Confronting Humphrey Yang About ‘Diary of a CEO’ | Financial Advisors React

0:01This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+.

0:26Humphrey Yang:Chronic migraine is 15 or more headache days a month, each lasting four hours or more. Botox, onabotulinum toxin A, prevents headaches in adults with chronic migraine before they start. It's not for those with 14 or fewer headache days a month. It prevents on average eight to nine headache days a month versus six to seven for placebo. Prescription Botox is injected by your doctor. Effects of Botox may spread hours to weeks after injection causing serious symptoms. Alert your doctor right away as difficulty swallowing, speaking, breathing, eye problems, or muscle weakness can be signs of a life-threatening condition.

0:56Humphrey Yang:Patients with these conditions before injection or at highest risk. Side effects may include allergic reactions, neck and injection site pain, fatigue and headache. Allergic reactions can include rash, welts, asthma symptoms and dizziness. Don't receive Botox if there's a skin infection. Tell your doctor your medical history, muscle or nerve conditions including ALS Lou Gehrig's disease, myasthenia gravis or Lambert-Eaton syndrome and medications including botulinum toxins as these may increase the risk of serious side effects. Why wait? Ask your doctor, visit BotoxChronicMigraine.com or call 1-800-44-BOTOX to learn more.

1:26Humphrey Yang:Behind the scenes, Stephen Bartlett has a tablet in front of him, but he's also just on ChatGPT. Maybe I shouldn't have said that. The only way you make money is for somebody to pay more than you paid. I would be careful of listening to people on the internet say that the only way to generate wealth is through a speculative asset. Housing's different because you can endlessly create more housing. Well, that doesn't pass the sniff test. There's always going to be hard stuff. You have to figure out how you can pull yourself out. Content team's been busy, had a great opportunity. We already have Humphrey Yang on the show, but better yet, Humphrey was just on the diary of a CEO.

2:01Humphrey Yang:We were like, let's do a react to see what we think. Brent, I am so excited about this. Humphrey, thank you for being with us today. I can't wait to hear a little bit behind the scenes, and I can't wait to see what clips the team has pulled for us today. I can't wait either. Should people be actively investing, or should they just put the money in an S &P 500 and be patient? I say most people should not be active investors. In fact, I say 98 % of America should not be active investors. Just be a passive investor because if you don't want to put in the work, if you're not willing to put in the time and the effort to research, you're probably going to lose.

2:34Humphrey Yang:And many people do. So why do people want to be active investors if the probability is stacked against them? Well, if you get a little bit better returns, if you're willing to put in the work, you can get better returns. And it is possible. We do see people that are doing it consistently. Is there an element of fun and entertainment? Absolutely. Absolutely. People like sports betting. That's the problem. Because the fun is I like researching versus, oh, I want to see my money go up tomorrow. If I buy a house tomorrow morning, am I going to go into Zillow in the afternoon and check what is my house price?

3:05Humphrey Yang:Am I checking in the evening what's my house price? No, because you know that this is something I want to own for the long term. Well, when I go into the stock market, because it's so liquid, I buy a stock in the morning. I'm checking it 15 minutes later. I'm checking at lunch. I'm checking in the bathroom, checking in the evening. and I'm getting anxiety because if it's going up or down, I'm very emotional. And that's that emotional control as an investor, which is just as important as the research that you're putting in. See, I fundamentally differ on all of this stuff. What a cliffhanger. I fundamentally differ because I was kind of right along with him.

3:38I loved everything that he was saying. And I agree with 98 % of everything that he just said.

3:44Humphrey Yang:We've heard, that was minority mindset, right? I can't remember his name. I would be like, preach. You know, man, I wish I'd have gotten to go first. You know, these are the things I'd be saying because a lot of that stuff is spot on. The markets are so efficient. You know, just be passive. No, I really loved what he said. I mean, it's really true. You know, you buy a house, you're not checking the value of it on Zillow basically ever. Maybe you check it once a year or, you know, whatever, once every five years. But with a stock, since it's so liquid, that's a pro and con, right? You could buy and sell it at any time.

