How To ADAPT To The Digital Pivot | Meet Kevin Asks Mr. Wonderful

There are no starving artists anymore. They're not starving. They're getting salaries of over a quarter million dollars a year if they're any good, because they can tell the story and digitize the service or product online and entice customer acquisition. The business travel component, while everybody's so up, you know, optimistic about it, I don't see it coming back. And a lot of it will, but not a hundred percent.

Hey everyone, welcome back to the Meet Kevin show. Today, Meet Kevin meets Kevin O'Leary, investor, entrepreneur, of course, Mr. Wonderful. I am super excited to ask a ton of questions about what the heck is going on in this crazy market and world. Please welcome Kevin O'Leary.

Hey Kevin, how's it going?

Great to be here, Kevin. I love this Kevin squared thing. It's great. I love that.

Absolutely. So Kevin, I want to get right into it. We had CPI data this morning. It wasn't as bad as expected. What's your take on inflation? Is the Fed going to lose control? Are they going to maintain control? What's your take?

I think the Fed's been pretty clear. They are focused, pedal to the metal, and keeping rates at basically zero until they can get these last nine million people replaced in the economy, redeployed. And I think everybody's beginning to realize it's happening very quickly, that the economy that we're trying to stimulate back doesn't resemble 2019 or 2020 anymore. There's been this incredible digitization that's occurred during the pandemic, where now the entire economy and purchase preferences as well with individuals has changed.

It's very much direct to consumer. All kinds of new business models have emerged. Retailers taking a back seat in terms of how products are sold to people now. All kinds of fundamental changes going on in business travel. What's happening in terms of expenditures in the S&P 500 companies right down to small, you know, Montpar businesses? And we don't yet know what it looks like until we get out of this pandemic.

So as far as the Fed's concerned, they're focusing on all the people that lost their jobs, for example, in business travel and airlines. That's 10 percent of the employed people somehow involved in that chain in America. All the people that lost their jobs in movie theaters that were cineplexes that nobody wants to go back to anymore. All the people that lost their jobs in restaurants and food services. Businesses have to be redeployed by the new digital economy, whatever that looks like.

And that's why you're going to have a current focus on that for at least the rest of the year, and that's extremely constructive for stocks. I mean, we've never seen anything like this. I have never, ever seen data like what I'm seeing now in Q4 of this year. We may achieve past the nine percent GDP growth. You haven't seen that since the 1950s, Kali.

Yeah, it's absolutely incredible just the growth of projections. I believe they're thinking if we add together 2021 and 2022, we could be growing like we were growing in '05, which a lot of folks don't want to hear '05 because what came after that. Which begs the question: is it possible that if the Fed keeps the Fed funds rate so low for so long that we end up letting the inflation genie out of the bottle? I mean, I've heard you yourself say, hey, we shouldn't be spending all this money.

Yeah, I think a lot of the expenditures are wasted. That's because it's such a blunt instrument. The 1.9 trillion dollar package that already has been legislated, I would say 50 percent of that will be wasted. The infrastructure package is more interesting, but we don't yet know what that's going to look like. And it may have the detrimental impact of raising corporate taxes again, which makes the U.S. uncompetitive.

The idea that Yellen can run around the world asking for a standard minimum corporate tax is a joke. That's never going to happen. The Asian markets, which are very, very tax efficient in terms of low taxes, are killing us in growth. They're just really getting competitive, and they have no interest in raising corporate taxes, you know, to kill that golden goose.

So we will again, if this tax proposal is put through, be the highest corporate tax jurisdiction in the world in terms of the G7. And you'll start to see all the inversions starting again, companies making moves to get out of the U.S. So I'm not sure they're going to be able to do that easily.

So that's a big question mark regarding inflation. You have a bellwether. Every day you simply watch the 10-year. The 10-year bond will not be competition for equities until it has a handle in front of it, which is a long time from now. We're about 1.6. So you're going to stay the course on stocks because that stocks actually do well in inflationary times. They tend to actually have pricing power, and corporations do very, very well when inflation comes into the economy.

