Today’s show is about wealth, Wall Street and real assets. I’ve brought Dr. Buck Joffrey on to the show to talk about this. Buck knows the old mantra of, “Investing in a diversified portfolio of stocks, bonds and mutual funds,” is simply outdated and dangerous, especially, for high paid professionals given the instability and the volatility in the markets today. He advocates entrepreneurship and investing, especially in hard assets and those that provide cashflow because that’s really the reliable way and the approach to building solid personal finance. I’m in line with his thinking and what he advocates. I want to get him on the show to talk about his perspective on these things. It was an interesting conversation, so I think you’ll thoroughly enjoy it.
If you missed our last episode, be sure to listen to The Real Estate Investor Ladder of Success – Trevor McGregor.
Enjoy the show!
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Wealth, Wall Street and Real Assets with Buck Joffrey
It’s my pleasure to welcome Dr. Buck Joffrey to the show. Buck is an accomplished surgeon, entrepreneur, asset manager and podcaster. He is also the number one best-selling author of Seven Secrets of Eternal Wealth. With a negative net worth upon finishing his surgical training back in 2008, Buck quickly became a serial entrepreneur and real asset investor amassing an eight figure net worth. Buck, welcome to the show.
Thanks for having me.
It’s a pleasure having you on. I listen to your podcast. I love the content you put out because I consider myself an arm chair economist. I like to learn about the global economy, macroeconomics, how things play into real estate and other asset classes here in the US and where I should invest and where I should maybe not invest. Before we get into all that stuff, which I find really interesting, let’s start off with you. Tell us about your journey, how you got started from becoming a doctor and then getting into real estate and an asset manager.
It’s started out, as you said, I was your typical A-student, as Tom Wheelwright would say, the recovering A student. I went through medical school, graduated top of my class, I went to start out a neurosurgery residency, became a brain surgeon. I decided the lifestyle wasn’t for me, but I finished another type of surgical training. I was a little bit easier on my life but it was still surgery. I enjoyed doing that. I spent about 33 years preparing myself and getting trained, etc. and then practiced for about four or five years and then effectively retired. That was about 2008, 2009 when I finished my training. I was a pretty academic guy. I was very interested in all the research stuff and so on and so forth.
Right around 2008-2009, obviously, there was a mortgage meltdown, all these people losing their money. Fortunately, for me I didn’t have any money already. It gave me a chance to look at what other people did wrong. One of the thoughts that I had when I was coming out was, “I’ve gone several years making minimum wages as a surgical resident. Now, I’m going to go up six figures plus, how am I going to this differently than all these people who lost a bunch of money?” Instead of going the route of just being another guy who hands my money over to a financial planner, I took it upon myself to become more self-educated, got inspired by, of course, Mr. Kiyosaki. The man who’s probably created more millionaires than anybody else on earth. I got inspired from him. I started my own practice, turned that into a business, phasing myself out. Did it again with another business, phasing myself out.
Before you know it, I started making a lot of money. Then I had to figure out how to invest. At this point, reverted back to the fact that my dad has been a landlord for 50 years. I decided, “I did not have to pay a penny for med school because he paid for me. I never had a problem with money, so it must work.” I’ve dumped a bunch of money into buying apartment buildings. Did really well. At that point I had people saying, “What are you doing here? You seem to be making all these money and you’re only four years out of training.” Effectively, that made me realize that there’s a huge gap out there in terms of high paid professionals or highly specialized to know everything there is about things crazy as brain surgery or rocket science. But they couldn’t tell you at all how they’re going to invest their money. When it comes to that, they just hand their money over to a financial planner who maybe took a six-month course. Sounds crazy to me and I couldn’t handle it. I had to do something about it and that’s where the podcast came in.
There are so many people in that category, especially high paid professionals, where they make six figure incomes. They’re great at what they do and they probably love what they do. But then when it comes to the whole subject matter of investing, they really are clueless. They rely on other people and they say, “Here, take my money, invest it and tell me what to do with it.” I call those people professionals with low financial IQs. They get themselves into trouble because they’re making Wall Street rich and they’re getting low returns and taking on all the risk. Our audience and many of the people we work with cover the whole gamut. We have everybody from newbies to high paid professionals with high incomes.
