Aaron Edelheit - Mindset Mastery
Bill invited Aaron to stop by The Business Brew to have some fun and do a 4/20 episode. While the conversation does touch on cannabis, the more important parts of the conversation involve Aaron's philosophy of work life balance. Aaron is a strong advocate of the 24/6 workweek. He is a staunch advocate of observing a work sabbath weekly. We hope there is wisdom and entertainment in this episode.
Aaron M. Edelheit is the CEO and Founder of Mindset Capital, a private investment firm. Aaron also was the Chief Strategy Officer of FLO Technologies, after being one of the first investors in the company, helping the company grow from a pre-revenue startup to raising $28 million and launching in over 500 Home Depot stores. FLO was acquired in January of 2020 by Fortune Brands.
In his previous role as CEO of The American Home, Aaron founded and grew a company from 16 rental homes to one that owned 2,500 single family rental homes and was sold in April 2015 to a publicly traded Real Estate Investment Trust. Aaron also founded and ran a successful money management firm, Sabre Value Management from 1998 to 2011. In 2018, IdeaPress published Aaron’s first book, The Hard Break: The Case for a 24/6 Lifestyle. The book makes the case for taking one day off from work, email and smartphones for a more productive, healthier and more creative life. Aaron has served on the boards of non-profits such as the Moishe House Foundation and Global Village Project. And he is also a member of Social Venture Partners in Santa Barbara, California. Aaron has also been featured and quoted in the Wall Street Journal, New York Times, Bloomberg, and CNBC among others and has given lectures on business and entrepreneurship in the U.S., Canada and South Africa.
+ Transcript
Bill: Ladies and gentlemen, welcome to The Business Brew. I'm your host, Bill Brewster. Happy to be joined by Aaron Edelheit today. As a reminder, this is for entertainment purposes only, nothing here is an invitation or solicitation to buy or sell any security mentioned. As always, you're encouraged to do your own due diligence and assume that this is all opinion based and do your own work, that's the general rule here. With that said, Aaron, how you doing, man?
Aaron: I'm doing great. I don’t know why you didn't start the podcast with you warning me that you were going to take off your shirt. I think that would have been a great beginning to the podcast.
Bill: It would have been maybe I'll get shirtless at some point. There's only so many more layers to take off here.
Aaron: [laughs]
Bill: How’s everything going?
Aaron: You could be a totally different niche of financial podcasts. [laughs]
Bill: It would certainly be interesting. I think that's not really what people are coming here for. This body isn’t-- It's not primed to do marketing in that way.
Aaron: No, for sure. No, I'm doing great. Thank you so much for having me on. I'm excited.
Bill: I've followed you for a while, I've read some of the stuff that you've done. I really like how enthusiastic you are right now about opportunities because we're at a point in the market, when I think it's very easy to look at valuations and say like, “Oh, well, there's nothing to do.” You're tweeting about things that you see going on in Mexico, and we connected over weed stocks, and that whole thesis. I think it's really cool to see somebody that's got like a value-- I mean, you call yourself Aaron Value, and here you are pushing yourself to find interesting ideas still, when I think a lot of traditional value people are probably a little bit down and saying, “Oh, everything's expensive if they're only paying attention to the US.”
Aaron: Yeah, I mean, I feel like a kid in a candy store. I think once you get past the top 200 or 300 US companies, in terms of market cap, I'm frankly, overwhelmed by opportunity. I see a lot of opportunity in international stocks, I see a lot of opportunity in smaller companies, and specifically where we connected was around US cannabis stocks that because of regulatory reasons, actually trade in Canada. The way I'm viewing the world is, when I first started very soon after I started professionally managing money, I went through not only the long-term capital management collapse that then led to the dotcom. I think we're seeing a sequel to 99-2000 where you have extreme valuation concentrated, and that my best years were actually 2000 to 2002 when that bubble burst, and I think that you have extreme concentration in US companies, especially tech, you can see it in anything electric vehicle, SaaS stocks. Once you go a little bit off the beaten path or go outside the US, or some of the frothy markets, I think you can find exceptional companies that are growing or have the potential to grow and invest. I'm really excited.
I should warn you that my mentor was a very, very successful investor. Always says, “Your greatest strength is your greatest weakness.” I should warn you in advance that I-
Bill: That’s fair.
Aaron: -easily get excited. [laughs]
Bill: I like that, saying I guess that the other side of that is, I think that if your greatest strength is also your greatest weakness, then some could also say that your greatest weakness can be somewhat your greatest strength. It reminds me, I've mentioned it a couple times, but Tim Ferriss and Josh Waitzkin were talking about how they think that people's superpowers and their weakness are very closely linked. It's an interesting concept.
Aaron: I completely agree. It's one of the things I've always been interested in investments and business. I don’t know why. As I've gotten older, I've realized that success in business, and many of the top investors will tell you this or the people that have been at it for a while, it's not about who's the smartest, it's not about necessarily who works the hardest. It's not about who does the deepest analysis. The biggest change in my life, and this is the second time I'm now professionally managing money is aligning my investment, and my investment strategy, and the way I run the portfolio to my personality, and recognizing that I can get way too excited, and that I am a passionate person when I'm excited. That can be a real weakness, that can be a real blind spot for me and has been in the past.
How can I tone down the highs and lows? One way I do it is, by specifically trying to invest in companies where I'm taking a very long view and developing an investment strategy that is not so trading oriented. Avoiding the situations that would maybe cause my stress or emotions to impact my decision making, and still be passionate about things, but be passionate about things over the long run, not what's going to happen in any quarter or things like that. Oh, my goodness, my stress level, this time around is so much lower. I feel I am thinking clearer than I ever have been. I think that matching some of your own personality, who you are, to the right investment style, might or something that works well, so that matches your strength, and maybe strength and minimizes your weaknesses might be more important than anything else that you do in investing.
Bill: Yeah, I think that that's right. I have personally struggled with-- I'm not the guy who is going to be able to out model a Tiger Cub. Those guys are going to beat me at that game. What is tough at times to manage a portfolio through is, on Twitter, we all interact with each other. I see how they think about the world. I'm just a retail guy, so that helps, I guess. The other side of it is, I'll say I think the stock that I own is not what I buy. Then the question that comes back is, “Well, why do you hold it?” Honestly, part of it is I bought it at a good price, I'm trying to accumulate wealth over time, I've never seen any time in history where wealth doesn't accumulate to people that own good businesses bought at good prices. If I underperform for a little while, I have demonstrated the ability to make some good buys, and I'll probably find a better use of the capital down the road. I just don't have one net today. I'm not getting off the train of something that's maybe a little bit rich, to go trade into something else. Part of that's probably because I don't have this super precise-- all of these calculations that I'm really, really confident in, and that I know that I can trade out of one and end to the other. I more wait for what I think is obvious, and then I try to swing.
I've been thinking about this a lot lately, but when I was young, I was a pretty good golfer, and by pretty good, I mean, like, I was a two or three handicap, probably a three, I don't want to overstate it. There's a big difference once you get down to those numbers. I was my best when I played more in the realm of feel. You can't just get out there and feel your way into golf, you’ve got to work at the stuff that matters to get good at it. Where I started to mess myself up is when I started to listen to everybody that told me I had to be really, really precise. Then, I became mechanical, and I never really allowed myself, I think, to develop into what I could have been. Also, I don't think my mind was mature enough to be the very, very good golfers, but what I'm trying to do is implement that knowledge of myself and say, “Okay, well, just because you're interacting with people that demand precision, that doesn't mean that it's you, and that can work for them.”
Part of why I say I'm not qualified to run a fund, is I don’t know if I'm comfortable telling other people that they should run my strategy or that I'm competent to run their money for them. It's just a thing that I've been really ruminating on over the past couple months, especially as some of these stocks have been golf balls off of a street. Right now, the prices that I purchase them at are like not even reflective of the current reality. So, I like how you said that.
Aaron: I think of it as false precision. As I've gotten older, I used to be so focused on the short term-- not so focused on the short term, but so worried about the short term. When you're more worried about the short term, instead of these longer-term trends, then any quarter, investors really love certainty, and they really love the straight line. Life isn't like that, business isn't like that. You can have weird things pop up. Just continuing on, just what's helped me is thinking more directionally about where things are going, and not really worried about the short term so much unless there's something that indicates like management incompetence, or a fundamental change to the thesis. What's helped me is I rely a lot less on trying to be precise in the short term, because I find that personally my skill set is not determining how great a certain quarter is, but I can-- if I can see, if I feel I have an edge about where things are going, then I don't mind being early. I don't mind being wrong in the short term, but I can arbitrage, so many people are so focused on the short term. Not that they're afraid to look dumb, or not make money in the short term, that I can actually arbitrage that concern and outperform in the long term.
There's a huge advantage today in just having a longer time horizon, and everybody else. If you can see it very, very smart people on Twitter, who feel they need to be in what's ever working now. Or, not be seen as wrong. I think there's also this thing that I've realized is, when I first started managing, money flow’s important to do both longs and shorts and really have that hedge fund model, really manage. I used to send a monthly report to investors, which I think is absolutely terrible now, I don't even know why I did that. This whole idea of like minimizing volatility, if that's your strategy to run, like to try to minimize volatility, or try to prove that you're investing and that you're not going to be as volatile, and then you'll make-- I think there's an opportunity to just say, “Well, no, I actually don't think volatility is a risk. I'm going to take a longer time horizon, I'm going to marry the capital that understands that and embrace volatility--" or just accept that it may happen. I think you can outperform, because you're just not playing the same game that everybody else is playing. I think there's real, real value in that.
Bill: Yeah, I think you're right. I need to be measured in how this comes out of my mouth, because I'm not sure what I actually think.
Aaron: [laughs]
Bill: I agree with you intuitively. I have been fortunate enough to outperform a lot of the reason as I put up a big year last year, by my standards, a lot of people had bigger years. I do wonder, as I've been able to have conversations with other investors that I just have mad respect for. I mean, like, you're one of them.
Aaron: Thank you.