4:12Humphrey Yang:So liquidity is nice, but then you're checking it all the time. I'll give you a little bit of color on that scene and behind the scenes, Stephen Bartlett has a tablet in front of him. Okay. And he's going over show notes, like all the questions that he wants to ask, but he's also just on ChatGPT a lot. Sorry, Stephen. Oh, interesting. But yeah, but ChatGPT helps him, maybe I shouldn't have said that, but ChatGPT helps inform, I know, you know what, Stephen does use ChatGPT a lot and he has it in his Behind the Diary video channel, so I know that I can probably say that. And so he's usually researching stuff on ChatGPT while guests are talking.

4:44It's pretty impressive that he can do that in interview format while he's doing that. That's an impressive skill set. I'll tell you the one thing that Jaspreet said that I would just maybe just tinge a little bit. He said that, hey, unless you're willing to put in the time, you shouldn't be an active investor. Well, he almost laid it next to, if you're willing to put in the time to be an active investor, you could be successful. I would argue, even that's not the case. Even if you're willing to put in the time, I'm going to spend 40, 50, 60 hours every single week trying to go out and beat the market, I would still argue there is a low probability that you'll actually be able to do it.

5:16And so if you want to set yourself up on the side of probabilities, where will I likely have the most success? Being a passive investor, not trying to beat the market, but just trying to be the market will likely set you up for more success, whether you're willing to put the time in on research or not.

5:33Humphrey Yang:Yeah, just go check out the SPIVA data. Yeah, I made a video on the SPIVA data. The SPIVA data is great. SPIVA. That's another acronym, guys. See, I fundamentally differ on all of this stuff is people are so screwed. They are coming out of university with massive debts. We looked at the stat earlier. Percentage of 30-year-olds who have a mortgage and a married has gone from 52 % in 1950 to 12%. Nobody can afford anything. So if you look at the average millennial in the US and a Gen Z, they generally have a 401k if they've got a job, right? They have some sort of savings. But they're taking massive amounts of risk.

6:14Humphrey Yang:A lot of us would look at them and say, this is ridiculous. Why are they taking risk for anyone that doesn't? Because there is no way of closing the gap between buying, getting the deposit on the house, getting into a house, realizing that future vision of themselves. However reasonable that is. Why? It's so far away because the cost of assets has gone up so much versus the incomes don't go up. You mean the cost of buying like a house, for example? Yes. Or even however much percentage share of the stock market the average salary does, you know, stuff like that, that you're getting less for your money.

6:44Humphrey Yang:Yeah, I do want to point out one thing about the statistic that he led with there, which was like the people that the percentage of people that were mortgaged and married from 1970 until now. I think that data set in particular had both of those variables combined together. We already know that people aren't getting married as early as they once were. So that number is already kind of pulled down. It's exaggeratedly skewed to the downside, I would say. So that is the one note I want to say about that. And I don't want to disagree with his premise that things are getting more expensive. Student loans are higher now than they have been historically.

7:16The cost of housing is higher now than it has been historically. What I cannot reconcile is the way he started the clip was, I fundamentally disagree with everything Jaspreet said. Here are some truths that exist in this world. What he didn't say is why what Jaspreet said does not actually align with why you need to be taking being an investor and passively invested seriously, because the cost of things have been increasing and are likely going to continue to increase for the next 20, 30, 40 years. So you better be doing something to combat that.

7:44Humphrey Yang:Look, historically, if you go look at the FRED data, the Federal Reserve, the typical American, even in those periods he's talking about, were not investing hardly anything. You can't use just history because people only had really assets from their home equity, not from S &P 500 investing and all the other type of things. I worry when somebody uses the shock and awe stats that he used, that it's going to turn off an entire generation. This will probably create some comments and some dust from it, but I put it in the book, Villains and victims never win. And I don't want you to look at yourself as a victim.