The common theme I find with a lot of people is lack of time and/or lack of knowledge. I know you work with high paid professionals. Explain to me how high paid professionals, such as doctors, make these mistakes. They make a lot of money and, as you have put it, they’re in a world of this “golden handcuffs.” Explain that to me please.
First of all, the “golden handcuffs” what that means is there is a phenomena. It’s not just physicians but any high paid professionals. You see this across the board. What happen is we go, we’re in training, we’re not making that much money and we think a couple of hundred thousand dollars sounds like a lot of money and the next we’re making it. But what happens is our lifestyles elevate to the occasion. Instead of, “Now we’re making a bunch of money and it feels like I’ve got a ton of money.” Instead, it feels like I’m making a ton of money and it stills feels like I don’t have enough money. That’s the golden handcuffs.
Listen, my show is not about skipping lattes and all that stuff. It’s about creating wealth. I think what happens, to your point, about how do they get in those situations where they’re making bad decisions about their money, listen, from a doctor’s perspective, not all my listeners are doctors but probably about 70% of my investor group that works with me is made up of doctors. Here’s the deal, when we’re in medical school, we take what’s called the Hippocratic Oath. First, “Do no harm.” Effectively, what that means to us is that when somebody comes to us as doctors and they’re wanting help, we’re not going to try to screw them over in the process. But that’s the way the financial world works. Whether they are doing this from outright nefarious reasons or what not, what happens is that it’s built into the system.
If you look at mutual funds, in average of 3.5% load or the huge commissions that people take when they “manage your wealth.” We’re not expecting that as physicians. We’re very simple people when we come out. We’re people who want to do good for the world and we expect that others are going to be the same. That’s why I think that physicians, in particular, tend to get victimized. The reality is that the more and more I talk to people, software engineers or lawyers even, the lawyers are a little bit better because everybody is scared of them. A lot of high paid professionals got their face down in the books. They just don’t expect to get a knife to the back, that’s all.
Why are they so bad at investing? It just seems like they’re smart enough. They’re studious. They’ve been living in books for so many years, a third of their life. You’d think they would be more intelligent about investing. What’s the problem?
Because it wasn’t in the curriculum. That’s probably the biggest thing, what makes an A-student? I’ve jokingly said recovering A-student earlier. What I mean by that is the problem being with being a very, very good student is that you always get things right. You always pass the test. Somebody tells you what to do, you learn it, you perform and then somebody gives you a pat on the back, that’s the way you’re conditioned. The problem is that as part of a curriculum that leads you to become an engineer or doctor or something like that, there really isn’t something that says, “How are you going to invest?” That’s not part of our curriculum.
Effectively, what we do is we fall back to what has become a societal norm, which is once you start making that money, then you got to find a professional who knows what to do with your money and that’s the responsible thing to do. If we don’t do that, we’re doing something wrong. I have a bunch of investors who have said to me in the past, “This is really liberating because I’ve been told my whole life that this is what I’m supposed to do; stocks, bonds and mutual funds. If I don’t do that, I’m being irresponsible.” What you’ve done yourself and what the guests you have on the show are showing us otherwise.
I think those people have been indoctrinated by the media and “sales professionals or financial professionals” that are out there teaching you that stocks, bonds and mutual funds are the norm. They are the real investments out there. Then everything else like real estate, for example, is an alternative. Think about it. Real estate as an investment has been around for hundreds of years, long before this paper assets have existed. From my perspective, the alternative investments are really these destructive paper investments that you get from Wall Street and financial planners.
