds of covenants that restrict your flexibility in other unknown situations. You're signing an agreement that stops you from doing certain things, and you don't know you're going to do them yet.

So, my attitude is if the deal is so hot and so important, it's yours; keep it. I don't need to know the stuff you want to keep a secret because, by the way, you see this pile over here—these other 40 deals I haven't had a chance to read yet, but I'm going to look through these next. So, you know, it's just the diversity of, in the end, what I've learned is—and you know, I guess unabashedly when I say this—it's really good being Mr. Wonderful.

I love it. I want to ask you about NFTs. Are you going to get into these, or is this a big bubble waiting to burst?

No, it's a derivative of the digital economy. You think about what it promises for the arts and I'm very interested in music and I collect art as well—modern art. I think there's merit—because it's a new asset class, it's going to be immensely volatile. Some of these have 90% volatility, but I think the idea that you have something that's copyrighted in perpetuity that can't be forged is really interesting and a good idea.

So, I think at the end of the day, they will find their place. I'm dabbling; I'm in a negotiation now on a particular piece. I don't know if I'll close it or not. It's just—it's like my watch collection. My wife said to me, “Why do you keep buying those watches? If you wore three watches a day, you couldn't get through your collection anymore.” I say, “Well, as an asset class, it's performed.” She said, “That's ridiculous. What do you need another watch for?”

They've performed; they’re up over 100% in the last two years. I enjoy the art of watchmaking. I want to support the people that give up their lives at the age of 14 to become a master watchmaker in Italy or Switzerland or Germany or even England now, and so those people mean a lot to me, and I want to support them and I buy their watches. I mean, I have a watch I'm wearing right now in FP Journe. You probably have seen this on Putin's wrist. This company only makes 900 watches a year, maybe 17 of these. It's appreciated over a hundred percent since I bought it 18 months ago. Maybe Putin did that to it; I don't know, but it doesn't matter. It's a piece of art.

What about the art on my Apple Watch, like the pictures of my children on it?

Well, I've often said about Apple Watches, that's great. You'll probably have to burn in hell because you wear that. You're not supporting real watchmaking. That thing is—you know, Kev, that tells you right now, you're 20% off retail if you walk around with an Apple Watch on. That thing is not—that is a piece of consumer electronic junk, and I own Apple stock, but I would never be seen dead with an Apple Watch on, not a chance in hell.

So, you're probably not happy that—not today, but usually I wear two of them—one for my texts and one for my Twitter notifications.

Yeah, that's just—it's garbage; that's what that is.

That's awesome. Okay, wow, so very interesting insights. I think we’ve hit a lot of different things here. I think the last question then I have for you has to do with Florida, California, this exodus, and then maybe one more on portfolio, one last one to wrap up on portfolio.

You live in Florida; did you go to Florida because of the zero percent state income tax?

For my operating business, yes. But I also moved here for lifestyle. Florida and Texas are the two big options. California, New York, Massachusetts—those states have priced themselves out of growing businesses anymore. They're going to have to somehow figure it out, but I'm not waiting around for them to do that. I would never start a business in any of those states, and in fact, when I buy businesses, I move them out of those states. I recently moved one out of California—Northern California—to Jacksonville, Florida. Coders are much cheaper here; taxes are much better. You're talking about a 17% difference.

I really like the competition between states because you’ve got, you know, pretty soon California will be a vacation location, but you wouldn't want to start a business there. I would never invest in that state, and I won't invest in New York or Massachusetts either until they get their poop together. Meanwhile, down here in Florida, we're just rocking. We've got the cultural vibe; it's fantastic, spectacular art scene, fantastic investment environment, great mayor for the city. I mean, everything's working here; it's an example of what America can be and an example in Texas the same way of what every state should be if you want to be globally competitive.

But you know all that rhetoric coming out of New York? Imagine pushing away Amazon with thousands and thousands of jobs and they simply said, “Okay, if you don't want us, we'll just move to Carolina and we'll employ 25,000 people down here.” I mean, not to name names, but some politicians just don't get it. They are so far from reality that they drive their states right into a ditch.

So, I'm not going to fight with them. I'm going to visit; I'm going to visit, but I'm not going to live there.

I think that's the whole point, the 17% competitiveness for your business?

Are you talking about your employees being able to take home more money? And they're in every way Florida is better than a high-tax jurisdiction— in every way: access, internet, employment, colleges, research, lifestyle, weather. Who the hell wants to be near the Northeast in February? I mean, I wouldn't!

There's a reason birds fly south; where do they go? To Florida; they like the taxes and the weather. That's the whole point.

What do you say about the SoCal weather? I mean, you got Mediterranean climate over there. You got that love, SoCal love.

I love SoCal; love SoCal love to go work out there. We make Shark Tank on the Sony lot—love it. I would never take a residence there or invest a business; those guys are clueless. There'll be a change.

I could rent something, but I'd rather just stay in a hotel because I'm there for, you know, a few weeks. I got to make sure I'm not there too long. If you stay there too long, you get taxed at a ridiculous tax rate.

That's even in my views on America. That's what I look at, and lots of other people are figuring that out, saying, “Why? What do they have that I need so much that I can't get in Texas or Florida?”

We're at that stage now, particularly when they're contemplating raising corporate taxes. Why would you ever start a business there? Ever!

What you want to do is sell your product and service there, but don’t have the nexus of your corporation there. It's not good for business.

So how do I convince my wife, Lauren, to finally leave California? She doesn't want to leave California.

For you, you mentioned it earlier, family and weather.

Well, simply look at your tax bill each year. I think yours—you don’t care!

Well, I get it. I would rather have that money to start businesses with, create jobs in America than give it to the federal government.

You should really—uh—you should send her to my official boot camp for re-education.

Okay, how do I do that?

It's expensive; I get a huge royalty—it's fantastic!

If you had real estate here—so I've got, like I said, 50% of my portfolio in California real estate, Southern California real estate—would you just 1031 exchange this stuff to avoid taxation or would you put it all into a big multi-family building in Austin, or what would you do?

I'd diversify; I’d get some other geographies. I'd sell a couple of properties and redeploy it somewhere else just to get diversification. 1031 and then what do you— for Tesla stock, you pay some big taxes if you got that low basis especially in California. I'm paying like 56% out here; something insane, yeah.

Another reason to leave—another reason to leave California, but I never let taxes make investment decisions for me. I keep on the diversification. Tax is something you pay. You're going to have to pay it whenever you sell it, so you might as well stay diversified.

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