It's runaway inflation you don't want. You don't want to turn America into Venezuela or Cuba or something like that, but I think we're a long way from that right now. Long way from runaway inflation. And that's a fear that a lot of folks have is that we might see that kind of hyperinflation, that we're going to—that essentially the country is debasing the dollar and that we can't trust the dollar anymore. And that's maybe why you see a run into cryptocurrencies. Is that not something that you believe that the dollar could lose its value or potentially even collapse or lose its status as, you know, the world's, you know, reserve currency?

Well, there's some speculation. You saw a lot of pundits talking about this this week that China was really trying to promote cryptocurrencies as a way to getting out of under the matter of the dollar, because the truth is the Chinese economy is based on the U.S. dollar in the sense that everything outside of their economy settles in USD. Nobody wants to take the Chinese yuan and hold that long term. They have no idea what the policymakers are going to do with it. So if you want to do business out of Hong Kong or out of China, you asked to settle in U.S. dollars, and that's really what the Chinese are frustrated about.

What they prefer to see is a cryptocurrency, perhaps one they bring on themselves, which I would never take into custody because the Chinese could simply turn it off if they weren't happy with you or something you said about them. Or Bitcoin. And that's why Bitcoin is at a new high today. No government controls it, but it does have its own issues emerging now.

So we've got a very interesting time going on here. We're basically—and I think the best way to put it—in an economic war with China. China doesn't play by the rules, doesn't give us access to their courts, does not give us access to the middle class. They use American courts to litigate their own IP domestically and sell tons of products into the largest economy on the earth currently, which is the U.S. economy. And until that playing field is leveled, we're going to have tremendous tension with that regime.

This morning came out and said that they want to play nice with Biden. In so many words it sounds like you don't believe them.

No, I don't. I just look at the last 10 administrations and how crafty they are in making nice, sounding nice, and then keeping everything the same as before. The only thing the Chinese understand and respect is the stick. That's what they understand. And so you can look back for the last five administrations and realize until the last one where they really put the pressure on them, nothing was changing.

The idea that you can form a cohort of American and European economies to work together to bring the Chinese a bit to bay is not going to happen because in Europe basically 25 percent of most of those economies is tied to China. So while they'll give lip service, they don't want in any way to take their relationship with a quarter of their GDP. That's why it never worked. The only time now is to go hardcore against China and say, look, we understand we're in a competition. We understand the living, you know, the playing field is not level, so let's level it. And the way to level it is to say, let's make it level.

Right now, what would that mean? Delist all the Chinese stocks, do not give them access to our courts, we don't get access to their courts. Make it the same for both. Then build it back up. When the Chinese feel the pressure of that stick, they'll understand they have to somehow raise the bar.

Now, that sounds torturous and difficult, but it has to be done. It has to be done. It makes no sense to me that an American manufacturer has to give up their IP, basically have it stolen. That hasn't changed. You've heard a lot about it from the last administration, but it's the same. The Chinese people are not at fault; it's the policy of the Chinese government that is causing these tensions, and it's really time to address it now. Now's the time, because if they become bigger, which they will in the next 20 years, you won't have that leverage anymore.

Remember, the stick is what they appreciate. The stick is what they want. The stick is what will work.

The stick is generally associated with sanctions. I don't believe that China wants sanctions, but it sounds like that's what you're advocating.

No, I'm just beyond sanctions. I want to take them right out of the financial system in North America. They don't get access to it. It's that simple. Alibaba, Nio, expand, delist. Sure. You know the economy is so large and there's so many other places to deploy capital in those markets. It'll find a way. Or if you insist, you can simply go buy those shares on the Hong Kong exchange or whatever exchange it is. But it'll make it much harder for compliant institutions in the U.S. to do business with them.

And also, you know, frankly, that stick will really put some pressure on them to solve the problem. My assumption is you have a few rough quarters when you do this, you implement it. But then we get to what we want: a really cordial discussion with them about leveling the playing field. America can compete; China can compete. Just level the playing field and let the competition begin. But don't keep it in this unbalanced football field where it's so unfair for other economies that don't get access to the Chinese economy. If they want to play with the big boys, they've got to play with a level playing field. And if it takes a little pressure to get them there, that's okay. The stick works.

Now, what do you think about Tesla? Tesla's one of the first manufacturers in China, U.S. manufacturers in China, many ownership in their company. Do you think that this maybe sets a precedent for maybe there is a nice way to play with China? Maybe we just got to do the Elon Musk way?