That’s exactly right. The whole concept of paper assets or intangible assets is something that’s only been with us for a hundred years or so, or maybe 150, 200 years whatever. I’m not a huge investor in gold, but you take gold for example, an ounce of gold in Roman times, in times of Christ, bought you the finest toga around. An ounce of gold today buys you a fine suit. There’s value in real things. I think that obviously we prefer real things that cash flow. The funny thing about paper and intangible assets is that they have this funny way of vanishing. In 2008, you had the dot-com bubble, trillions of dollars of wealth globally just vanishing, boom. That doesn’t happen when somebody owns a home and owns a rental because somebody has to live there and have roof over their head and has to pay you rent if they want to live there. That’s the difference in my view.
That’s why it’s a hard asset and they consider it a real asset. I agree, I’m not a fan of paper assets. That’s a good segue way to my next question. You refer to saving or investing in the stock market as an outdated and dangerous paradigm. Can you expand on that?
I think as times have gone by, the level of fees, the level of loads in those things has gotten worse overtime from Wall Street. I say Wall Street, but this is really about financial planners who are really the minions of Wall Street. The products that most people are getting are from Wall Street. The point is, there may have been time in the last 50 years where somebody could reliably say that if they were investing for the long run, that’s what everybody likes to talk about, investing for the long run, that they’re going to be okay. But now, first of all, with the volatility of the markets, with the uncertainty of the economy and with all these loads and fees on top of it, that if you do the thing that you were supposed to do, you may end up dying broke. That’s why I call it outdated, because I think there are a lot of people who are falling those paradigms, who really do, especially if you take into consideration the fact that people are living longer and longer, have a very uncomfortably high risk of dying broke.
People are living longer, so you’re going to need more money to be able to stretch out for a longer period of time. You have an inflationary environment, which is going to continually devalue the purchasing power of whatever you do amass. Last but not the least, people who are saving or investing in their 401k, that’s just a money trap. The thing is, if you expect to have the same lifestyle or better when you do eventually retire, you’re going to be taxed at a higher tax rate. Unless you’re poor and you’re in a low tax bracket, you’re going to have taxes working against you by the time you do retire. It’s really a backwards way of thinking about retirement and saving for retirement.
What you said is absolutely true about everybody pushing the idea of the IRA and 401k and you can defer your tax. But the assumption is always that you’re going to make a lot less money once you retire. Personally, I don’t want to make a lot less money when I retire.
No, I don’t think most people do.
You’d think that, but that’s part of the whole thing. There’s a physician that has a blog that a lot of physicians follow. It’s really traditional stocks, bonds and mutual bonds stuff. He was making the argument that physicians should plan on potentially living on 20% of what they make today. I was like, “There’s no way I’m doing that.” It’s a scarcity mentality. I think people like you and me and some of the others that I think we mutually know, we all have an abundance mindset that’s different. It’s not about trying to save pennies and skip lattes, it’s about trying to expand your means and trying to make sure that you can ultimately enjoy the life you want. For me, that’s wealth. I don’t look at wealth necessarily as an amount of money. I look at it as time. How much time have you created? That’s really what I think most people’s currency actually is. It’s not money, it’s time. Once you get a certain type of income or residual income that frees you up and you have time, then that’s what everybody wants.
I totally agree. I measure wealth in terms of time, not dollars. I actually did a podcast episode on the differences and similarities between being rich and being wealthy and which one is better. That’s exactly what I was talking about. Having an abundance mindset to expand your means and be able to help you, your family and your heirs and what you pass along. In the process of doing that, at least for me and I think this is true for you too, when you grow your business, you actually employ more people. We can help more people and we can give more to charities and feed more people. There’s so much more you can do when you’re rich or wealthy than you can if you’re poor. The saying goes, “The best way to help the poor is not to become one of them.”
That’s right. There’s a little bit of a paradox there because I think a lot of people who commit their lives to charity and good works, good for them, I think that’s fantastic. The only thing is they could probably do even more if they made a bundle of money, and then did what they were doing and then spread that money around. I had a gentleman on my show actually last week who what he does is he tries to make money so they can pass it on to Haiti. Good for him. For me, personally, why am I doing what I’m doing? I could just retire. People talk about retiring but what does that mean? If it means just going out and playing golf, that’s not me. I would get bored out of my mind. I’m doing a podcast because I’m retired. I’m trying to educate people about something that I am passionate about. Then I’m continuing to invest. Because it makes sense for me to do it in syndication model, because I know what I’m doing and it allows me to help others to come alongside. It’s all how you measure it, but this what retirement is for me.
