MI Rewind: Contrarian Thinking w/ Codie Sanchez

0:00You're listening to TIP. On today's show, we're resharing some of the older episodes that are my favorites for a few reasons. One, we get a bunch of new listeners each week, so new listeners may not have heard this episode before. Two, even if you've been listening for a while, you may have missed this episode when it originally came out. Or three, even if you've heard it before, it can be a great episode to learn from again. If you've already heard this episode or you're not interested in hearing it, feel free to just skip it. There's no harm in that. And you can pick up with our new episodes next week.

0:30That's all I had for you for this new intro. Everything going forward is going to be from the original episode. I hope you guys enjoy it. It's all about opportunity cost, right? So in everything in life, if you want to go out on a Friday night with your friends, you can't stand and watch a Netflix movie. If you want to go to a concert, you can't go out and go to a dinner. You have to pick, right? And for every decision you make, there's some constraint, which means you don't get to do something else. And with investing, and when you have money, you have to think about where can my little soldiers, where can my little army of soldiers go best and attack the one reason that I have them out there fighting anyway.

1:05On today's show, I talk with Cody Sanchez about where her curiosity for becoming a contrarian came from, why rental properties might actually be a dumb idea, her favorite ways of building cash flow with no money, and a bunch more. Cody Sanchez is a reform journalist turned institutional investor. She is now a managing director and partner at Entourage Effect Capital. Since its inception in the summer of 2014, EEC has deployed over$100 million into over 65 companies out of its two dedicated funds and co-investments. Throughout her career, she has worked at the intersection of marketing and money, finding contrarian ways to invest.

1:43She's always balanced her profession with nonprofit service to empower women, veterans, and Latinos. Before we get into the actual episode, just a couple quick housekeeping items. First, towards the end of the episode, Cody's computer unfortunately died, so the interview ended a bit shorter than we would have liked, which you'll hear at the end. But the first half that was recorded, which you guys hear in this episode, had some awesome nuggets that I wanted to make sure got shared. Cody's team and my team are working on finding a new time to get this episode finished, so if you like this first part, be sure to stay tuned for part two.

2:21Also, So if you haven't already, be sure to follow me on Instagram and Twitter. My username is TheRobertLeonard. I share a bunch of different types of content frequently, typically around how real estate and money works, but I also share quite a bit about fitness and motocross and even the look into my personal life. And I share updates about the shows and a bunch of other cool stuff. So be sure to come connect with me on social. My username is TheRobertLeonard. You can also follow Cody on Twitter and Instagram. Her username is Cody underscore Sanchez. All right, let's get into this week's episode with Cody Sanchez.

2:58You're listening to Millennial Investing by the Investors Podcast Network, where your host, Robert Leonard, interviews successful entrepreneurs, business leaders, and investors to help educate and inspire the millennial generation.

3:20Hey, everyone. Welcome back to the Millennial Investing Podcast. As always, I'm your host, Robert Leonard. And with me today, I have Cody Sanchez. Cody, welcome to the show. Glad to be here. Thanks for having me. The first thing I want to do is learn a bit about you and your background. Tell us your story and give us a quick rundown on how you got to where you are today. A little 60 seconds about me is I was a journalist originally. I started off as a human trafficking and drug smuggling focused journalist right out of college. Graduated a little bit early and focused on my thesis of basically what happens along the US-Mexico border and when borders separate humans.

3:59And so I wrote some what I thought were interesting stories about people being left behind and families being separated. And I continued doing that for a few years. But at one point, I just sort of realized, man, I don't want to just be telling the story. I want to be trying to make some changes in the story. And I knew that journalism wasn't the right place to do that. You needed to actually factually report the news and keep your opinion and biases out of it. At least that's what it was supposed to be like back in my day. So I thought, well, how do you make the most impact? And in my opinion, it was not status.