Yeah, absolutely. I mean, that is the right direction to go into partnership to actually have access to their middle class and sell cars to them. Why not? Elon Musk is a maverick in terms of what he does. He doesn't play by the rules, obviously, but he's actually a good way—a good designer of how this relationship should work. If American companies, if Boeing wanted to go to China and build planes there, they shouldn't have to give up control of their IP to do that.

And that would help the Chinese economy. If you know, think about all the technology they can actually provide for that growing economy in a partnership way. I don't know why they're not discussing that, but that's the kind of potential that we could have across all kinds of different technologies. And also, when it comes to pandemics, you really have to ask yourself why so many of these originate in China. I'm not pointing fingers; I'm just saying if we're more cooperative on biotechnology, we could stop them in their tracks and save billions of dollars, millions of lives, and be cooperative on that basis.

Again, the stick is the way to go.

Do you believe that the Biden administration will change anything over the next four to eight years?

I think the Biden administration is focusing on what they said in terms of their mandate to get every American vaccinated that wants the vaccine, and we're in the throes of that. We're probably in the sixth inning. They've done very well in their execution of a bit of a setback today on the J&J vaccine, but that doesn't mean we can't keep going. We've still got two other alternatives. American ingenuity and technology brought these new medicines out of Moderna and Pfizer, and that's tremendous.

But at the end of the day, that's the focus of the administration. When that's over with, then the infrastructure package comes, and somewhere along the line, he's going to have to address China. Now, I'm glad to see he did not take off the tariffs that were put on and hard won from the last administration. Like them or not like them, the policy was very, very good for the American economy to start pushing back on China. But I think he can use that and continue to leverage it.

But, you know, at the end of the day, the Chinese are very, very good at playing one administration off against the other because their leadership is for life. That's not how the American economy works. You get these four to eight year cycles, and they've learned how to play that ball. They'll immediately say, let's have a meeting, let's get together, let's talk about our future together as friends, and nothing will happen.

You've got to go to that meeting with a stick.

Wow, wow.

So, I want to go back to something you mentioned earlier: was this digitization of our economy. There are a lot of folks very excited about investing in recovery stocks, which obviously have done phenomenally since the election—the recovery of even Macy's, the Nordstroms, and the airlines. What's your take? I mean, is this a sector that you stay away from? Is it a value trap, like Cathie Wood says? What's your take?

No. These are not stay-at-home stocks anymore. These are work-from-anywhere stocks. And so what you're starting to see happen up and down the S&P 500 is that companies are realizing people that work in accounting, compliance, or logistics who used to work in cubicles at HQ do not want to return to those cubicles anymore.

And that represents about 15 percent of the workforce. They're asking for more flexibility in lifestyle. Maybe they're raising elderly parents; maybe they're raising children. They don't want to do the commute. But whatever reason it is, we now have proven technology that allows them to work efficiently and productively from their homes. And so you're going to start to see these stocks become the bellwethers of the new generation of digitization.

They're the ones that have allowed a global, you know, move to e-commerce, and it's not just domestically. Zoom, for example, CrowdStrike, DocuSign, Adobe, Microsoft licenses, Shopify—these are all the tools that are used to digitize America. Whether you're Nike or whether you're a small business around the corner. And companies like Facebook allow for geo-locked advertising. There's so much of this technology that was put to work over the last year that's proven to be very, very productive and in a way will change the cost structure of the American economy to the positive.

Give you an example: you don't have to fly to Bentonville anymore and spend two days to meet the buyer at Walmart, the world's largest retailer. You can do it on a Zoom call, get 18 minutes, and the buyer themselves are 20 or 30 percent more productive, and you save thousands of dollars in business travel.

Now, it's not good news for the airlines because even though they're coming back, it's all basically vacation tickets. So 248 dollars was the average ticket last week, including the return travel. That means everybody's going to Disneyland in a big tube. That's a very crappy business. They won't make any money, and as a result of that, those airlines over the next two years, probably a couple of them have to go bankrupt and consolidate capacity. Because business travel is permanently impaired by maybe 15-20 percent. But there's nothing wrong with airlines going bankrupt. They're very good at it. They do it every 10 years. And they reduce capacity.