There’s a lot of value in putting together a syndication model based around hard cashflowing assets. Speaking of that and speaking of retirement, one thing I’ve heard you talk about before is the formulas that people use to calculate how much someone actually needs to retire is not accurate in any way, shape or form. Explain why, I’ve heard you say, that using cashflow investing is a much more reliable way to predict when you can retire. I think we touched upon this, but expand on it.
I think the traditional of way of investing is a little bit of scarcity model. What you’re trying to do is you’re trying to pack away as much money as possible. Imagine you’re going out on a trip and you’re trying to fill this bottle up with as much water as you can so that you don’t run out. The hope is that in life, once you retire, that you’ll die of something else before you die of thirst. You’re effectively hoping that your money outlives you. That’s something that’s a little bit scary. Who knows? Maybe you run out of money. If you have finite amount of money, then it’s a game of roulette. Who know what’s going to happen? The difference of course is when we talk about streams of income. Then you don’t have a bottle of water, you have a bunch of streams of never ending water, or in this case, cashflow, that come together and make this large river. You can never go thirsty because you’ve got this source of ongoing cashflow that feeds you until you die and then it can be passed on to you heir. That’s exactly the way I look at it.
I agree. When it comes to real assets, we both like real assets to hedge against inflation and ultimately that leads to the creation of true and perpetual wealth. Do you have favorites? What are your favorites in terms of assets and real assets?
I like real estate. I grew up in a real estate family. My dad is a landlord in a true sense. He’s not an asset manager. When I go home, he still gets tenants calling the house. He’s done this through single-family homes and smaller multifamily buildings and so on and so forth. I ended up a business guy. I’m a business guy. I have businesses and operations. My preferred mode of investing is larger assets, preferably hundred unit plus apartment buildings, B and C class. When I think about my investing philosophy, first of all, it’s cashflow first. You’ve got to make sure you understand your investment. In other words, how does it make money? Somebody has to pay you to live there, that’s how it’s makes money. Invest in something that’s real, and there’s nothing more real than a roof over somebody’s head.
The other thing about apartment buildings that I really like is the fact that you can use scale. That of course allows property management and it allows having one roof instead of several hundred roofs for single-family homes, which again I don’t see a problem with. It’s just my preference. For me, it’s also the ability to deploy more capital. As opposed to putting down $20,000 at a time, I like leverage, so it’s weird that I’m going to buy something without leverage, you can put it on a bigger chunk. If you’ve got more to deploy, you can do that.
For all those reasons, I think scale, efficiency and the ability to deploy more capital and bring investors along, that’s why I’ve steered towards apartment buildings. That said, I’ve also syndicated parts of hotels and we’re looking at a variety of other things. I’m not that dogmatic about assets classes. If they make sense, they make sense. That’s what I think you were alluding to before. Even though I love real estate, my show is not a real estate show, it’s an investing show. We try very hard to show all sorts of different kinds of things that people can invest in. They do have common themes, frequently cashflow related. I’ve had people talking about coffee farms and chocolate, and I’ve had people talk about developments and any number of things. There are just so many things to choose from.
You’re a serial entrepreneur and so you understand the value of business and that you can get some of your greatest leverage through business. I would assume that’s also a favorite of yours because it’s certainly is of mine.
It is a favorite of mine. In fact, definitely that’s probably my favorite thing to do, is actually start businesses. But I haven’t gotten to the point where I have brought anybody along for that ride yet. I may do that at some point. From a business perspective, I tend to take some pretty big risks. As they say, no guts no glory. If I hadn’t taken the risk that I’d taken and put the money on the line that I’ve put, I wouldn’t be where I am at now. I haven’t necessarily gotten other people involved from a syndication perspective on the business side of things. It’s been primarily related to your typical investment vehicles.