4:31It wasn't if you were American or Mexican, the differentiator between those who live incredible lives and those who live harder lives is monetary. It's one word, money. And this green language that everybody speaks is really what controls most happiness in life, at least up to a certain level. Because if you cannot cover your basic human needs, then really nothing else like personal passions or pursuits matters. And so I got kind of obsessed with financial freedom. And what does that mean? And how do you get it? I started at a young age. And I realized, I don't know anything about money. I'm a journalist.

5:05We didn't make any money. I didn't know what a 401k was. I didn't know about mutual funds. And so I kind of worked my way through a bunch of financial institutions, got lucky, got into a program at Vanguard, which was an accelerated development program where you got to see a bunch of different aspects of the firm, and then went to Goldman Sachs and then State Street. And then finally ended up running a business at First Trust that was a Latin American investment business. So built that business up to a pretty good size, exited that business, was looking for my next emerging market, went into cannabis private equity, saw an opportunity there between the difference between the narrative on cannabis and the actual numbers and thought we could profit handsomely while actually doing some good like we did in Latin America.

5:44And so built up a large asset management business in cannabis. And then we did three funds together. And after that third fund, I thought, okay, I think we've made our mark in this space. I have a decent allocation to it? What's the next asset class? And that's when I started talking publicly about investing in small businesses or what I call boring businesses with an eye towards private equity or later stage companies that have been around for a long time, but cashflow. And so right now I probably talk about that the most publicly, but the real goal is financial freedom. And these asset classes are all just a tool that you can use to get it.

6:19Do you think that saying that money can't buy happiness is wrong? Yeah, I do. I think it's absolutely wrong. I think we've actually proven that the statistics, and you can go and look at the research on this, where that says anything over$70 ,000 has a de minimis impact on happiness increase is actually false. The data was flawed. It actually shows that happiness does increase all the way up to, I can't remember if it's about$500 ,000 a minimum or a million dollars, but then it starts to plateau and then you have little increases from like a million to 10 million and 10 million to 50 million, whatever the case may be.

6:52But there is no doubt that somebody is trying to sell you something if they say that money doesn't matter. In this world that we live in today, money absolutely matters. And you want to make sure that you can cover at least your base needs and then have incremental growth in it. I mean, that's why we have minimum wage to start, but you're not supposed to stay there. You're supposed to continue to climb up to different wage levels because it does actually increase happiness at a certain degree. Now, do I think that if you have money, you are happy? No, that's a totally different thing. does not mean that you are happy just because you're a wealthy in any way, shape, or form.

7:26But it does help if you have money. And so I think we need to be honest about that. And then people might feel better about the pursuit of it. I completely 100 % agree. That has always been my philosophy. And I think the distinction you made is so important because just because you have money doesn't mean you're going to be happy, but having money can help you get happy is the way I think about it. And I also think anything that you want to do that will make you happy is likely going to take money. If you don't care about being rich or making money, that's fine. But whatever you want to do that you do care about takes money.

7:56And so I think people need to really connect those two to really understand that having money can help buy happiness. Yeah, I think you're right. I mean, you have different polarities, right? You have Mr. Money Mustache guy, which is like, I want to retire early, or the fire guy that wants to retire early. And they don't really care about making additional money on top of it. They keep their income level at the same consistently over time. And then people would say, well, they're happier than Peter Thiel, who is a billionaire and simultaneously maybe isn't married or doesn't have family or whatever the case may be.

8:29But I think the difference is this guy has just realized what is the monetary level that is interesting and increases happiness for him. And maybe some billionaires haven't. And so they keep pursuing past their rate of need. And so you kind of got to figure out what that is for you. All the time I say, I don't want to be a Fortune 500 CEO. If you paid me right now, I mean, well, if you paid me$100 million, I'd do it for one year and then I'd quit. But I wouldn't keep doing that job, right? I'm actually very happy and I've chosen continuously over my career, less money in the moment for more personal freedom and to do things that I want to do or find interesting or have actual impact.

9:07And so I think that's the balance. People think about it unilaterally when it's a tripod. lot. It's like, where can you have freedom? Where can you have whatever you think you're good at or your purposes? And then where can you be monetarily rewarded for it? Let's take a quick break and hear from today's sponsors. Even Einstein had blind spots. That's why modern science is built on the idea of peer review. Investing may be more art than science, but that doesn't make peer feedback any less valuable. The tricky thing is finding qualified people who are interested and willing to help vet your investment ideas.