And that's what the Fed is worried about—all the people are displaced. We're highly trained employees. We've got to find a way to redeploy them. Maybe it's going to be cloud kitchens. Maybe it's going to be pick-and-pack storage. Maybe it's going to be all kinds of new digital reasons to exist in the new digitized America 2.0. But we've got to find them jobs.

Wow, wow.

So, of airlines that could go bankrupt, any particular ones you look at? Or are you looking at the most highly leveraged ones? Or do you think a company like Spirit could be the one that wins because they don't cater so much to business and they cater more towards the Disneyland traveler?

Well, all the balance sheets are upside down, and a combination of loans from the government and debt they went and raised on their own in the open markets. The Fed kept the debt markets liquid, so the deterioration of even one of the strongest companies in the airline industry, Boeing, that balance sheet has been decimated. There's billions and billions and billions of dollars of debt on it.

Now I'm not saying Boeing will suffer the slings and arrows of the operators because they're one of the companies in the world that makes airlines, and we do need them. But the airline industry itself has gone through a massive change, really. It's just a bus now—a bus to move people around to their vacation destinations. The business travel component, while everybody's so up, you know, optimistic about it, I don't see it coming back. A lot of it will, but not a hundred percent. And that 15-20 percent was where all the profit was.

When you paid, you know, five thousand dollars for a trip to Europe on a business class or first-class seat, nobody needs to do that anymore. So you go there for a vacation, and you do it for 999 dollars. The airline makes virtually no money doing that. They're just filling up tubes. It's a miserable business. But that's okay; you know, you've got 11 sectors in the economy. You don't have to focus on the losers; you can focus on the winners.

And the winners sound like you had mentioned sound like the Adobes, the Facebooks, the Microsofts, huh?

Yeah, I think technology is a good bet and will be. It's got volatility, but people say to me, "Oh, it's over for the, you know, the Zoom stocks and the Shopify's." No, it isn't. It's in their second inning. It's hilarious if you look at the volatility of Amazon over the last 20 years. You would have never owned it. It's so volatile. Some years it goes down 38 percent. But in the long run, it's created a trillion dollars' worth of value for shareholders.

The same thing is going to happen to these economies and these stocks that are going to provide digitization. Another sector which I really believe in now is healthcare. I think we're going to domesticate all of drug manufacturing, hazmat materials, medical devices to Puerto Rico, to Canada, to Mexico, to North America, so that we're not beheld to the Chinese when it comes to a pandemic.

Because we don't know what COVID-20, 21, and 22 are or when they're going to come, but there will come. There's no question about it. And we need to be ready for that. And, obviously, use our technology to protect us in a way we hadn't thought of before. So that's another one. And the consumer, whenever you sprinkle 1.9 trillion free dollars out of a helicopter—just throw it down at people for free—the consumer spends it. So I think they're going to be very, very strong in the next year, year and a half.

So I like those sectors over, let's say, energy or airlines or anything else, frankly.

Got it. Now, Biden, you know, localizing production—that's a big priority of Biden. For example, even with auto manufacturing, he wants to use American unions to build vehicles in America. What's the possibility though that using American labor just ends up shooting prices sky-high, and then people have to default to Chinese or Japanese-made vehicles?

Yeah, that is a big problem. Biden is in a bit of a pressure squeeze on that one. You know, it's great. The only way to make the American economy self-reliant, sustainable long-term is to make the economy competitive globally so that all people that want to invest in corporations from all countries and all jurisdictions come to America like they do to Vietnam, like they did to China, like they do to Asia and Singapore.

Because those economies are very productive, very low taxes, extremely high growth, and have very good domestic markets as well. So the problem he's got is, you know, the rhetoric from the left side of his party to tax the rich and take all the money away from people and disincentivize entrepreneurship in America is not a good model. Because that's not going to get people saying, "Gee, I can't wait to invest in America," the highest corporate tax rate in the world. That's just not going to happen.

And so I think that debate even within his own party is going to be very tough. Now, what happens? Because I'm a bit of a policy wonk, midterm elections are a bit of a problem for Biden because every incumbent, every incumbent, regardless of party, loses seats in the midterm. It just happens that way.