8:20Humphrey Yang:Yes, there are some hard things that are coming your way, but I just know there's always going to be hard things that are coming your way. You can't control that. You can only take what you can control and try to make the best of the situation. And the best you can make of the situation is we have a growing economy with law of accelerating returns where things are getting faster and faster with innovation that you can actually buy a small portion of that success, actually own assets that are going to appreciate faster than inflation, and you can pull yourself out. I did it. Bo did it. Humphrey did it.

8:54Humphrey Yang:We can all do this. Just don't let somebody lock you into a mindset of behavior that you're not going to ever get out of this because I can tell you statistically, there's always going to be a bell curve. You get to choose where you want to be in that bell curve of success because everybody else in your generation is facing the exact same thing. Figure out how you're going to pull yourself out of this. And I know a lot of you, you're going to say, Brian, you don't understand. I'm just telling you there's always going to be hard stuff. You have to figure out how you can pull yourself out. Yeah, I like that.

9:27Humphrey Yang:I think that his main premise is like you're never going to close the gaps. You might as well take a really big swing. And I just don't. I fundamentally disagree with that. He's setting us up is what you're saying. To go one hard way, you have to set up an extreme over here. I get it. I mean, people do that stuff in negotiations all the time. Go way over here so you can go over here with the next premise he's going to present to us. If we look at the crashes from recent history, 2020, stocks fell by 30%. Bitcoin fell by 50%. 2022, stocks fell by, the S &P fell by about 20%. Bitcoin fell by 60%.

10:02Humphrey Yang:So in those times, people who are in the S &P are freaking out, selling. Yeah, but here's the thing. This is the risk reward that people don't understand. If you've got a time horizon, let's say the average drawdown in the S &P during a bear market is 25%. A drawdown being a drop. A lot. Yeah, a drop in prices. You're getting compensated 15 % a year returns for that, at best. In Bitcoin, the average drawdown over the same period will be about 70%, but you're getting 150 % return. If you're on the winning side, though. if I buy it and I can sell it for a higher price. Just hold it. I know you guys have a lot of takes on cryptocurrency, but his main premise is Bitcoin, since its inception, has returned about 150 % per year.

10:49Humphrey Yang:But I think my argument on the podcast itself was people aren't going to hold through a 70 % drawdown. They're out pretty quickly. If I can't hold Apple stock through a 10 % drawdown and I have the knowledge about investing and I get scared at 10%, I don't know if I could hold it. I mean, I would probably hold it 70 % because it's like I can't lose that much more, but could I hold it for 15 years? Or if it was up double, wouldn't I just sell it at that point? If you think about the undulations they described in the stock market, a 25 % drawdown, and they didn't talk about an upside, but let's say it's a 30, 40, 50 % upside potential, right?

11:25On that same sort of undulation scale. And then you have Bitcoin, that's a 70 % drawdown, 150. When you lengthen the distance between the trough and the peak, you have more opportunity to make a bad decision along that. So what you're doing with the S &P 500, you're actually like banding down both of those. That's going to be a much more consistent, much more stable ride for most investors. Because I agree with you. Most investors are likely to freak out on one side or the other. I'm either going to lose 50 % and I can't handle anymore. I'm going to make 100%. I'm going to get out while I can.

11:55At least when you buy the stock market, when you're buying the S &P 500, you recognize, yeah, that yo-yo is going up and down, but it's going up and down, steadily up the mountain, higher, higher, higher, higher. And we have 100 years of data to substantiate that claim that it is building, it is expanding, companies are becoming more valuable, there is innovation happening. Those things are not necessarily true about cryptocurrency.

12:19Humphrey Yang:Just last week, I was responding to an ex-post where somebody had said, they used a rate of return assumption that said that Bitcoin was better than 401ks, But when you looked at the data, it's because they were using a 30 % annual year over year growth rate versus the S &P, which is around 10 to 12%. They were saying, look, even with the free money from your employer, it's not going to keep up with 30%. I was like, man, that 30 % assumption is doing a lot of heavy lifting. Because Bitcoin, look, I'm not trying to get into is it good or bad? Because I just don't think, but there is, it is one of those things.