9:40That's why we built the Intrinsic Value Community. It's a place to connect, share ideas, learn, and get feedback. Nobody ever wishes they'd spent more time buried in spreadsheets, but connecting and building relationships with others who may be smarter on a topic than you, but who are also schooled in value investing, that's valuable. We make spots in this exclusive community available in cohorts every few months. And last time around, our 30 available spots filled up pretty quickly. If you're interested in our next cohort, which will be even smaller, you can join the waitlist at theinvestorspodcast.com slash intrinsic value community.

10:14That's theinvestorspodcast.com slash intrinsic value community. Support for the show comes from public.com. You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic option plays on the side. The point is you're engaged with your investments and public gets that. That's why they built an investing platform for those who take it seriously. On Public, you can put together a multi-asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there. Plus, industry-leading yields on your cash with no fees or minimums.

10:52Switch to the platform built for those who take investing seriously. Go to public.com slash T-I-V-P and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash T-I-V-P. Paid for by public investing, full disclosures in podcast description. Just like everybody else, there was a time when I was a beginner investor, and I have to say, investing is particularly filled with jargon that can just make it so difficult for new investors to understand what is going on. But it's never too late to get smarter about stock investing from the ground up. At The Investors Podcast Network, we've made a habit of studying the world's best investors, and now I'm distilling those learnings into a simple course for you or for anyone in your life who you might want to share the gift of knowledge with.

11:35With my How to Get Started with Stocks course, you can master the principles of excellent lifelong investing with valuable insights for both beginners and pros. The course covers 10 different sections, beginning with the basics of what a stock actually is and how the stock markets work, to strategies to optimize your retirement savings, how to pick great companies for the long term, what to look for in ETFs, and how to monitor your investments, plus so much more. To begin getting smarter about investing, just visit theinvestorspodcast.com slash get started with stocks. That's theinvestorspodcast.com slash get started with stocks.

12:11And for a limited time, you can use code stocks15 for a 15 % discount at checkout. All right, back to the show. When I was graduating high school, my superlative, those things, they vote you, best smile, best eyes, whatever. I was voted most likely to be a billionaire because I've always loved money. I've always wanted to be wealthy. I just used to want to be super rich. And over the last couple of years, I've had that same realization that you had is like, I don't actually want to be a billionaire. I don't want to be a Fortune 500 CEO like you said. I want more time than I do anything. And over the last year or so, I actually took a relatively decent pay cut to step back from my corporate career to just do the podcast full-time and do real estate because so much more flexibility and so much more, I could do what I want versus making a little bit extra money that wasn't worth it to me.

13:02Yep. I totally agree. I think most of it comes down to how well do you know yourself? It's what the Oracle of Delphi said, right? It's know thyself. And so once you give yourself some space to be the architect of your own home, as opposed to buying somebody else's, then you can can figure out what money means to you. But most people don't spend that much time thinking about money or wealth except in the next step forward. So my framework on wealth and money is longer term. It's how do I want my life to look day to day, week to week, year to year, and three and five and 10 years out. And then I want to reverse engineer that.

13:39So what do I have to do to have a day or a week or a month in which I'm never cleaning the house, in which I can live in two locations in which I get to donate to whatever charity I want to at any moment in time without having to think about it. And then I reverse engineer the money to that because I think about what do I want? And if money is just a tool, I don't think, hey, I want 50 ,000 hammers because I might have a nail. I want a hammer. I think, hey, I'm going to have a pretty big construction project. It'd be great if I had a whole construction crew to do it with a lot of hammers that they all use.

14:08And that's why I want the money. And so I think people need to reframe themselves slightly. I reverse engineered and backed into mine as well. I had somebody sit me down once because I was on that endless treadmill of just wanting more and more and more. And I had somebody sit me down once, they were very successful. And they said, write down everything you could ever imagine you want in life, and then calculate how much that costs. And I did that, and it was way less than I expected. It was significantly less than I expected. So I was like, okay, maybe I don't have to go all out for every single dollar ever just to get all the stuff I want.