So he's on this really delicate razor wire balance given that he's sort of got, you know, the ability to do this if every one of his party members agrees. And that means he has to get it jammed through in less than 24 months. I don't think it's going to be that easy. I think it's going to be hard-fought. I think he's going to lose seats—he probably knows it—so it's better to come in with a more moderate, middle-of-the-road strategy and leave the massive tax hikes for afterwards. You know, at some point after the economy is running at full throttle, back to unemployment under four percent like it was pre-pandemic. And I think that's a ways off.

So I think you've got a really interesting political scenario coming, but if all of a sudden he jams up corporate tax rates to global highs, the economy just sputters out. That's what will happen.

Wow. Tell me about this. So you actually think despite us stimulating as much as we are, just that corporate tax increase could be enough to sputter out the economy? Could you define that a little bit? What are you saying?

Sure, it's a very simple equation. You're pouring free money out of the sky from a helicopter into anywhere you can stuff it, okay? But then you're raising taxes, so you're taking it back right away before it doesn't have a chance to have any effect whatsoever. You're asking people to pay more tax and corporations to pay more tax. What was the point of the free money then? I mean, that made no sense.

You're basically letting it fall out of the helicopter and immediately the tax man grabs it before it does anything. So that really makes—you can't suck and blow at the same time. It doesn't make any sense, and that's really the bottom line—that's the problem he's got. Because corporations don’t have feelings; they don’t have emotions. They can move overnight. People tend not to want to leave their families.

So maybe the U.S. has to start considering what the Europeans did: a value-added tax that taxes usage but doesn't tax, necessarily, corporations. Frankly, in some ways, the Nordic model works better—the Swiss model—where there's basically no corporate tax. They just tax people. And so much competition for capital goes into those countries to set up businesses to service, you know, Europe and Asia from countries with no corp or low corporate taxes.

And the people pay the VAT tax. I think there'll be a lot of dialogue about this. But just raising corporate taxes is going to be very detrimental.

Yeah, it does sound like in order for Biden to even get his 50 votes, it does sound like he'll probably have to compromise down to like a 24 or 25 percent. If he ends up going for that corporate tax, Bush, do you think if he goes for it, there'll be some kind of compromise? Or where's your take on that?

I think he's a good president for the times in the sense that he seems to want to be more of the—I mean, America could use a boring president for a while. It was just too exciting with the last administration. But I'm not being critical; their policies were right on.

And so, you know, I think Biden now is trying to be the oldest, the old-style leader where he believes in compromise on both sides. Now, I don't think the country is in that mood anymore. You've got some very, very divisive policies on either side of the aisle. It may be very hard to get that love and feeling back. And I'm not sure it'll happen. You'll get some indication of it in the midterms, which aren't that far away.

But there's a lot of seats up for grabs. There's a lot of aggressive tone in both parties. And, you know, in Biden's case, he's got to try and stay a moderate even though he's got some very, very aggressive, almost socialist pressures coming at him. And the same for the Republicans, who have some extreme right-wing views that they've got to somehow consolidate. So I think politics is getting really interesting.

Yeah, I want to go back to something you mentioned about airlines and hiring people and getting back to this max employment. I got to thinking what happens when you get even the tech firms who have laid off tens of thousands of individuals during the pandemic? What happens when they go to rehire, but let's say they laid off 20,000 and they go back and just rehire the best 5,000?

Right?

And now, like you mentioned, they don't have to travel anymore, so we need less people traveling. We need less salespeople because one person can do the work on Zoom that five people did before in sales. What happens to all of those other people? And is that just really good for the tech companies for the bottom line?

And what happens to all those people? Where do they go?

It's a great question, but it goes back to the old analogy that's used so often: everybody thought television would destroy radio, and radio is bigger than it's ever been. And so what happens is the economy evolves and creates new jobs. And I'll give you an example. Well, I do a lot of guest lecturing to graduating cohorts of engineers, because generally a third of those classes—I don't care whether you're mechanical, robotic, chemical, whatever—are going to start companies, and I like to be there for them as an investor.

And what I find that's so intriguing is I used to say, look, if you're going to get yourself 180,000 in debt in college for a graduate and postgraduate degree, pick a discipline that's going to let you pay it back. And the top three are engineering, engineering, and engineering. And if you have any time at night, take some engineering classes.

That's what I used to say. I don't say that anymore. Because in my own portfolio of over 35 companies, I look at my number one growth expense in the last 18 months has been hiring artists, writers, videographers, animators—all of the people that have digitized the websites of all of these different companies. And they used to be dirt cheap.