Bill: I am shocked at the guestlist that I have been able to have. To be fair to myself, I'm really proud of deserving the guestlist that I have, but if you had asked me when his whole thing started, what would I build this as? I wouldn't say exceeded my wildest dreams because I love Howard Stern and being the Stern of Finance is probably my wildest dream. It certainly--
Aaron: [laughs] See, this is why you should have taken off your shirt. This--[crosstalk]
Bill: No. [chuckles] Yes. I'm going to show up to Sohn one day with my ass hanging out as Fartman, and then I'll really be him. I think that it certainly is exceeded my base case. I guess that what I have realized is what I'm up against. There was a certain amount of naivety when I started all this, that I think I was like, “Oh, yeah, models are BS, and the short term is what everybody's focused on, and the long term is what you need to look at.” I still think there is a grain of truth in all of those statements. I also respect the people that are doing like the short-term work. I just think it's a game that--
Aaron: Oh, no, for sure. It's just super hard.
Bill: Yeah, no, I'm not saying that you don’t. Yeah.
Aaron: You have to just figure out the game that you're playing and who the participants are. Back at my career, I mentioned before that I started managing money, and then part of my career is that I started buying foreclosed homes, fixing them up and renting them out in 2009, I have a very contrarian bent. A friend approached me, and we bought a house, a four-bedroom, two-bath house in Charlotte, North Carolina for $75,000. We put $10,000 into it, rented it for $1000 a month. I did the math in my head. I was like, I may not be a PhD in calculus, but these are pretty good economics. As a side portfolio, I started building that up. People looked at me, like, “It was crazy.” I started literally with just buying a million dollars’ worth of homes. People like, “Why would you start such a small--?” I was like, “I don’t know, it may turn into something.”
The reason I mentioned the story is fast forward to 2011, and now I have like 250 homes. I had 250-home portfolio, and then I had this small hedge fund that I literally built from scratch. I started above my parent's garage, and my dad wasn't even sure what I was doing. He used to cut out job listings and put them in front of my computer in the morning. They were happy that I was home. They literally used to put it, and I'd be like, “I actually have a job, I'm managing this friend’s money, who sold his business, and I'm going to try.” Finally, he realized how hard I was working and that was fine. Eventually, I moved away after two years, but it was a great start, anyway.
Bill: Why did your friend trust you, you think?
Aaron: Let me get to that. Let me get to my original reason why I was mentioning. End of 2011, I'm looking at my competitive set. I'm running a small cap value fund, the end of 2011. It's done very well, outperformed the market by 800 basis points from 98 to 2011. I'm looking at buying homes in Atlanta, Georgia, and Charlotte, North Carolina, where I'm showing up at the courthouse steps. There's no one there. There's literally just me and they're like, “Highest and best. Here's a home for $50,000.” It's a safe suburban three-bedroom, two-bathroom, I was looking at my competitive set. This is before colony and Blackstone and everybody. I suddenly dawned on me and I said, “Wait a minute, I'm competing against like Dan Loeb, Tiger Cubs, artificial intelligence, computer scraping and all that stuff?” I'm like, banging my head against the wall, done well, but like super competitive financial markets, best and the brightest, everybody's going there, and I'm competing against no one here. I said to myself, “Oh,” and I wound down my hedge fund, and I just said, “Hey, I'm going to go here.” Then went on a wild journey, where I grew that from 250 homes to 2500. It was whole another experience.
I'm very drawn to where the competition is less, or where other people aren't looking, and that's been part of my success or seeing opportunities. Why I mentioned it is, I think it's really important when you're thinking about investing is when you're asking what your edges. The other side of it or parallel to it is, who are your fellow investors or who are looking at certain investments? Why are they not there? Or, why are they not investing? Then, in the future, why are they going to care? That's also a very important point. That's what draws me into cannabis right now. That's what draws me to Mexico, in all of these other things is really asking the question, who's sitting around the table? Who's going to want to join?
To your other question as to why that person, you have to go way back to actually when I was 9 or 10, I don't remember. I'm going to date myself here, but my dad had opened the Wall Street Journal, and there's a whole list of stock tables. I asked him what it was. He explained it to me and it was like, “Wow, this is really fascinating.” My dad was an entrepreneur, he set up his own insurance brokerage and he would invest is up on the side. I was immediately hooked. My dad loves telling the story that he went into a brokerage office at some point for something and brought me in. Some guy taps him on the shoulder and says, “Hey, is that your son?” My dad immediately thinks, like, “What has he done? What's wrong?” My dad's like, “Yeah, yeah, that's my son.” He was like, “Does he know what he's reading?” I was just looking through the newspaper-
Bill: That’s funny. I love that.
Aaron: -and so. Fast forward in high school, all I talk about stocks. In college, all I would talk about, like, why Philip Morris was undervalued versus cash flows. Definitely didn't help with the ladies.
Bill: Yeah, but that was a good time to be buying Philip Morris.
Aaron: Yeah, but everyone would be like, “Wait. This guy, all he's interested in is stocks.” I actually met this friend of mine and we were just talking. Anyway, he went to go start a company with his father. Two years later, I'm researching stocks for a now defunct financial publication, but he calls me up one day and is like, “Hey, I sold my company.” I'm like, “Oh, my God, that's amazing.” I was like, “What are you like a millionaire now?” He's like, “Well, yeah.” I was like, “Oh, wow.” I was literally the only person he knew who knew about anything about stocks, and so we just started talking. He said, “Well, hey, can you help me out and just manage?” I started with, literally, like $1 million and I had no money on my own and I said, “How can I make this work?” I was dumb enough to not know what I did know.
I moved above my parent's garage, I had meals, I had no rent. All I had to do, and my parents lived in New Hampshire at this point. I'm in the middle of nowhere. There's no distractions. I did that for two years, and then grew it and did very well and was just completely in a different place than every other person, and then grew that. That's why I got lucky because all I talked about was, my interest was so focused, that when someone was looking for help, they thought of me because they knew it's all I thought about.
Bill: Yeah, that's cool story. I like that. My time now is not spent running my public portfolio at all. That's probably another reason that I'm fine. I guess what I would say to people, like, if they hear me say something that a stock that I own is at a price that I wouldn't buy it at. The natural question back is like, “Well, then why don't you sell it?” The answer to that question is, like this podcast right now is my next best idea. That is what I'm working on. If my public portfolio underperforms as a result of this podcast having attention, I view this podcast as career diversification risk, like career risk diversification, and my VC basket of my overall portfolio. I'm okay, accepting the fact that my public portfolio may have a little bit of neglect in it. I still think about stocks constantly. It's mine. Who cares if it underperforms for a little bit? If there are businesses that are good businesses that I can continue to own for the long haul. I can deal with a 30% drawdown, marked down and it doesn't actually change my life materially relative to what I'm focused on. If the upside works, that would change my life. That's how I think about this stuff, and I like that you're saying that.
Aaron: Yeah, but then just depending on the price and valuation of the business, there may be times where you are a buyer and where you're not a buyer.
Bill: Yes, 100%.
Aaron: A great example is, let's say that definitively a stock was worth $100, and that you knew it was worth $100, you had an edge, you were able to buy it at $50, and you knew this company not only was worth $100, but was going to compound at 15% a year, so that if that value is going to grow. Well, what happens if all of a sudden you buy it at $50, and then couple months later it's at $90 or $92?
Bill: Well, this is the part the problem that I'm suffering from.
Aaron: Yeah, do you sell it? Well, no. I mean, if it's still going to compound at 15%, like, it's still a really nice investment. Is it as exceptional as when you first bought it? No. I think the more important question is, has my thesis changed? Or, if you watch a stock go from $50 to $200, well, then that might be a very different conversation. Yeah, when stocks start doing things that don't make any fundamental sense, or way overshoot your most wild expectations, well, then I go back to bulls and bears make money, pigs get slaughtered. I think it also is important to not fall back on false precision, and really make sure that you're not selling too early. This is the classic value investors dilemma is watching a stock go up a couple 100% when no one likes it, and then you sell and then it goes up like another 500%. I think there's a balancing act that needs to go on.
Bill: No, I agree with you. I'm thinking of a couple names in my head. One that I'm long that I'm thinking about is Disney. I think a lot of people would argue that Disney is, at least not trading at a huge discount to where it should. Maybe agreeing that it's somewhere in the range of fair is a good way to avoid an argument that doesn't need to be had. I bought it when it was really cheap. When I look at what they're doing with Disney+, and what they're able to do with the Star Wars franchise, and what Marvel's able to do, and how they're pivoting it into a TV franchise, and what that asset gives them and how they can spin off characters and how that allows them to invest in the parks, and like how the whole business model works together, I'm not going to sell that if it's a little rich. What am I going to do, I'm going to go eke out a little bit of return in an asset that as well? That doesn't make any sense to me. I guess that like, maybe where some of my insecurity about running outside capital comes from is, if that's a sufficient answer to be like a pro's pro. I know, it's the answer that I need to have to get me to the finish line. That's the most important question for me, so it may not be good enough to run a hedge fund, and that's fine. I'm just me.
Aaron: I think that's really important that what kind of investor you are. It's also important to think about, whose capital are you investing? What are their expectations? So many people were like, “I have got this great investment strategy. Then, I'm going to raise money, and then I'm going to make and it's going to be so easy.” I can tell you from my experience, that everybody's a value investor, everybody's a long-term investor, until they start losing money. Then, you start you find out who your investors really are. The people that call you all the time, the people that contact you all the time and my second time around. I'm not marketing. I don't want to grow for growth’s sake. I did that with the single-family home company, the American Home. I raised crazy amounts of money, and I don't want to grow for growth's sake.
To your point about the podcast, I started a Substack newsletter in July. I've really been more intentional on Twitter, and decided to lean in. I'm finding that I actually love writing, and communicate, and sharing. I actually may love it more than actual investing. What's great about marrying writing with investing is I can say, “Hey, I have these ideas. I have a philosophy and I have a strategy.” Why would I report returns to investors if I don't want their money? Is because I want to show the scorecard for how it works in the real world.
Bill: Yes, dude. That’s why I'm posting my returns.
Aaron: That's exactly right.
Bill: 100%, man.
Aaron: This is how my philosophy and strategy works in the realtor. This is why you should listen to me, or at least not listen to me. Listen to hear what I'm saying, not just blindly follow me, but just engage with me in some way.
Bill: Dude, I couldn't say it better myself. I mean, that's why I said like when I posted my work turns, I never expected to be a guy that was in people's ears and had 20,000 followers on Twitter and like, I fucking hate the people that do not take their responsibility of having followers, like, I almost view it as a fiduciary relationship. That's too far, that's not quite how far I go with it. Man, do I care about the people that follow me. When I see people that are using those people in, like, if I perceive there to be some usage in a relationship, it just like sets me off.