12:52Humphrey Yang:It's just like gold and the fact that the only way you make money is for somebody to pay more than you paid on it. It's not like it generates dividends. It doesn't generate income. It doesn't innovate. It's only going to be if somebody pays more. Be careful with that framing. Just hold it. That's the key. All of these are in a nice trend channel. They go up. Anybody can buy something and hold it long enough. It'll go up. Well, what about let's look at housing? We can say the same thing about housing. 2008 housing crashed. Just hold it. I have too much debt. I'm underwater. Why are my banks taking it from me?

13:23Humphrey Yang:People are buying Bitcoin with debt. Yeah, I mean, I would not recommend that. But housing's different because you can endlessly create more housing. And we have a demographic problem in housing that makes it more complicated. Demographic problem is, A, everyone's leaving the cities now. B, the generational gap. Maybe we can afford the boomer houses. We don't have enough cheap housing for young people. People are relocating, moving around. So we've got a very interesting mismatch in real estate now that makes it more complicated than it used to be. Absolutely. And I do want to say, I think the part that we fundamentally differ is not that there's value in crypto.

13:59Humphrey Yang:I own crypto. But the difference between you and I is you are all in crypto. For me, it's a speculative piece of my portfolio. I have a lot of friends and a lot of people I interact with that they own crypto. They have positions in crypto. And I'm not going to fight them on that no differently than I would fight someone who wanted to have an allocation to gold or to silver or whatever. Collectibles or wine. Yeah, exactly. But to go all in on it, I would have the same reaction as someone else who is all in on collectibles or wine or gold. I just don't know that's the prudent way to build for a financial future.

14:32Humphrey Yang:What do you think about what he said about the housing and how there's no more housing or we can create infinite housing or something like that? Well, that doesn't pass the sniff test. I don't think we can create infinite housing in a lot of areas. That's not something that is possible to do. And I don't think that what housing does and comparing housing as an asset class relative to Bitcoin as a holder of value is necessarily the same thing. Because one is a use asset. One is theoretically an investment asset. So I think you're mixing and comparing those. It was interesting. Their conversation started on real estate and then went to housing, which housing does not represent all of real estate.

15:06Those are even two separate things that I'd want to bifurcate before we had the conversation.

15:10Humphrey Yang:I'm not against Bitcoin or any of these cryptos. It's just that I think that there's a, it comes off as way too speculative for me to take it completely serious. To Jaspreet's standpoint is I think it's more of a speculative play that I wouldn't want to be more than 3 % to 5 % of my total portfolio. I would be careful of listening to people on the internet say that the only way to generate wealth is through a speculative asset because you don't know what their financial position is either. I don't know what Raul's financial position is. Like it could be that he built his wealth. He could be one of his wealth.

15:38Humphrey Yang:Yeah, he could have built his wealth off crypto or he could have been already wealthy and then now is saying to younger people, hey, you should invest in this because it's the only way out of poverty, as he says. But I don't know Raul that well, but he was very cordial in the conversation, so I do want to at least give him a respect for that. Sure. Did you know Sam's Club isn't a store? It's actually a club with cool finds and like a whole community. It's a club. Of course, Jason. It's in the name, Sam's Club. Oh, yeah. Come join us. Sam's Club. Hear that? That's the sound of busy. To a restaurant, all that shouting and banging might as well be a symphony.

16:21Humphrey Yang:It means the long days and longer nights are paying off. Sure, it's noisy, but there's a worse sound. This, not busy. Busy means business, which is why Toast gives restaurants the tools and tech they need to help them perform under pressure. Sounds pretty good, right? Toast, built for busy. Hey, hey! I've reduced 145 % return since 2012. But in 2012, no one knew how to buy it. I bought it on some random sketchy website. I got this like, you know, this string of characters for my wallet and I tried to buy, you know, I tried to buy a coffee at a cafe in Palo Alto. And I didn't know that Bitcoin transactions took 30 minutes to go through.