There are no starving artists anymore. They're not starving. They're getting salaries of over a quarter million dollars a year if they're any good, because they can tell the story and digitize the service or product online and entice customer acquisition. And so there's a whole new dynamic to the economy that we never could foresee. So I'm not worried about it—good employees will get hired in a growing economy. You just don't want to kill the golden goose. And the way you kill it is you over-tax it.

Wow. So what do you say to people who maybe have lost their jobs? Is it a matter of retooling and reskilling? Is it a matter of waiting for that unemployment to run out? What do you say to folks?

It really makes a lot of sense to go back to what you were good at when you were younger. Let's say you're in your 40s, you've lost your job. If you actually were a good writer, a photographer, videographer, editor, those are skills that are highly valued by this digital economy. And so it's a retraining exercise. There's lots of online courses that show you actually how to use Facebook, Instagram, LinkedIn, so you can become an added value to a company that's trying to use those platforms.

And so I always say to people, look, if you don't know how to use social media, train on it so that you can show others how to do it. People will pay you to help them build up traffic on their website. This sounds like such a basic thesis, but it's so true today.

Yeah. Yeah, what's your take on universal basic income? Is that going to be something that we need as sort of this wealth gap continues to widen?

I don't think it works. I think we have a form of it right now with stimulus checks flying in from the sky, even to people that are employed. That really never made any sense to me. It would have been better to give those dollars to people that were actually unemployed for longer while they found new work.

But, you know, that's a very blunt instrument. That's just another form of taxation. I don't think it works. I think a social net can be—there are different models. You can see what the Nordics do, the Swiss. They do provide a social net for people that are, you know, poor people in the lower class so they don't suffer. That's very important.

But the idea that you have—it's almost worth reading Ayn Rand, you know, "Atlas Shrugged," where you get this idea of can you get half the economy to pay for the other half in perpetuity? Probably not. And that's, you know, I haven't found a country where that's been successful long term. You know, the Soviet Union collapsed. Cuba—I wouldn't want to live there. Venezuela—no thanks, and they attempt that kind of thing. It just doesn't work.

Wow, wow. Gotcha! So, on the note of the wealth gap, there's a big crisis essentially happening in real estate, where real estate is becoming increasingly unaffordable. And it seems to be the competition of the haves versus the have-nots. I know you have some pretty strong arguments about commercial real estate and transformations there. I want to start, though, with residential. What do people do? Do people buy a house today, or do they just invest in stocks and forget about real estate?

Well, real estate falls into two large asset classes, and I've been participating in both for a long time. Commercial real estate is nowhere near as safe and buoyant as residential. Obviously, if you've got companies saying that 15 percent of their staff are going to work from home, that favors residential real estate way over commercial.

Because if you had an office tower in Boston and all of a sudden—I'm seeing this happen every day—my lawyers are cutting out 33 percent of their floor space and, you know, out of their corporate headquarters because a lot of their staff don't want to return to the office anymore, and so that puts pressure on the value of AAA office.

So let's say it was trading at a 4.2 cap, which is basically 4.2 percent yield. I think by the time this is all over, it'll be trading at a six percent cap, a six percent yield, because it's going to be harder to find tenants that want to take long-term leases, and that's a lot of loss of value. So I've reduced my exposure to commercial real estate from 31 percent of my portfolio down to eight, and I've increased my holdings in residential because I see for the next two years a continued buoyancy in housing pricing.

The ability to buy homes and rent them—most people in America want to live and work at home if they could. And, you know, it's not 24/7 there, but they'd like the ability to stay home a few days a week and work, you know, and maybe go into the office once a week or once a month or once a quarter, whatever it is. That flexibility is what's pushing the value of residential real estate up.

I do not see that trend ending. It also gives new geographies. You know, if you don't want to live in San Francisco and you want to live in Seattle, but your main job is in San Francisco, you can do that now. There are ways to do that, and you know, maybe you travel quarterly just to HQ or, you know, basically that kind of flexibility. And even my own organization, my holding company, most of my staff have indicated they have no interest in going back nine to five to the office anymore.

We've proven over the last year we can work independently and very successfully, and we're making that change now.