Aaron: I completely agree. Do you follow Alex Danco?
Bill: I don't think I do.
Aaron: Oh, he has this-- so the real--
Bill: I might. He's not my feed, let's put it that way. He is not somebody that I regularly see.
Aaron: Okay. I started following him. He writes newsletter and occasionally interview. I've seen him a couple times interact with Mario at the generalist, I don’t know either of them personally. He wrote a post that really spoke to me about gift culture. It spoke to me so much I wrote a post about it. That is that if you think about the internet, and you think about like Twitter, we are in an age of abundance, overflowing information. How do you thrive in an age of abundance based on history? It turns out that the most successful communities or societies are ones that engage in something called a gift culture, and that is that the more you give, the better off for-
Bill: Yeah, the more you receive.
Aaron: -community is and the more you receive. It really, really struck me. Part of what I would say is that the people that are using are doing a short term, not only is it unethical, but they're not going to be enriched in the long term, like you and I are now maybe their goals are very different as just to rack up dollar bills. We know plenty of people in SPACland-
Bill: Yeah, I think they'll beat me in the money game.
Aaron: -and playing people, and I share your same feelings towards them. It's not necessarily a fiduciary, because you're not managing your money. I like that you said. To me, it's like, if I'm playing the long game, and I want to treat them how I'd want to be treated, I'd want to say things to them, and learn and share those learning, so hopefully, they share with me. One of the coolest things is writing the newsletter and doing all these things, is people giving feedback, even criticism. I wrote something where I thought the share count of this one cannabis stock was one thing, and I had read it wrong, it was written in a confusing way. I written it wrong and the person was like, “No, actually, this is the right number, you're wrong.” That's actually really, really valuable, or that you need to pay attention that this dynamic of a pipe and this and that, and I have just missed it.
It also makes me more careful, because I don't want to be embarrassed. I don’t want to be, like, I have false information. I'm getting ideas and people are sharing back and forth, and so I now have this idea flow that I wouldn't have had before. The way I view it is that I'm giving I'm receiving so much more. Not only am I exposing people to contrarian ideas or ideas that are outside of what they normally see. Then I put a post last year after Buffett invested in Japan, and I was like, this is really fascinating. I'm interested in Japan. I'm an investor in Nintendo, I see the valuation difference between Japanese companies and US companies. Then, all these people just started saying, “Oh, you should look at this stock.” It was like, it was overwhelming. Then all of a sudden, I had like a list of ideas that I had never seen before.
Bill: Yeah, no, I think it's cool. We were talking a little bit before this started. The one thing that I feel like I have to manage is, when-- Look, I don’t know how to frame what I'm about to say and not sound like a little bit arrogant with it. It's what I think so I'm just going to say it out loud, and hopefully people forgive me. I feel like this podcast could be on the precipice of becoming something big. If that is a true assumption, I worry that I'm going to have to be-- I already am much more guarded about who I invite on and how I get guests. One of the things that's tough is I don't want to be like Rogen, where you'll have anybody on who can say anything they want. On the other hand, like, I really value highlighting people that other podcasts aren't highlighting. I really like finding the people that are out here doing similar stuff that maybe don't have the name, so they're not getting they're just not doing the circuit. I like that stuff. A lot of like, I mean, I think you and I are peers, just talking to you, we did that space together, and I was like, “Man, he's a cool dude, we do this.”
Aaron: Oh, thank you.
Bill: We see the world very similarly, so like, “Why the hell wouldn't I want to have you on my podcast?”
Aaron: Thank you so much. You know what I love about your podcast is one of my best, one of my operating assumptions for investing in the world and how you should operate your life is, if you look for situations where there is low downside, uncertain upside. This is literally what I'm trying to do in my fund right now. Low downside, uncertain upside. One of my biggest opportunities is where I take that and you think about when I first started managing money, let's say I started managing money, I'm above my parent's garage. What's the worst that could have happened to me? I would have had to go find a job?
Bill: Yeah.
Aaron: I was fine. I wasn't burning money. I didn't have this crazy team-- I literally had one client. I was above my parents’ garage, I had free rent and free food. There was no distractions. When I started buying foreclosed homes, I had a job managing money in the stock market, and I had savings, started a small partnership, raise some money from people and just saying people would ask me, like, in March of 2009. Wow, you can't get a more dire scenario. The March 2009, I'm raising. They would be like, “Why are you raising a million dollars? That's like 16 or 17 homes? It doesn't make any sense. Why are you doing this?” I was like, “I don’t know, it may turn into something.” It's the same thing of like, when I started writing the newsletter, I started writing the newsletter in July of last year, and then 50 people started following me. Now I have almost 2200, I have no idea where the newsletter is going to go. All I just know is I'm loving, it doesn't cost me anything outside of time. What I love about what you're doing with the podcast, and I think you're exactly right is, let's just say it doesn't hit the big time.
Bill: Yeah.
Aaron: What's the worst that would have happened to you? You wouldn't have awesome conversations-
Bill: Yeah, my opportunity cost is nil. Yeah, that's exactly right.
Aaron: -with all of these people, you never would have met, and you're now richer for it. You have all these different mental models and different investing styles that you can choose from?
Bill: Yeah, Well it's weird, man. When I when I started-- it's funny that this is the way the podcast goes, I thought we were going to jump on and talk about weed, and now we're talking about all different types of stuff, which I actually think is like, much more useful--
Aaron: We can get there. [laughs]
Bill: We will. When I left, I was underwriting loans, it was first lien debt at commercial bank. I leave there to try to figure out how I'm going to manage my money, because I really didn't trust indexes. I'm starting to trust them a little bit more. I look at some of these valuations out there. I'm like, “I don't think that I want my money to be market cap weighted in some of these bets. Whether or not that is a correct assumption, if I don't trust it, and it goes wrong, I'm going to bail. This is the typical, you can't borrow somebody else's conviction thing. If an index doesn't work, and I lost my money in an index, thinking what I think I'd never be able to look myself in the mirror. I will not make that prob-- That's the one thing that I will never lose to again, is fading myself. I guess I can start--
Aaron: Then you will sell at the wrong time, you'll make the wrong because you don't have the conviction.
Bill: Yeah, well, and I'm just tired of not betting on me.
Aaron: I still make this mistake sometimes, is the stock go down, and I'm like, “Oh, no.” Whenever there's some emotional charge when a stock makes a movement against me, I know what my conviction level is. You immediately know what your conviction level is, if you're suddenly concerned about the day-to-day movement of a stock or a commodity, like I found last year that I was tracking oil and natural gas prices. I actually wrote this whole change in my philosophy around energy is just from challenging myself, why if I have this great long-term thesis, that oil and natural gas are super cheap, and they're going to go great? Why am I tracking day to day? Then the more I dug, the more, I have to really understand the renewable side, because I've read enough to be dangerous. Then, the more I dove down, I realized, “Oh, I really don't have conviction here. The probability said is not what I thought it was. I really shouldn't be invested in this because renewable energy is growing exponentially. That's unconsciously what's bothering me, and that I'm not as comfortable with the downside as I was before.
Bill: Yeah. No, that makes sense. That makes a lot of sense. It's hard to know when you know-- Chris Meyer, the guy that wrote 100-Baggers wrote a book, How Do You Know? It's on my shelf, I haven't read it, I should read it, but I bet it's pretty good.
Aaron: [laughs]
Bill: I've read what he's written ,and I follow him on Twitter. I met him through Manual of Ideas. I like that guy's mind. I suspect if he put it in a book, it's worth somebody's time if they're interested in delving into this topic, but I can't recommend it, because I haven't read it myself. I guess, I did, I will, I digress. You want to talk about weed, cannabis, US cannabis, multi state operators?
Aaron: Yeah. Let me dive in. I actually think it's really valuable, so you remember that we already had this discussion to this point, you'll understand why I'm interested in cannabis. I've already told you. I like to fish where I think there is lots of fish, where there aren't other fishermen. Or, they haven't realized there's this great fishing spot, that might be the better analogy. I like that. I like situations where I feel the downside is low, but the upside is uncertain. I don’t know exactly the timing or when it's going to play out, and if I'm wrong, I feel like my downside is pretty low. What fascinates me about cannabis is just a conversation I recently had, and I wrote about. I get in touch through Twitter, by the way, very bullish on Twitter, because of this, because of how we meet, and you meet up everyone now--
Bill: Dude, it's funny, like everybody on FinTwit is-- I'm worry that we're just one big Twitter-- [crosstalk] Man, that changed my life.
Aaron: Maybe, but I drive so much value from it. They could literally say, “Aaron, it now costs you $20 a month.” I'd be like, “Go for it. What took you so long?” [laughs] [crosstalk]
Bill: Man, I would, too, and the other thing is, not to divert the conversation to Twitter, but I talked to a class yesterday. They were asking me how I think through Twitter. I was like, “Look, I think if you take these assumptions, and you look at this ARPU idea, I think that you can get yourself to somewhere that it can work.” Then I said, it also helps that I feel like I'm a little bit in the center of what they're trying to iterate on. I've been able to interact with some of the people there because of it. Then, I said finally, like, “Let's say I'm wrong. It's like 4% of my portfolio. What's my real risk here, 50%? Maybe. I mean, it's a strategic asset to somebody. I might lose 2% and I've got an asset that I really love owning. Who gives a shit if I lose on that bet?” I love owning this asset. I've never seen another asset like this in my entire life. I don't think it's going to lose its relevance in the world. I won, like, I don’t know what--[crosstalk]
Aaron: What I see is, I've never loved something more, that's so literally under monetizes every part of my relationship. It's like this free utility. I'm always like, “How is this possible?” Anyway, so going back to weeds.
Bill: They just rebuild their ad stack, by the way.
Aaron: Yeah, it's all of that.
Bill: Maybe it used to be crappy, but like, let's see what happens over the next three to five years and then we can talk about whether or not this is a dumb idea.
Aaron: No, for sure. This money manager gets in touch with me. He's like, “Hey, I saw you writing about cannabis.” He comes and says, “Hey, there.” I have a conversation, manager’s over. He's one of the managers who manages for a firm over $80 billion. He wants to do cannabis.
Bill: Woo. That’s big money.