17:01Humphrey Yang:So I sent Bitcoin twice for a$5 coffee. Now, keep in mind, this is.1 Bitcoins, right? This is 10K worth of Bitcoin. It's an expensive Bitcoin. It's an expensive coffee. I sent it twice and they didn't get it. And guess what? I still had to pay for the coffee for my debit card. So where do I go? You spent what? 20K on? I spent 20K on coffee. Yeah, that could be the title of this video. I do that a lot. I try to break the fourth wall here. This could be the title of this video. But that is a true story. I was actually looking at my email this morning to see when that was. It was actually 2013. December 2013, I bought$100 worth of...

17:33Humphrey Yang:Actually, what I did was I bought$100 worth of Ripple Labs. So if you've heard of Ripple, the cryptocurrency, about$100 worth. I was trying to convert it to Bitcoin. I was able to convert it to Bitcoin. And at that point, I think Coinbase was just getting started. So I was able to, I had the receipts. I sent 0.124 Bitcoins to this random wallet address, which is the cafe in Palo Alto. And the person on the other end of the register had no idea what was going on. They're like, oh, I didn't even know we could accept this because nobody was paying with it. I was kind of like savvy. I was like, oh, look, I got 100 bucks worth of this stuff.

18:04Humphrey Yang:Look how fancy I am. $20 ,000 cup of coffee. Yeah, but that's the other thing, is that in 10 years, it could be a$50 ,000 cup of coffee or it could be a$1 cup of coffee. We don't know. And then the other thing is that the 145 % annual return that one of the gentlemen is talking about is contingent on the fact that I held it since 2012 and that I knew how to buy it in 2012 or 2011 or whatever it was. Well, and humans are so good at not being emotional and just holding stuff. Yes. Just hold it. I mean, that's so much easier said than actually done because we're very emotional creatures. That's not the relationship people have with money.

18:40Humphrey Yang:Yeah, and I also want to say, if you put$10 ,000 into something and the next week it said$20 ,000 or$30 ,000, you would be dumb to keep holding it, right? A lot of people would be like, well, I just doubled my money. I would have taken this way before I put$10 ,000 into it. So sometimes you just sell it. And so hindsight is 20-20, but you can't really forecast that. Hindsight is$20 ,000 a cup of coffee. What about you, Humphrey? If$10 ,000, does your strategy change? My strategy is probably more conservative or traditional. It's probably 90 % index funds, so tracking the S &P 500 and then 10 % speculative.

19:13Humphrey Yang:And my whole goal for that 25-year-old would probably be to get to$100 ,000 as quickly as possible because at that point I think they had more options and flexibility and they're able to kind of use that capital to maybe take more risk after that. That's still 10 years with the S &P, well, 8 years of the S &P. About 7.84 years, yeah. But that also assumes that they're only doing the$10 ,000 a year. maybe they can save and invest a little bit more. That'd be nice. But I think for a lot of people in America, if they can get a guaranteed$100 ,000 in 7.84 years, I think a lot of people might opt for that.

19:44Humphrey Yang:I just filmed a video about how 100K would take 7.84 years to compound, but I did come off a little bit of a smart in that clip. You should. I kind of loved it. That was great. 7.84 years to get there. And also my hair looked really great. I think I had to grow it out a lot. It was a great hair. I did have to do a double-tick. Make sure you wear it because it was a black. No, yeah, yeah. I'm not wearing the same thing. I made sure to not wear the same thing. So I'm glad to see it was a little different. So that clip was about how to invest$10 ,000. So, you know, that's what I said. 90 % index funds, 10 % spec.

20:12Humphrey Yang:10 % is quite a lot still, but I think we were talking about someone who was young, so 20 or 25 years old. So what would you guys do? I actually love what you said. $10 ,000, I'm going to buy some broad-based, low-cost index fund, ETF. S &P 500 is a great option. And odds are, if I do that this year, and then I do that again next year, and then I do that again next year, I'm going to get to$100 ,000 very, very quickly. likely even faster than 7.84 years. And what's amazing is once you hit that first hundred thousand, then it just starts spilling over. You reach this kind of boiling point where now the money begins growing on itself so fast that how long it took you to get to the first hundred is way longer than it takes you to get to the next hundred.