You went from 31 commercial to 8 because you see cap rates going up, so the risk premium is going up. Why not go to zero?

Well, unfortunately, real estate has one attribute that has never changed: it's relatively illiquid, people. It's not like a stock you can buy and sell during the day. Real estate has very large transaction costs associated with it. Sometimes the building may be in construction and has not been stabilized, for example. That's one reason you wouldn't sell it, because it's at a diminished value.

There are all kinds of reasons. It's hard to get to zero because there just isn't enough liquidity. And also, different asset classes have to be treated differently. I mean, a hotel in Boston may be more valuable than an office space because there's not a lot of hotel square footage right now there. So I look at it that way. I've got a great team that manages my real estate portfolio.

We've determined that, you know, we're at a point now where there's no reason to sell the last eight percent. We're going to wait 36 months and see what happens. But that's a significant reduction in exposure, and now I have a very, very large cash position to redeploy. We try on average to distribute six percent from our operating company a year, so that I'm really challenged. I can't use fixed income to get six percent without taking inordinate risk. So it really favors the work I'm doing in equities and finding companies—private companies where I can take significant positions in, um, and that are cash flow positive.

And that's, you know, why I do what I do. Making six percent year in, year out may sound easy, but it's not.

Right, right. Absolutely. Now, what do you believe that there's going to be an opportunity to rotate back into commercial? Do you want to be a part of that? I've heard you talk about maybe a transition of shopping malls into—I think you mentioned this rumor that shopping malls might turn into offices because people don't want to go into elevators anymore.

It's not a rumor; that's starting to happen. They have ample parking. You are on a single floor, and you can set up offices in 200 square foot shops that used to be retail. I'll give you an example of my thinking on it. Let's think about one of my big customers for my consumer goods companies, Bed Bath and Beyond. They closed 200 stores last year—200—and they were so the anchor tenants of many, many B-grade malls across America.

They have no interest in using those again because their online direct-to-consumer sales are up 76 percent. So their business remains intact; they curate consumer goods: oils, scents, candles, sheets, towels, you name it. It's a very successful model and brand in that respect, but they don't need those stores. And so what's going to happen to those stores? The most likely outcome would be, let's say they traded at a five cap before when they were fully utilized, fully stabilized, and the tenant was Bed Bath and Beyond. Now they're empty.

Maybe somebody comes along and says, for two million dollars a building, I can turn it into a cloud kitchen for all of the local food delivery services, or I can turn it into a climate-controlled pick-and-pack facility for an online retailer, or I can turn it into residential condos. But it's going to require capital, and so the cap rate probably goes up to seven, seven and a half percent while plans to redeploy capital switch it out to something profitable again.

That's a time when I probably get involved, so I might go to the debt side, provide construction financing or modification financing. I think I could probably get nine, ten percent for that. Maybe it's less; we'll have to see how much demand there is. Or I may decide to take an equity position in a company that does that kind of conversion—who knows? But those are the kind of things my team is looking at now.

Makes sense. It also sounds like you probably wouldn't want to be spearheading any of those kind of renovations, dealing with the cities, huh?

No, I think what's going to occur is because a climate-controlled pick-and-pack facility or storage facility employs very few people and is highly profitable, but it doesn't employ anybody. You can run a giant facility of climate-controlled storage with 12 people instead of 1200.

And so I think the politicians there will not favor that kind of conversion and not allow building permits. So I think it's a very long, drawn-out, arduous, difficult conversion cycle. And frankly, I find many other opportunities more interesting right now than going through all that because I've been involved in that business for decades.

And so, you know, construction financing, permits, local politicians, yadda, yadda. At some point, you tire from that, and you want something that's a little more productive.

Yeah, no kidding.

Gamestop: this is something very similar. What are your thoughts on Gamestop? Is it going to a thousand, or is it going to zero?

Well, you know, Gamestop went through, as everybody knows, a really interesting iteration. Its brand as a result of what occurred over the last five months is worldwide. The IP of Gamestop, the actual brand itself, has way more value today than it had five months ago before it became in every, you know, became part of every headline around the world day after day, as you know, the vigilantes or the Reddit crowd or the Robinhood crowd, whatever you want to call it—the democratization of stock trading.