Aaron: Okay, 80 billion. Yeah. He and a couple other the money managers who professionally managed different parts of the $80 billion are not allowed to invest in cannabis. Okay. Is he calling to find out, pick my brain to learn more? No. He knows about as much as I do, or more, has built sophisticated models, much smarter guy than me, but his compliance department won't let him invest because of the Federal illegality. What attracts me, it's just imagine--
Bill: First of all, just so people know I'm long this idea to for the exact same reason. I don’t know how to handicap the end state of the cannabis industry and we will discuss that, but at the core, this is a funds flow bet for me, like this is almost a structural special situation that if I don't bet it, I'll never forgive myself when it rips.
Aaron: I just want you to think about it, going back to what I was talking about before is, just think about the people you've interviewed on your podcast, you're competing with them. It's this weird thing where we're trying to learn, we're trying to be cooperative, gift culture, all that great stuff, kumbaya, we all get together. We really tried to make more money than the other person, or just do it better in some risk-adjusted format. Just imagine the sheer brain power that not only is human, but now computer that goes into trying to make more money than the other guy.
Bill: Oh, I know, it's crazy.
Aaron: Now, now think about, you have this $100 billion market.
Bill: I like how passion that you get. I do like that.
Aaron: Yeah, thank you.
Bill: You're welcome. [laughs]
Aaron: Most of it's illegal. Okay, so you have $100 billion existing market, and I don’t know what the market’s like, the legal market’s maybe like 15 or 20 billion now or somewhere in that range. Imagine that 99%, it may actually be more, 99% of your competition is not [crosstalk] allowed to invest. Then, what's amazing is the more research you do, you find that this is actually being normalized, it's being legalized, that the growth rates are off the charts, the usage, the benefits to society, we can go into all of those things, and that this will--
Bill: I did a lot of due diligence in college too, so I have a great sense.
Aaron: Yeah, that's right. This is going to be like $100 billion business or more, that runs through companies, and no one's invested in it, or almost no one's invested in it, for a variety-- First, you have the compliance reason. Then the other thing that I'm fascinated by is, and I wrote about this is, how many of my peers who are frankly, who I talk to on a regular basis. They're smarter than me, who, in general can do better analysis, or have greater resources than I do, why are they not invested in it? I think it relates the second reason why investors are not beyond the compliance is that I was trying to understand, if you're a state, and you allow legal medical marijuana, it is super easy to get a medical card and get yourself cannabis. “I’ve anxiety, I can't sleep,” whatever. You get the doctor, they give you the medical card, it's like nothing. It's the easiest thing in the world. I was trying to understand when a state then goes from medical to adult use, which is means anybody can do, you don't need the medical card, which literally might take you 5 or 10 minutes of your time.
Bill: “I'm starting to get back pain, I might have to go to a doctor here soon.”
Aaron: Yeah, that's exactly right. Why do sales go up two or three times when a market transitions from medical to adult?
Bill: Destigmatize.
Aaron: There's a stigma. I believe most people want to follow the law.
Bill: Yeah, I think that-- [crosstalk]
Aaron: I mean, I do in general. I think that there's a second psychological thing that investing in cannabis just feels wrong. It's like, how would it look? Even before I started writing about it last year, I asked myself, and I said, “Am I ready to write about this? If I'm going to be known as like the weed guy or the cannabis investor.” Then I just realized, no, that's silly. Even now, and I've had one or two people DM me or reach out to me and basically say, “Hey, I actually am dipping my toe in the water, but I'm not doing it publicly.”
Bill: Yeah, why would I talk. Dude--
Aaron: There's no upside to people that have bigger reputations or bigger investment pools.
Bill: Yeah, well, so I really enjoyed marijuana.
Aaron: [laughs]
Bill: The reason that I do a lot of the times is like, I mean, I've talked about-- I'm concerned about alcohol, and how it will interact with my body, and I don't really want to have that as my primary vise. Pot has never given me a feeling of addiction ever. Pot has never made me want to do really stupid stuff. Pot has occasionally made me want to sit around and smoke more pot. I mean, I will admit that that's the downside, but I haven't heard anybody doing it. I'm a reasonably productive member of society. It helps me relax. I smoked heavily in college, I don't smoke heavily now. I really didn't for a long time. What am I? I've been smoking for 20 years, and I still just two months ago, got myself to be able to be like, “Okay, I'm just going to publicly admit this,” because of all the stigma around it.
Aaron: Isn’t it crazy? There's this stigma. It's actually one of the Super Bowl cases is how much that stigma is holding back. If you just think about having a party or a wedding or something, alcohol freely flows. Let me tell you why I'm specifically bullish on cannabis is--
Bill: [crosstalk] -I'm just going to let you go, man.
Aaron: You have the element. No, I don't mean to interrupt but--
Bill: No, I love how passionate you are about it and it's fantastic to listen to. I do want people to know, though, like when they're listening to this, you are listening to two people that are build up on an idea. I only say that because I don't care about the pros that listen, I do care a lot about the retail investor. Understand, you listen to people that are pretty hyped up right now and this is a decent sales pitch.
Aaron: You got to do your own due diligence.
Bill: Don’t listen to this, and go out and buy your own stuff.
Aaron: Then, understand-- That's a great-- I'm wrong a lot. I actually want to admit when I'm wrong, and I want to learn and I'm continuing to learn, and I make mistakes, so absolutely. I could be wrong about this.
Bill: If what you hear is wrong, please reach out to both of us and tell us why we're wrong. I mean, that's half the benefit of the podcast, too. All right, continue. Sorry, I didn't mean to cut you off.
Aaron: No, for sure. It's very valuable. The reason that I got really interested in cannabis was not necessarily about getting high, but it was around the health and wellness aspect of it, when I realized just how big the market was going to be. Let me throw out some data points, it's just completely fascinating, you may or may not have seen. One is, when cannabis is legalized, whether medical or adult use, opioid use goes down significantly. Pharmaceutical prescription numbers go down.
Bill: Have you seen the alcohol consumption numbers? They plummet.
Aaron: Yeah, beer and wine, that as well. Here's what's even more fascinating. Workers Comp claims go down. You start asking yourself, “Wait a minute. Why would Workers Comp claims go down upon legalization of marijuana and marijuana usage go up?” Then you start realizing how many people are self-medicating with opioids, with alcohol, and with super strong pharmaceuticals, that are actually affecting their job performance? How many people are in pain, are suffering from insomnia, anxiety, depression, and you realize that marijuana is actually this benefit-- one of the big fears of marijuana was when it was legalized, you'd have teen usage go up, teen usage falls. There's all of these benefits. One of the things I've suffered on and off through my life is insomnia. I hope that you've never had this--
Bill: I kind of suffer from it now. I mean, not insomnia but sometimes it is hard for me to get more than four hours.
Aaron: Yeah. Last September, I had a really bad bout of it, where I would either wake up at 1:00 AM after being asleep for like two or three hours and I couldn't go back to sleep. I couldn't go to sleep till 5:30 or 6:00 in the morning. What I found is, I went down to the local dispensary, got chamomile tea with a low dosage of THC and CBD, got some gummies, some chocolates low dose, went ahead and then for week took that right before I went to bed. Reset my sleep system. Now I'm sleeping great. I don't wake up groggy. I don't wake up with a hangover. I feel fresh.
Bill: Was it like a 2:1 CBD THC?
Aaron: Yeah, it's something like that, but 5 milligrams, some really low dose.
Bill: Yeah. No--[crosstalk]
Aaron: I just realize, yeah, have you've ever taken like an Ambien or one of those over, you're on a plane flight or wherever you wake up and you're like rrrrr. There's other people who have like, “Hey I have some extra muscle relaxants, and I'm going to take them, and I guarantee it's going to knock me out.” It's like, whoa, you actually don't really want to do that. You just realize the health and wellness aspects of this are just so powerful and strong. You realize how big the markets going to be, and that's what got me really bullish on cannabis is that I realized how many people could benefit. Then they found that kids who have seizures can benefit, soldiers with PTSD will benefit, people trying to get off of powerful opioids can transition to marijuana, that they're finding now initial research is showing that the toxicity of cancer treatments, that they are tolerating these super powerful cancer drugs better when combined with THC, or cannabis usage, because there's some anti-inflammatory properties to it. We're just scratching the surface of something that's been used for thousands of years, and has been demonized, first for industrial reasons, then for racial reasons. That really isn't backed up by science or data. They find that people work out more who use cannabis, they find out that--
Bill: Work out more than who? They're not working out more than like sober people. I don't buy that. Maybe then alcohol.
Aaron: I'm telling you, I just read a study that extreme runners, there's a problem-- There's this totally crazy, that extreme runners are with those extreme distances, I don't get it and all, but they'd run 50, 100 miles or whatever, that there's a controversy in the sport, that some of them are using cannabis, and that it may be a benefit--
Bill: Like for healing, yeah. I could buy that actually.
Aaron: There may be a benefit. Is it banned? Is it not? Are they cheating? Are they not? Then you realize you blow up the stereotypes of the stoner sitting on the couch not doing anything, and then you think about all the athletes, NFL and NBA, who've got in trouble because of cannabis, and instead are then hooked on opioids, and you think about the damage to their body. To me, the health and wellness is pretty clear in the data. It doesn't mean that it shouldn't be necessarily regulated. You shouldn't protect children, and children's young minds and all of that. That's what gets me so fascinated of this very large market. It's now becoming legal and normalized on a level when you have like Ellen DeGeneres talking about drinking marijuana, I think it was like a juice or some kind of drink on her program, and then you have more and more people coming forward and saying this, insurance companies now considering it-- you have the Alabama State Senate approving medical marijuana.
The thing that I was thinking about the other day is, you think about marijuana and the legalization effort as a very progressive cause, but I can't tell you how many country songs going back to Hank Williams and Charlie Daniels, there is about smoking marijuana and getting high. The idea this is either a left or a right, or whatever. This is used by almost everyone. Then, you get to the whole-- you go to the political realities of the tax revenue, the jobs, and you just see what's happening. This past election, and even this year, New Mexico and New York and Arizona and New Jersey, and just state after state just legalizing it while you have this weird federal illegality. This is the backdrop of what gets me so interested.
The last thing I'll mention is, the weirdest thing is that you have us cannabis companies that you have to buy in Canada. They only trade on the Toronto Stock Exchange, they trade on the Canadian Securities Exchange, and something called the NEO.
Bill: Yeah. Let's get into a little bit about the licensing and how different states have their licenses, if you're cool with that.
Aaron: Yeah, for sure.