14:42And that was, like you said, it's knowing yourself. Yeah. I mean, that's exactly right. Where did your curiosity for becoming a contrarian come from? Do you think it is rooted in your background as a journalist? I feel like a lot of journalists might be, especially in a field maybe where you were, could be contrarian. Well, I think a few different things. From a young age, I've certainly pushed against norms to my parents' probably chagrin. But more than anything, I think it came from reading. If I could impress upon people to do one thing in their lives, it would be to read more. That's why I started a newsletter, Contrarian Thinking.

15:20That's why I sort of push people to there because when you consume content through TV or video or whatever the case may be, it's really hard for you to pause and add stuff, ponder it, think about it. Reading is one of the few mediums in my perspective where you can have a book in front of you. And in that very moment, you just pause, write a little something. And when you're listening to a podcast, you might have to pause the podcast, TV show and otherwise is the same. And so for me, I think it came from a young age, I would read ravenously. And some of my favorite books, if people want to stimulate that cantankerous thought inside of them are like letters to a young contrarian from Christopher Hitchens.

15:56And he talks about how to stand up against whatever the mob may be. And what's interesting to me today is that people think about critical thinking and contrarian thinking and questioning things as some sort of political leaning, right? Like it seems to be a mantra of the right right now. But Christopher Hitchens, he was a communist. He was like a card carrying member of the communist party in the US. And he said the same thing. He's like, it was just all about questioning things and coming to solutions yourself. And so I think that is why that's ingrained in me is are all of those questions that I saw protagonists ask continuously, and they lend themselves to having a cantankerous mind.

16:37These days, do you think it has to be books? I think over the last couple of decades, books were kind of the default, but there's newsletters like yours that are amazing. And I mean, there's tons of them, right? And maybe we can get as much value from newsletters as we could potentially book. So do you think it has to be books or can it just be reading in general? I think long-form thoughts tend to lead to long-form payouts. So in my belief, if you are reading long-form, and that's typically in the form of books, it could be, I suppose, a series of newsletters, for sure. It allows you to get really deep into a subject matter that you can steal somebody else's 10 ,000 hours as opposed to having to do them yourselves.

17:16And so part of me says, yes, I still think that books are the medium today. Now, Well, newsletters are great, but even my 10 ,000 word newsletter or 3 ,000 word newsletter or whatever it is, it's not going to give you as much context as if you immerse yourself in the pages of the biography of Winston Churchill, which I think is a great book from somebody wanting to learn from history. So yeah, and people disagree with me. I mean, we're getting faster, faster, faster on this. I mean, TikTok has more eyeballs than Facebook. And certainly, email is not set for long form platforms. But I think if you want to differentiate yourself, you shouldn't think about what is most of the crowd doing.

17:52In fact, you should probably question if most of the crowd is doing something and say instead, what do I think has the best return on my time? Where's my ROI spend? And if I have to think about it, when you can focus intently on one thing, that's usually your highest ROI spend as opposed to when you're really scattered like you would be reading email, reading newsletters, having other things that can pop up and invade your psyche. So I think it is absolutely books, even though nobody really does that. Trey Lockerbie, I host two podcasts. One is about real estate, and one is more about stock investing and side hustles.

18:24Today, we're not talking on the real estate one, but I still want to talk about something that is real estate related because I read it in one of your newsletters and it piqued my interest. And you wrote, why buying rental properties is dumb. Talk to us about this newsletter that you wrote and why you think rental properties might be a dumb idea. Trey Lockerbie, I host two podcasts. It's all about opportunity cost, right? So in everything in life, if you want to go out on a Friday night with your friends, you can't stand and watch a Netflix movie. If you want to go to a concert, you can't go out and go to a dinner.