So you recently saw they're going out to raise capital. The analogy is Netflix, I guess, saw the writing on the wall when they were mailing CDs to everybody and said, "We're going to digitize this." And they had a brand. Maybe Gamestop can do the same thing. Maybe they can provide added services. They've got all these retail locations. Maybe they can have, you know, classes in a setting where people want to spend time with each other in those stores—1,200 square feet, 1,700 of them.

I don't know what the outcome will be, but if I was short that stock right now, I'd be worried. And I'm not sure and then because I think it's going to get a second kick at life. I think that some very smart people probably see what I see in the IP being worth something and this whole social constituency supporting it. The pricing of the stock is kind of irrelevant at this point, but if you're short, you're really hurting.

Yeah, yeah. No kidding. No kidding.

Just because the long run hasn't really been priced in yet because we don't really know, and the upside is limitless.

So, I want to, if they go back for a moment to somebody just starting out—let's say they've gone 20,000 to 30,000. Do they try to buy a one-bedroom house or condo, or do they go all in on index funds or iShares, or, you know, do they just YOLO it all into Tesla? What's your take there?

Well, I have a rule that my mother taught me decades ago that served me well in all the volatility I experienced as an investor from my early 20s on—a simple rule. Let's talk about the market first. Never let one stock become more than five percent of your portfolio, and never let a sector, of which there are 11 sectors in the American economy—like, you know, real estate's now a sector, technology, healthcare—they're all sectors. Never let the sector become more than 20 percent of the portfolio.

And that gives you diversification, which is very important to be able to survive volatility in a market. When you make a big bet and you let Tesla become 80 percent of your net worth, and should it correct—a lot of people learned that the hard way in the dot-com era—they had stocks like pets.com that went to zero, that kind of thing.

But if you have diversification, you don't have that problem because the likelihood that everything goes to zero is much lower. Regarding housing, you have to understand something about housing: you really can't buy a house for twenty-five thousand dollars. So what it means is that you're going to take on debt. And so mortgages are most people's largest obligation in their lives, and their largest asset is their home.

There are periods in time when prices of housing correct, and you're underwater—in other words, you don't have any equity anymore because you owe more than the house is worth. And so sometimes the best thing to do is to say, I'm going to be a renter until I can actually afford a mortgage, even if the market corrects. And that may be a better discipline because the truth about retirement, if you have the average salary in America—$56,000—it might be better to simply put aside a hundred dollars a week, put it into an ETF, an index ETF.

The market has given, over a long, over a 100-year period, somewhere between six and a half and nine percent return on average long term. Some years are down; some years are up. There is volatility. But the point is, at the end of the day, that has ended up being the way you retire with over a million and a half dollars.

But you have to have the discipline of putting aside a hundred dollars a week. And there's so many different apps you can use to do this now. It's not like it's hard to do. What's hard to do is change your behavior because most people spend everything they make and more, and then they end up in debt. But it would really be—you got to remember something: when you put $100 into an index fund, that's in your name. That money's for you; it's not for anybody else. You're building your own future, which I think is a good way to look at it.

Yeah, well, a big thing that we hear a lot about right now is this having an emergency fund, having that six-month emergency fund. Something that I found is a lot of people, they'll save up that cash, they'll build up that six-month emergency fund, but before you know it, vacation time comes up, and oh, we'll just borrow from the emergency fund, and we'll just repay it because, I mean, whatever. We'd like—why not? You know?

And then what happens is nobody ends up ever investing. What's— I mean, is a hundred bucks a week going to do it?

It's the minimum. If you can put 400 bucks aside, which is actually doable with your average salary of $56,000, it's the minimum. Obviously, you should do more. Simple way to look at it is take ten percent of your paycheck and put that away and never hit it. Do not touch it. Obviously, I understand medical emergencies and everything else.

But the truth is when you take money and burn it on a vacation or buy some useless piece of crap you're never going to use—which many people are guilty of, including me—you've actually—you're killed off your future. That's money's not working for you anymore.

So do you really need another pair of jeans? Another pair of shoes? Just look at your closet of all the crap you don't wear. That's all money you wasted. The truth is most people wear, you know, maybe a dozen different things they have even though they have 30 of something. That's what my mother taught me. She said, "Buy few things but buy really good things when you buy them that last." And I— that's the philosophy I have in everything from watches to clothing.

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