Bill: One of my questions is, you have these Limited License availability. I was talking to Jake Taylor about, he said, “There's a price to book ratio that I'd be okay buying these companies at.” I was like, “Dude, the thing is, what that license is booked at on the books is immediately worth way, way more. You can't look at it on a price to book.” Where I will give his thoughts some credit, though, is what keeps me up at night long term in this thesis is how does the Commerce Clause impact interstate commerce, and whether or not--[crosstalk]
Aaron: Oh. Now you're getting into the right to the heart of it.
Bill: Whether or not you're going to unleash a scenario where actually similarly situated companies start to all compete with each other in a federally legalized system. That is almost my worst-case scenario for the industry.
Aaron: No, one, so you just--
Bill: You feared worst case scenario, if that makes sense.
Aaron: Yeah. Let's set the backdrop for people who may not know. The rules because there's no state federal legality, different states have radically different rules. For example, in Massachusetts, one entity or any of the related parties in that entity can only own three retail dispensaries. In Florida, if you own a retail dispensary, you cannot buy weed from any other company. You have to grow it yourself. None of the cannabis can cross state lines, which appears to violate the Commerce Clause, and the whole reason why the United States was created in the first place, is that you wouldn't have Georgia saying we don't want Virginia tobacco, like that wouldn't have worked, you wouldn't have--
Bill: It's the Wisconsin Milk case.
Aaron: Yeah, that's exactly right. You have this patchwork of states, some of them are medical, some are full legal, and they have wildly different rules about how you operate, and what is allowed and what isn't. You have that situation where you'll have a state like Washington and Oregon where they just let a free for all and the price of marijuana is much lower, and it's a much more hypercompetitive state. Then, you have a state like California that’s kind of in the middle, where they've allowed a stuff, but it's pretty regulated and it's in the middle. Then, you have something called Limited License states, where that's where the state just said, “Hey, we're going to make this super draconian, and we're just going to really tightly regulate this,” and it becomes such a high regulatory barrier, that the prices and the income that can be earned from cannabis companies are crazy. Just the price differential is, like, California weed may be $1800 a pound on a wholesale basis, but in Massachusetts could be four grand. There is an outsized profit opportunity. Then you have states that are open and I want to say there's 15 licenses in New Jersey, they're about to go full legal. The illegal market in New Jersey is already massive. It's some of these markets like New Jersey and New York are going to be massively undersupplied for quite some time.
Bill: Yeah, that said, real quick. When you have that pricing differential between the legal and the illegal market. I think that it's not, at least today, I think it's a product that the illegal market is a very good substitute for.
Aaron: Well, yeah, but just let's say you just want an edible or you want--[crosstalk]
Bill: Yeah, I'm just playing devil’s advocate here.
Aaron: This is part of the reason the legal market is eating the illegal market is a couple of factors. You have choice. It's not just the flower. You have access, you're not going to your local drug dealer, you have safety, you know there's a real company that is it as being like-- the safety protocols in cannabis right now, from what I can tell, are some of the toughest of any sector in the United States, because of the sensitivity around cannabis. Then, there's the quality, you think about what companies can do with size and scale, that the quality of what's coming out is just exceptional. In terms of what you can get. The price-sensitive consumer or the heavier user, well, yeah, of course, you'd grow your own or get from your buddy, you can get from somewhere something, of course, but when I look at the larger, broader market, and what's really going to drive, it's so much easier to go down and be like, “Oh, it's already pre-rolled for me,” or, “I just want to put something underneath my tongue,” or, “I'm just going to have this edible,” etc., you have all these different choices. Or, “Just have it in my tea or something.” I think that that's part of the thing.
Bill: That’s right. I think you get the professional class, like, I'm not trying to risk my family because I went to some drug dealer on the corner, no way. If I can just go to the store, that’s much easier.
Aaron: Yeah, for sure. Over time, you are right, they should normally-- even without that you'll eventually get the capacity. I think that what people see, though, is there's two different aspects to the way I'm thinking about it. I'm still processing in here, is very important that I don't view myself as some huge expert. I just don't see many other people analyzing or researching this industry, who are either journalists or don't have a private equity fund focused on cannabis or a hedge fund cannabis fund, is you need to separate out two different aspects of what may or may not come. The first part is wholesale, which is that if interstate commerce does come, well, then you're going to be growing it in the places where every other agriculture grows from. I'll get into that. Then, you have the actual distribution, and the retail outlet. This is what's really important. We're in Virginia, or New Hampshire, right now, you can only buy the hard alcohol from a state liquor store. That is not affected by the interstate commerce clause.
Bill: That makes sense. [crosstalk] -distribution locked in.
Aaron: You're going to have a lot of value in the companies that have the distribution to the customer, the retail storefronts that can figure out a way that they're controlling the distribution to the customer on one end, in the long term, whenever that happens. Then, on the other end, you're going to have companies that have size and scale and are in the right places that are going to just blow everyone out of the water eventually. The way that I'm thinking about is like, when was the last time you had like Florida wine? Or Ohio wine? This is why California to me is so interesting, is where is all the lettuce grown in the US? [crosstalk] It's like Monterey County. It's California. Where all the wine? Where's all the grapes?
Bill: Yeah, they got some good soil out there.
Aaron: Where all the avocados?
Bill: Avocados, I was going to say, yeah.
Aaron: Any kind of plant. One of the most unhelpful or silly ways to look at cannabis is to say, “How is this different than corn or wheat?” Well, one, you can't get high on corn or wheat unless you process it. [crosstalk] The better question is, and you can grow corn or wheat anywhere. Doesn't matter. Cannabis is actually a very sensitive plant. If you don't grow it right, you may have to grow it to it the right THC level, the right kind of, and do all that is actually a sensitive plant, you’ve got to control the sunlight, you’ve got to keep a very narrow band of the weather. That's why most outdoor cannabis is actually used for oil. It's all the indoor and greenhouse that's used for the stuff that you want to consume.
I'm in Santa Barbara, California, the weather is amazing, okay. The same weather that people love, sensitive plants and trees love, and that's why the so much agriculture is in California is because you don't have to regulate the temperature, or heat or cool it, which requires tremendous energy, and tremendous inputs into the system. Eventually, most of the cannabis in this country should be grown in those areas, which are California, Oregon, Washington. It's going to be here. You just need to balance those things. This is why you may have these Limited Licenses last for a very long time, you may not have clarity on Federal rules. Even if the Federal rules came in, the states may litigate it for years, it may go on for a very, very long time. Then, you have the combination of the stigma going down, usage going up. You think about those things, and that's why it's important that when I'm looking in the cannabis space, I'm looking for what I appear either inefficiencies or value, because you remember going back to our beginning. I'm looking for low downside, uncertain upside.
When I'm looking at the limited MSOs, I'm looking for those where if I'm wrong I'm paying seven times next year's cash flow, and the cash flow gets cut in half. Well, then, okay, I'm at 14 or 15 next year [crosstalk] growing like 50% a year, and they control all the dispensaries, which no law will--
Bill: Yeah, real quick though, the cash flow that we're talking about, for anybody that hasn't looked at this, when you open up the income statements know that we're talking about EBITDA because your interest rate is artificially high, and your taxes are insane right now, because of this close 280 rule.
Aaron: Because of the IRS 280E rule. This is the other thing you got to get comfortable with. It's a mess.
Bill: It's total mess.
Aaron: It's a mess on the financial statements, but you can see, you can break down the unit economics, and you can see the value of what's being created, and you can run the numbers of what these are created. The IRS is already looking on normalizing, they're already talking in their subcommittees.
Bill: Yeah, I saw that article.
Aaron: The tobacco, I don't want to say the ATF. Whatever the licensing board is already talking about packaging. Standardizing. A lot of this stuff is starting to be worked through the regulatory. When things become more legal or it gets downgraded so that you don't have these, it will be treated like everything else. That's part of my thesis, is I believe that it will be treated like everything else. When it's treated like everything else, the reason why most investors are looking at EBITDA, which normally I would not use, I would use free cash flow is because you have to your point artificially high interest rates because they have no access to the-- they have limited access to the banking system, and artificially high taxes because they're not able to deduct many expenses, like any other normal business is able to. You use, we're using EBITDA like a proxy for normalization.
What attracts me is when I look on an EBITDA basis, and I can find a company that's growing at like 50 to 100%, and I think that there's significant regulatory barriers for them to earn outsized profits for the next three to five years with gigantic tailwinds, and you're paying seven times, next year's numbers. That does not feel like the right valuation to me.
Bill: Yeah, no, I think that's fair. The other thing that's interesting about the whole setup is, I might be wrong on this, but I think I'm right, I'm almost certain I'm right, is the leverage profile in that industry is structurally lower than it otherwise [crosstalk] maybe would be optimal. There's almost once these issues get sorted out, you can recap them if you wanted to, but there's the potential. There's a structurally more conservative financial profile in the industry than will probably exist in the end state, and that can be pretty good.
Aaron: Not only that, you can't margin, so we're just in the news about margin blowups and all this crazy speculative behavior, both professionally and retail. I don’t know who anyone would possibly let you borrow against these stocks, they trade off secondary stages or tertiary foreign exchanges, I don’t know of one that exists. Not only do you not have the leverage in the company's balance sheets, but you don't have the leverage from the investors investing in it as well. The final lens to put on top of it is, cannabis is legal in Canada. Okay, because of that, Canadian cannabis companies, not only traded on the Toronto Stock Exchange, but they also trade on the New York Stock Exchange, because those Canadian companies are not violating US law. They're just operating according to what's in Canada. You can actually look at--
Bill: Yeah, the valuation disparity.
Aaron: [crosstalk] -Tilray and Canopy Growth and these companies, and they have-- I don't even know what the right way to describe it is ridiculous market caps and valuations like, totally absurd. They're not profitable at all. Lower growth rates, smaller addressable markets. You'll look at a company like Tilray, and you're like, I don't get it. How does this trade 41 million shares a day, and a company like what I own, Ayr Wellness, is lucky if it trades 300,000 shares a day? Ayr is cashflow positive, growing significantly faster, has much greater runway and total addressable market. Tilray not only trades 41 million shares versus 300,000, but Tilray literally trades multiples of the valuation to, I don't even know how you justify. The craziest thing is to watch, and you realize that there are investors who are trying to play the cannabis trend by buying the only things they're allowed, which is Tilray and these others--like on Robinhood right now you cannot buy Ayr Wellness or any of the GTI or Cresco or any of the-- I believe really well-run US cannabis companies that are building significant businesses, cashflow positive, professionally managed, have size and scale. You can't on Robinhood buy them, if you're prime broker and with purging, you can't buy them. They won't let you buy them.