18:57You have to pick, right? And for every decision you make, there's some constraint, which means you don't get to do something else. And with investing, when you have money, you have to think about where can my little soldiers, where can my little army of soldiers go best and attack the one reason that I have them out there fighting anyway? And that's for more money to come back to me, right? I want my soldiers to go out. I want them to get more soldiers and I want them to bring them back to me. And so when it comes to rental property investing, the market right now is really tough. Real estate's at all-time highs, interest rates are very low, which means we continue to have more and more people purchase.

19:30Even though rental prices have gone up, it's really hard for you to buy a property that makes you enough money to cover your mortgage costs and all the additional, let's call it utilities and whatever else. They say that the average rental property makes something like, I'm going to mess this up. $400 to$600 a month is the average payout for a rental property. And so if you think about the average cost of a home in the US is anywhere from$200 to$300 ,000. I would imagine that's gone up slightly over the last couple of years. Then you are putting down a pretty big down payment to get a couple of hundred dollars a month paid into your bank account.

20:07So what I would be saying if I was those soldiers, I'm like, well, you're not bringing back many others with a rental property. Instead, I'd want something where I got a better return on your time. And so I own rental properties. I think you should have them diversified, but I'm much more interested in buying cash flowing businesses. I'm interested in short-term rentals because those have a higher return than long-term rentals do. I'm interested in how can I get into maximizing renting on other liabilities that I have and turning them into assets, cars, bikes, surfboards, whatever the case may be.

20:37And I'm interested in things where I have to do less work and put up less capital to have a bigger return on my time. The last point I'll just say is like, anytime it's really easy for someone to execute on an idea, you usually have a decreased return. So right now we have a lot of people out there buying real estate, doing rental properties. And when you have a rental property, there's only so much you can do to differentiate yourself. And it's not usually service. You can't add other experiences on top of it. You kind of have like one revenue stream you can get from it. And so those aren't my favorite type of businesses.

21:13I would even prefer an Airbnb to a long-term rental because an Airbnb, you can have better services. You can have tied experiences. You can have really cool decorations in the business overall. You could have incredible location. You could do events there. There's lots of different things you could do, whereas with a rental property, you can't do as much. Robert Leonard Does the increased risk of Airbnb concern you over rental properties? Trey Lockerbie Lots of people talk about that. And I think, yes, I wouldn't underwrite it. Underwrite it, meaning I wouldn't expect that long-term I can make the same amount of money forever that I'm making today.

21:44I typically don't expect that in any business. But if I have a pretty high cash on cash return and I'm buying the property at a level where I would be okay with long-term rentals, but I happen to be doing short-term rentals, then I think it's a really interesting model. And then you can always long-term rental it. You can always, if you have enough capital, make sure that you can weather a storm if there's a pullback in that market. But at this point, I'd be hard pressed to imagine that Airbnb goes away forever. That would have to be a pretty aggressive move. And in this world where more and more cities and states are deciding that they're going to, some are deciding to limit freedoms immensely and some are deciding to open freedoms immensely, I think my goal would be to choose more properties in freedom-based markets.

22:31Let's take a quick break and hear from today's sponsors. Hey, it's Sean O'Malley, just popping in with a quick message. If you like this podcast, well, I've got great news for you. We've got a handful of other shows for you to explore, from learning about Bitcoin to embracing a richer, wiser, happier lifestyle. Just go into your podcast app and type in We Study Billionaires to find our collection of shows. We Study Billionaires is our flagship podcast, and we've made a name for ourselves over the years by interviewing the best investors in the world, including Ray Dalio, Howard Marks, Joel Greenblatt, and many, many more.

23:06My colleagues Stig Brodersen, Clay Fink, Kyle Greve, Preston Pysh, and William Green each host their own We Study Billionaires episodes and bring their own unique perspectives. A whole new world of insights awaits you. Just go ahead and type in We Study Billionaires into your podcast app and see what you've been missing out on. Seriously, go ahead. I promise you'll like what you find. Bonus points if you show your support for our work by clicking follow. If something piques your interest, just start listening. No hard feelings. I'll be waiting for you back here. Just like everybody else, there was a time when I was a beginner investor.