Let me ask you about your opinion or perspective on the state of our economy, whether globally or locally. We have a new president. The Feds are talking about raising rates again. There’s just a lot of dynamics going on. Where do you see us a year, two years, three years from now?
I follow a lot of these guys, like Jim Rickards. Their message resonates with me. If you really look at where the economy is right now, we’re in a bubble. There’s no question we’re in a bubble. The funny thing about a bubble is that it’s rare when people actually know we’re in a bubble. Otherwise, there wouldn’t be a bubble. It’s all hindsight. If you look at the biggest players in the market right now, whether it’s George Soros or whatever. These guys are actively shorting the S&P 500. They’re actively shorting it. Why is that? Because if you look at the facts, the facts are, and I saw an article in Washington Post this morning, that corporate earnings, the blue chip companies, haven’t moved in three years. But the dollar has climbed above $20,000.
What does that tell you? It means that we’ve got price to earnings ratios that are way out proportion. In fact, they haven’t been this high, I think it was since, I want to say it was the Great Depression. It’s out of whack. It’s completely out of whack. The devaluations are ridiculous. What happens in a situation like that is it’s just a matter of time. There is going to be a correction. I’m sure of it. I don’t know if it’s going to be next month and I don’t know if it’s going to be a year from now. But that kind of consistent problem with the markets in being way overvalued just is not sustainable. You put that together with the fact, as you brought up, the interest rates are going up. The interest rates are going up and that was balanced by what I think would be called an irrational exuberance once Trump got elected. Because there was a sense that Trump was going to come in on this white horse and the corporate tax rates were going to immediately fall and we were going to have all sorts of stimulus through projects across the country.
Christopher Whalen was on my show a few weeks ago. He made a very good point, which was that even if Trump did have this huge infrastructure projects going, there’s no such thing as a shovel-ready project. These things are years out. I think we’ve got multiple issues here. I think we’ve got a bubble and then you put the bubble with low earnings and then you put that on top with rising interest rates, you’ve got a real problem. Because globally, you look at sovereign debt, that’s a problem too. People won’t be able to pay us back if we raise rates. I’m not optimistic about the economy. But my perspective is that when these things happen, we get into more debt overall. The only way you can get out of debt is by printing money. When you print money, inevitably you’re going to end up with inflation because you’re going to water down your currency. I think the only way to get out of things like this is ultimately through cranking up inflation, because that erodes debt. We have to think about, where do we want to be if we know that there will be an acceleration and inflation? That’s where we come back to real assets.
I totally agree. The only exit is through inflation. In order to protect yourself, the only way to protect your own local economy is to invest in real assets that are hedges against inflation. That was a great answer to the question there, Buck. I really think the take away from that is to protect you and your family by investing in hard assets and ideally those at cashflow. Because at the end of the day, you can’t change the global economy, you can’t change the national economy but you do have some control over your own personal, local economy.
In fact, one thing I’ll say just to add to that is one of the concepts I use that I talk about in my book is to invest using Maslow’s Hierarchy in mind. In good times and bad, what do we need? We need a roof over our heads. That’s the easiest way to do that, that’s security. The easiest way to do that is invest where people need to live. That’s why I don’t do commercial. I don’t do mini malls and things like that.
Good point. Just tell us real quick the purpose of your Wealth Formula podcast and then tell our audience how they can find you and get more information on you and your book.
Wealth Formula Podcast, you can get that on iTunes. WealthFormula.com is my website. Lots of good things on that site by the way. Actually right now, since it’s tax season, I have a download on how to legally save thousands of dollars in taxes. You can get that off the site. There’s a free book offer, etc. My book is called Seven Secrets of Eternal Wealth, that’s on Amazon. You can get that there. My show, I would characterize it again as the avatar hero. It’s just high a paid professional who really knows what they do at work and wants to try to self-educate themselves and not rely on your neighborhood wealth manager to lose all your money.
Buck, I appreciate you taking the time to be on our show today. It was great information. I’m sure I’ll be having you on again here in the future.
Thanks for having me.
Thanks, Buck.
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