These investors and look at like grow generation, it is a company that like the picks and shovels. They sell hydroponics and all the equipment to grow all that stuff. Or, you'll see Scotts Miracle-Gro. Or there's another company called--
Bill: Yeah, I appreciate it. I'm not trying to like laugh at it at all. I appreciate it. Somebody wrote me and they were like, “You should look at Scotts as a weed play.” I was like, “Yeah, I like the weed play is a weed play.” I should call it cannabis, I can't call weed.
Aaron: Yeah, that is right. It's done. Well, all these companies have done well. If you look at the valuations, I think it reflects-- there's another one called Innovative Properties, this is a REIT, that owns the properties that cannabis-- but they're not touching the plant, and because they're not touching the plant, they're allowed to trade on New York Stock Exchange and NASDAQ. It's a three cap or some crazy thing. Any legal version or tangential adjacent cannabis that trades on a major exchange that isn't restricted in any way, trades at absurd valuation, so you know that the investor demand is there. What I am so attracted and why I'm doing research into it and why I own some US cannabis company and I'm doing so much work, and I'm talking about it as well as is, I love the idea of a super large market, growing really fast that very few people can invest in, and then I believe in the future, they will be able to.
Bill: Yeah, I don't have a large position. I think it's like three-ish percent. The funds flow thesis is just like that-- I mean, I said it earlier, it's just too compelling, when I look at all of the structural barriers. I'm not comfortable saying, “Okay, well, the Canadian comps are trading here, the US comps are trading here. Therefore, there's the US comps should move to the Canadian comps.” What I am confident in saying is, some of the flow is going to come out of the Canadian companies and go to the US companies. I also don't think that people that own the US shares, they're going to be super eager to sell right away. You've got like a group of people that have a real thesis here, and I don't want to get too like--
Aaron: Well, no, I think you could just look into the real valuation. I was just pointing out that you can see that wherever is capital can go to, you have crazy valuation, that's part of the capital flow thesis. Just independent of that, say there was no other comp that you could look to, when I look at a company and I say, “Hey, I can buy it for a single digit multiple. I can map to 50% to 100% revenue growth for the next couple of years.” Then maybe it slows down to like 15% or 20%. Then if I handicap that, like some of their outsize profits get reduced to a more national state and model to that, I just don't believe that-- I think you have the situation where you have this really low downside, huge industry. The upsides are uncertain, and I'll take that risk any day of the week. At the same time, you have one of the more speculative frothy markets that I've seen my 25-year investment career.
Bill: No, I agree with that. I wasn't trying to put words in your mouth, I guess I'm not fully there on some of the questions that I-- like, if somebody said to me, are you buying this business on a true long-term thesis? I still have some things to work out on that. For me, I've done enough work to get comfortable with what you're saying. I know, enough to know that if I'm only in it for the funds flow thesis, that's good enough for me for now. I continue to work to get up my head around the other things.
Aaron: I am over the wall on a-- and that's a euphemism that-- I am restricted from commenting or trading in a certain issue, company, that I am happy to ping you, and anyone who pings me, or after listening to this when it's supposed to, can ask me what this company has? I believe it's almost any moment this is-- I believe there is going to be a new-- it already exists, but a new name in the industry that I actually think is going to be the most important cannabis company in America, I plan to write about it, I'm happy to share it with you. It will provide an opportunity to invest in in a large existing market, but they will have the size and scale and cost of operating. That will be so far below everyone else, that not only will they do well if the current limited model continues, but that they will thrive in an interstate commerce. This is part of what interests me so much is that I can come across this, where normally, if there were no restrictions on anyone, it would be like me trying to become an investor in Stripe. I have zero chance of being an investor in Stripe or getting in on Coinbase or any of these robots [crosstalk] public.
Bill: Well, you’ve got to be right on so much.
Aaron: This is why you do the work. This is why you research, you go ahead and you ask those tough questions, which you're right. What happens at that? Then you say, “Well, of course there's going to be a company that's going to have size and scale is going to dominate it.” Then I hear this dumb stuff like, “Oh, Philip Morris is just going to get into it.” What do they know about cannabis? Where are they going to grow it and what size and scale?” Then, you got to say, well, it's more likely going to be in California, Oregon or Washington. Then you got to look at, well, what is scale look like? What is the process to get a greenhouse approved in California? I live here, I don’t know if you've ever tried to do business in the People's Republic of California, but let me tell you, there is an old company that I wrote up many, many years ago, called Lehman era, largest grower of avocados in the country, okay. They said, “Hey, we want to take some of the avocados and just build some houses on it, we have too much land for avocados.” They start working on in 2003, I think they finally sold their first home in 2017. That was a home, and there's no one there. It's not like they're taken over the neighborhood and people are going to miss all this stuff. They owned all the water rights. It was primarily a water and housing play, and they're selling the homes now.
I look at that, and in Santa Barbara, very liberal place, the craziest thing about California is how super conservative it is around anything to do with land, or buildings or anything, people think of California as this like liberal Bastion, and they are, except when it comes to any kind of land usage. Then it is the most difficult place in the world. What's going to happen, I believe, is you're going to have companies that have the capacity to produce and operate under size and scale, and it will be extremely difficult. They'll be able to take advantage of the California sunlight and the moderate weather, and they will be able to out compete, because they're going to have cost advantages over trying to cool marijuana plants in the Florida summer heat.
Bill: Yeah, no, I like that idea. The other thing that I like about the industry is how good the data is. I was looking at the Florida sales. It's pretty amazing how good truly is, like their throughput. I mean, people speak very highly of Kim. I tried to get her on the pod, but she said she wasn't available, I guess, shout out to the people that have been doing the work, and deserve [crosstalk] more than I [crosstalk] but one day hopefully.
Aaron: Yeah, I missed out on Trulieve. The thing, the other part, and this is just a comment, it's not specific to-- well. The thing that stopped me with Trulieve is her husband is under indictment from on federal corruption charges, I believe. From what I can tell, they've done a great job with their Florida operations. The other part of the cannabis sector that you should know is, it is like the Wild West. There are people that are unethical, I don’t know, if you followed MedMen at all, not unethical, but just weighing over their heads, raise lots of calories. “We're going to do X, Y, and Z.” Then they just don't.
Bill: I don’t know, man. I think they're unethical. If I am correct on that name, and it may not be that name, so confirm what I'm about to say, but I'm pretty sure my buddy was early in it. Then there was something in the documents that basically capped his upside. He signed the document, so that's on him, but also, it's like, he didn't get the deal he thought he was getting.
Aaron: Then you have these people who are just in over their heads, or who aren't? The companies that I would direct you to, are the ones that are operationally focused, that have brought in the people, the COO of Pepsi, or, you want to see this-- this is like anything else, this is going to be a size and scale. The management team becomes of critical importance, and that you just don't want the things that I've tried to avoid is, I want great management teams and I don't want any hint of impropriety or any kind of concern, because there's already the federal legality. I find that because there's so few professional investors, the use of this wide gamut of valuations, and people investing or saying stuff and using stocks as proxy without really doing much in the way of due diligence. Interesting company is the parent company, which was basically a bunch of assets in like Jay Z sprinkled on top, that may or may not do interesting things, and is California base, so may play into the thesis. I looked into it and I couldn't understand what they owned or what their strategy was, and you looked into what their financial forecasts were, it's like, “Oh, we're going to go from the super low margin wholesale to delivery with 25% EBITDA margins.” I couldn't make heads or tails, they may succeed, they may not. Jay Z's been a pretty fabulous businessman, so maybe that will work on the branding side.
There's all these different companies that are saying different things. That's also what makes it fascinating and why I haven't gone whole hog-- I only have three investments in the cannabis space. It's held me back from frankly, making more money last year is just being very, very cautious. I want my downside to be low. I don't want to take the risk because this is just how I'm building my portfolio. I continue to do research, I continue to dig in this industry. I think that I found the company that I'm going to make the biggest position that I have that addresses almost every concern that I have about the industry that you have, and that long term. If Anheuser-Busch decides they want to get into cannabis, Philip Morris, this company has to be the first phone call, so that's how I'm thinking about.
Bill: Hmm, that’s an intriguing idea.
Aaron: Yeah, I'm just sorry that I'm restricted from telling you, but I promise you, the minute it becomes public, I'll DM you, and then I promise I'll write about, and share it as well.
Bill: All right, cool. Yeah, I look forward to that.
Aaron: You know what, I guarantee you as well, that I will put you in touch with the president of this company, you can interview him as well.
Bill: Oh, cool. I'd like to.
Aaron: He's incredible human being. There's even this amazing story of how I even, I passed on the idea. I actually know this person, I passed on the idea about 18 months ago, because I was like, “Ah, I'm interested in the industry. Do I want to make a private investment? What am I doing?” It was at a time when the cannabis sector wasn't doing great, publicly. Then I passed on it, they open a dispensary a block from my office, like, I don’t know, six, nine months later. I want you to imagine that I drive by this twice a day, and it's like someone's kicking me in the nuts every single day.
Bill: Yeah, it just reminds you over and over and over.
Aaron: With the line, the line. I'm looking at the line every day, and being like, “I'm the genius that passed on that.” The backdrop of the management team that I think is incredible. I'm the genius that just did this, every day, so you can imagine my surprise when I suddenly get the opportunity the second time around to invest. Let me tell you, it's like Christmas came early for me, so I'm very excited.
Bill: That's awesome, that’s cool. I first of all want to thank you for being so emphatic and enthusiastic, and walking through that thesis. It's a thesis that I think is really interesting out there. I also really like your thoughts on how Mexico is a strategic partner, the US and I guess what I would say is, if we had all day, I would go on and on with you, but I would really encourage people, first of all, where can people find you? Your Substack and your Twitter?
Aaron: I think it's mindsetvalue.substack.com and they can find me on Twitter, at just Aaron, A-A-R-O-N-V-A-L-U-E dotcom. I also have mindsetcapital.com. There are a bunch of deep dive research reports that I just share, you can find links to.
Bill: Awesome. All right. Cool, because I do think that like, one of the things that's cool about following Aaron is, I always feel like I'm outside of the echo chamber when I'm in your feed.
Aaron: Oh, thank you. [chuckles]
Bill: I appreciate that. I think that you you're bringing something that's different to my feed than normally is there, so I always appreciate that. I would heavily encourage people to think about it, or to follow you. The one thing I do want to cover before you go though, is I'd like to talk to you about the book that you wrote, and the idea of a six-day work week and what that's done for you and how you think about that.
Aaron: Yeah. I think the thing that you should know first off is that I'm a workaholic. I don’t know why, but I'm driven in ways that I don't fully appreciate. Like when we're talking about our greatest strength and our greatest weakness, it's like I can be my own worst enemy. When I talk about when I managed money the first time, and I did objectively well, it started about my parents’ garage, grew that to like $25 million, and a great long term track record. I was really, really hard on myself and really harsh. I experienced stress levels that were just frankly, not healthy. I found myself one day where I found myself just crying in the shower, just overwhelmed with how I was living my life, which was all work and work was who I was. If work’s who you are, then that means that I am my stocks. If my stocks underperform, or I don't do well, then that's a reflection of who I am and my worth in the world.
Not only it wasn't healthy, but it in hindsight, looking back, wasn't necessary. I think I would have actually had a better long term track record if I had just built some more safeguards or space in my life, that wasn't work. I actually hit rock bottom after I had taken on very briefly, taking on a partner and fought with him. Fell in love with a woman and that fell apart, and then got sick and doctors said--[crosstalk]
Bill: Oh, man, that's tough. That's a lot of stuff.
Aaron: Yeah. Then, literally, I had three or four years where I was like a Golden God. I want you to imagine from managing money from ‘99 to 2002 and averaging 28% a year, up every year, but I didn't know, I was so young. I was like, I didn't know that if you have an alternative contrarian viewpoint that there are periods where you underperform, or I just didn't fully appreciate what that meant. It's really hard to just perform every year. I started struggling in the beginning of 2003, and so all these things had been eventually, it was like a misdiagnosed appendicitis, and they took it out. Anyway, so all these things happen in the summer, I just went--
Bill: Dude, that's a tough time in life, huh?
Aaron: Yeah, I'm single, went through a deep depression, and just floundering.
Bill: I'm not trying to make this about me, but just to reciprocate a little bit about like life downs, when that flooring company that I tried, like, I tried that with my best friend. Well, there's three of us that were basically brothers. I tried that with him. When that thing failed, there was a period there that I didn't know if I would lose my business and my friend, and that was really fucking hard. Thankfully, we made it through that. Man, when you start to get the personal stuff and the business stuff colliding. I mean, that was the darkest period that I've ever been in. Certainly, the most unconfident.
Aaron: One of the things I really appreciate is what you talk about, and I see it, it's a lot more accepted today, and a lot more discussed, is just the importance of mental health, and acknowledging that you can go through dark periods, and that there are people that are more susceptible to depression, or mental health troubles. Back then, it was your macho man and rub some dirt in it. It really felt that way. No one admitted weakness, like, if you admit weakness, you are weak. I hit this door, and I was like, “This just isn't working for me.” This is 2003, and then I grew up Jewish, but just like very reform, and so I started, I need to create a foundation, or some kind of life outside of stocks outside of investments. I went through this whole process. Then eventually, like, two years later, I decided, really, out of desperation, I got out of that depression, and I actually moved to California, and literally with knowing no one, and was like, “I need there to be no excuse not to be outside. I need a phone, a computer, and that's it.” That's part of why I'm here. I tell the story in my book, but I needed to be like, “Why are you not outside?” That's how driven, I can just get lost, like literally lost, working so hard.
Anyway, so I started picking the pieces, became a big brother and started getting involved in my community and doing all kinds of things like that. Then, but it still wasn't enough. Back then, there was a BlackBerry, the CrackBerry, and working all the time.
Bill: Yeah, you saw the red blinking light.
Aaron: I wasn't getting necessarily better performance by working more. Your first thought is, “Oh, I'm not getting the results that I want, I got to double down. I got to work even harder.” It finally out of desperation, I said, “This isn't working. I'm going to fall back out of the tradition. I'm going to try to turn off my phone. When I go to sleep at night on Friday night, and try to make it till noon on Saturday. I'm not going to think about work in the morning, I'm going to try that.” That seemed like a Herculean task to me, because essentially, I [crosstalk] have kids then or married, I didn't really have much. You're talking about four or five hours the best. [chuckles] Okay.
Bill: [laughs]
Aaron: I did it, I was like, “Well I can actually turn off my phone. I actually don't have to look at computer or emails or read or do anything about business.” Then, after a couple weeks, I was like, “Maybe I can make it to two or three.” I did it two or three. Then, after a couple of months, I was like, “I can do the whole day. I can actually take a Sabbath and the Jewish Sabbath is from Friday night to Saturday night.” I did it. It transformed my life. Not only transformed my life, and I've now been doing it, I don’t know, for 14 or 15 years. One, it's the best thing that I do in my life, by far. Looking back now, I can't go back. I don’t know how everybody stays on call, whether they respond or not, on call to every single person they know, in business, and in their personal life, at every waking hour. That just sounds really bad to me. Or, just why would you do that? You're like a doctor, but no one needs you for emergency medicine.
I started doing that, and what I found is that I have this cycle now, where the first thing when I turn off, it's this relief, this weight off my shoulders. Then I have this rest, I have this rest recovery. Then, by the time I'm ready to turn back on at night, it's this renewal, where I'm not burned out. I'm now excited. What did I miss? Was it on Twitter? What did Bill say, or podcast?
Bill: Oh, God. [chuckles] Hopefully somebody better than that. [laughs]
Aaron: No, no, no, I wonder what-
Bill: I'm just joking.
Aaron: -the most remarkable thing is how little happens on Saturday, outside sports, that's the thing you-- that you find all these benefits, I find this. by the end, by the time I'm already feeling it, and it's Thursday. You start to get in this rhythm, where by the end of the week, you just start becoming exhausted, because the rest of the week I am grinding. I know that I have this break coming up where I can release, so I can grind harder, and more. Then what happens is, I get this cycle where I get, “Okay, now I'm back up again.” Then, what happens is if you're not doing business, your phone isn't on. You're not checking Twitter, you're not trying to improve yourself. What comes into your mind? Well, one as I just try to enjoy myself. I will watch TV. It's not like I'm some strict person, but nothing about business or politics. I'm not trying to improve myself. I try to just enjoy myself. What happens is, I'll have ideas suddenly pop into my head. “Oh, I never thought of that.” “Oh, that's a great idea.” “Oh, yes. What about this?” Then the larger questions of life inevitably come in. “Am I living my life the right way?” “Am I satisfied?” “Am I living a meaningful life?” “Am I a good friend?” “Am I a good husband?” “Am I a good father?” Just the difference between me, with my phone and any of my children, I three young kids, I'll be with my daughter, even at a young age. If I have my phone out, like, let's say she does something cute, I'll take a picture of her. Then, “Oh, there's a there's a message. I got to check that.” Then, she'll immediately turn and would be like, “Oh Papa, will you play with me?” “Well, wait, I am playing with you.” No, she knows that I don't have her full attention. Or, my attention is [crosstalk] her.
Bill: Yes, she doesn’t have yours. Yeah.
Aaron: Yeah, that's right. The difference between being present, understanding that our life is dominated by value of our life. Once you get past a certain income level, and you're not really worried about paying the bills, all of our life is based on relationships, and who are the most important people in your life. One day a week, I'm making sure that I am paying attention to my family, I'll get together with friends. If I schedule something on Saturday, it'll be like one thing. Then imagine, instead of just shoving food in my mouth, then you can just have a meal that just like, rolls along. There's no end date. There's nothing after it. I'm not going running to some other schedule. I started doing this, and it just transformed my life. I found business wise, I started making more money, I started making better decisions. Then remember how I told you how I was like-- Oh, I had an almost complete nervous breakdown in 2003. Do you know what my performance was in 2003 that drove that? How much money do you think I lost that year?
Bill: Oh, man, I'm going to say something silly, like, maybe down. 5%?
Aaron: Yeah, I was down like 3%.
Bill: Yeah. I mean, I figured just knowing how hard you must have been on yourself.
Aaron: Yeah, so 2008 rolls around. Now I have a greater foundation.
Bill: Yeah. Isn’t it a good thing, you did that work?
Aaron: Yeah. No, it turns out to be a blessing in disguise.
Bill: Yeah, no doubt.
Aaron: [crosstalk] -the day off, I understand that my portfolio is not me, that I'm doing my best. 2008 rolls around, and I'm down 40%. Everyone’s down 40%. It was everyone that I knew or followed. Was I stressed? Yes. Was it the end of the world? No. In fact, I was able to, then think about, “Well, hey, how can I take advantage of this?” That's when I decided, “Hey, there's an opportunity in single family rentals in housing, and foreclosures. No one's focused on this.” It's March of 2009, I launched a totally new business. 2003 Aaron would not have been able to do that. I believe it's because of the Sabbath, because I had this cycle, I had this break.
Bill: Was it hard? I understand that you just said that you came up with it. I'm curious as to whether or not, even though it was a good idea, and obviously a good idea, in retrospect. When you had it was some of your identity tied to being a public market investor, was it difficult to switch to the home thesis, or was your identity, like--[crosstalk]
Aaron: It was just a side project, I thought of it as a side project, of like, “Hey, I'm just going to--" I thought of it almost as like a private version of public stock. I'm going to buy that, I'm going to rent them out, and then it's just an opportunity to me, but so instead of like, being in fear, anxious, instead I was looking for opportunity. Then, it goes to the American Home. I tell the story in the book, but it wasn't like a linear thing. I went nuts. In one year, I bought 2000 homes individually. I was trying to buy so many homes that we ran out, we almost ran out of money. I almost didn't have payroll for the people in my company. I was like three weeks away. There are crazy stresses that had happened. Then, we raided the ship, and they were all ups and downs, and then sold to a publicly traded real estate fund, or a company, a REIT.
Then, I looked back in the company and I used the model inside my company, it was like, “Hey, Friday night to Saturday night, I'm off. Find your break.” I would tell people. The funny thing is when you're not by yourself, or just with another one or two employees at my money management firm, the American Home were 180 people, it's a crazy amount. Just imagine, and I learned a lot. I made a ton of mistakes. I was able to watch all this work behavior. There was one guy who was in the renovation division of my company, and he used to say, “Oh, man, I'm putting in the third shift tonight.” I was like, “Oh, wow, gosh, what's the third shift?” Well, that's after midnight, and then I was like, “Oh, man, this guy's really hard worker.”
Then, when we suddenly had grown too fast, and we needed to look why weren't the main problem that we ran into, it's super easy to buy. It's very hard to operate. I was buying 200 or 300 homes a month. renting 50, you don't need many months before that becomes a problem. We went under the hood and looked, turns out this guy was our least effective employee was creating chaos. Then, I was watching other people, I remember one guy in our finance department, we give him responsibility, and he would do it. Then, we give him more and do it. All of a sudden, he just started showing up and he'd be sick, or wouldn't show up. One day, he just didn't come into the office. We just broke him. We've literally just broken him, like, we just ran him into the ground.
When I sold the company, after watching all of this behavior, and myself included when I was working, you realize how much of work behavior is either for show or incredibly destructive. It is not a for a lot of people, it's about like a badge of honor. To me, it's about results. It's about how effective you are at your job, and so I decided was like, “Wait a minute, these two are connected.” That's when I decided, you know what I'm going to do, is I'm going to dive really deep, just like I would do for an investment. I'm going to make the business case for what I've been doing personal. I went after looking for companies and people that take the Sabbath in some way, shape, or form. I went to look for studies. Eventually, I had no idea I was going to take so long or so hard. It took me three and a half years because I'm like, “This is something I'm passionate about. I'm not going to make money.” I didn't make money from the book. I want to help people. I don't want people to have the same experience that I had. You just look around, you see all this pain and suffering, and people killing themselves for really no reason.
It ended up called The Hard Break: The Case for the 24/6 Lifestyle. I have 200 footnotes in the book, my editor ripped out dozens, like you're not writing a scientific journal. Because it turns out when you do the research, you find that the way that we're working, and the way we're interacting with technology is bad for you. It's bad for your health. It's bad for your mental health. It's bad for your business. It's bad for your marriage. It's bad for everything. It's so overwhelming in the stories and I was able to talk to the top executives at Chick-fil-A. Chick-fil-A is closed every Sunday. How are they so wildly successful? Dustin Moskovitz, one of the co-founders, or the beginning executives at Facebook, talked about how-- even though he made all this money, almost destroyed his life by his work habits, and he was a terrible boss. His new company Asana is now doing very, very well. They are ranked like the number one or number two best company to work for. They have incredible limits on stopping people from working.
What I'm trying to spread the message, and I'm really glad you asked about this whole, I've got to kill myself to be successful, and I've got to burn myself out. that's the price you pay for success is a lie. It doesn't mean you don't work hard, or there are periods where you work hard, but that you'll actually be more successful if you take a break. There's all kinds of studies, but let me tell you, the biggest thing that's really hit me, and that is when you find that what is going to make people successful in today's world. It's not about how much, it's not going to be the crazy amounts of energy you can expend. I actually firmly believe, it's going to be how creative and innovative you're going to be, and how good your decision making is going to be. When you look into the data, turns out that when you're daydreaming, or you're not actively engaged, there's a part of your brain called the default mode network that goes into overdrive, to process all the information your brain has taken in, and forms patterns. Have you ever had the proverbial idea in the shower, or you're going for a walk somewhere and suddenly an idea hits you? It's because you don't know it, but there's a part of your brain that's processing and understanding the world. Imagine that all of these people are almost on purpose without knowing it, reducing their ability to create, to have creative ideas and innovative ideas and better decision, and have a greater understanding of what's going on with them, by being on all the time, and being busy all the time. It's absurd.
Bill: Yeah. No, I think that's right. It's hard when you're young, and you're working in a group that is arguably understaffed to not-- I mean, you’ve got to bust it. Then you got to take time, too. [crosstalk]
Aaron: Here's what the data shows. One of the best stories, World War One hits, Germany is kicking butt in World War One. Britain suspends all labor loss because of the Industrial Revolution, things got really bad, and Britain labor wise, and they instituted some of these protections. Well, war comes, you've got to eliminate everything, everyone's going to go all out. They get to a point where they're like, “Hey, we got to increase our munitions manufacturing. How are we going to do it?” They put together a commission, and the commission is given every resource and every-- they can interview everybody, they can get all the data they want, and they come back. What do they recommend? They actually recommend, they find that the people that are the most productive are the people that take the Sunday off. They find that they don't hurt themselves as much. They're more productive when they're not working. They're actually the people working seven days a week, are almost less productive than the people that are working five days a week. It's a lie, because we need a break. We need a break, we're going to get injured, we're going to get sick, we're going to have mental issues, you're going to hurt yourself that event you-- look, if you decided for the next three weeks that you're going to work every waking hour, you could do it. Could you bang out a project? Absolutely. The problem is, is it never stops there. Then the next thing comes. then the next thing. With email, it's infinite. This was my problem. If you're curious, and you're interested in investments, you never can stop.
Bill: Yeah. It is really-- I think it's probably a disease that we all suffer from, but I can't turn it off. Sometimes I wish I could. I want to be clear in what I'm saying. I just mean, like, I drive around, I'm always thinking about investments, generally an idea, I can't shut it down, and that's something that I need to work on a little bit. What you're saying, I think rhymes with the case for meditation, with the case for a lot of things. I guess what, one of the things that I've been thinking about recently, is probably the importance for me to do a little bit of work on some stuff that I carry from, I don’t know if it's childhood, or whatever. I guess just saying it out loud. I mean, I think I should enter into a little therapy for a little while because the way that my career is morphing, and the way that-- I recently flipped on Naked Wines. I like that product, I really hope that the people that I know that are long it, make a lot of money in it, and I just can't lose on that bet for reasons that I am worried about. I just couldn't deal with myself if I lost on it and didn't act.
I was thinking about it, and I was like, “Okay, well, why is commitment bias so hard? Why is it hard when you publicly say that you're long something to change?” For me, I think there's something that goes back, maybe it's being a product of divorce, or some pleasing mechanism, or whatever. I don't really know what it is. I talked about how like, I love Stern. One of the reasons that I think stern is so fantastic, at least the later Stern, is he really got control of his mind. He really understood how things work in his head. He's able to relate in ways that aren't-- it's not the shock jock. It's the guy that actually understands things about life and he's able to connect with people in ways that otherwise he would not be able to. I think that a little more rest and visiting some of that stuff that I probably have-- I just haven't spent a lot of time working on it lately. I've done plenty in the past, but I think it's something that I'm passionate about. I've obviously had some life issues that I've talked about publicly, there's some that I haven't know.
One of the ways that I got over some of this stuff was, I found myself in a men's group, and I'm like, screaming at a chair once. I remember when it's like-- I forget what the type of therapy is, but it creates this, you get enraged, and then somebody-- there's a voice in a room, and it represents something to you. I remember looking at it, and I was sitting there, I was like, “What in the hell am I about to do? This is so stupid.”
[chuckles]
Bill: There's no way that this can actually do anything for me. It was, I don't think I could be the person that I am with, had I not gone through that. I'm not saying everybody should go to therapy or anything like that. I do think that being really in touch with your own mind, and where your mind is going and why it's going there. It's very, very hard for me to see how people can be good investors and hide from that stuff because that stuff-
Aaron: I completely agree.
Bill: -creeps up at the wrong times.
Aaron: No, I could not agree more, and that's why the mental aspect of this is so important because all we're doing at the end of the day is making decisions. If you don't have a healthy balance, or, look at an incredible investor like Dan Loeb. As far as I can tell, he's been doing meditation from the beginning. You find that many of the great investors have something in their toolkit, or they understand to your point of-- talking about Stern, they understand your mind. When the older I've gotten, the more I've realized that understanding yourself, doing the work, not only improves you as a person, it improves the relationships in your life, but improves how you operate in the world, no matter what you do. You start ask, the reason why is that the world can some seem so important, especially if they're like urgent, and everybody's talking about it. There are so many things that are just more important. Have you seen any of the happiness studies of how happiness surges once you're past 60. I think it's past 60.
Bill: I have seen that.
Aaron: Part of it is, is that people get to a place where they're like, “Oh, my God.”
Bill: They're comfortable with themselves.
Aaron: I'm comfortable with myself. I don't care all these other things I thought I cared about, I don't. This is why to me the Sabbath is so important, is because one day a week I'm reminded of myself is, “Does it matter if Ayr Wellness goes up or down? Well, I mean, I guess yeah. Do I want it to go up? Yes. How does that compare to me spending time playing with my daughter at this age? Or, going for a walk with my wife, or even more important? Or just taking a nap? How much better do I do when I just take a nap.” You know what I allow myself to do on my Sabbath, I tried to do only stuff I really enjoy. I just realized most of my job as an investor is to read. I'm not reading for fun. I'm listening to like your podcast with Adam Robinson, I'm trying to learn. I'm trying to improve who I am as an investor, as a professional. Sabbath, there is no self-improvement. I like to read good old fantasy book or science fiction about some far-off planet. I realize, I love to read for pure enjoyment. It gives me so much joy. I also really love playing video games, zero time during the week. You know what, I love playing, and I'm trying to get my kids and so that I can engage with them, and play Mario game together or something. I allow myself to be Aaron. I'm not Aaron, the CEO of Mindset Capital, or I invest this, or I'm Aaron that said this publicly, and if it's wrong, my world is shattered. That's what it reminds me every week and I get this.
The way I would describe it to people, it's not like, “Oh, you’ve got to eat your broccoli, you’ve got to turn off your phone.” No, I get a vacation. I literally get a vacation every week. I just ask, “How isn’t everybody doing this?” You may not be able to do Saturday, maybe you run a retail business or something and the weekends are busy. Do it Tuesday. People do Mondays or Tuesdays, and make it your own. Maybe it's not a whole day, maybe that doesn't work for you. Maybe you just do the morning. Maybe it's just Sunday morning for you. It's amazing the trick, because what really is a mental hack. What's stopping me from turning on my phone or doing work? I just told myself, “I can't do it, Aaron.” Then I'm like, “Oh, okay.” It's amazing because when you think about all the stuff we want to accomplish and do, it's amazing when you tell yourself, “Oh, there's just this period I'm not allowed to do it,” you stop worrying about the stuff that you haven't accomplished, and it's endless. If you want this podcast to do really well, and maybe it'll translate, and you're going to be this big internet, like TV star, and you're the future Howard Stern of finance and all this stuff, endless, endless work. You'll never be able to fit in in as many hours in the day, you're not going to be able to interview the people you want.
Bill: It's funny about you saying that me hearing it out loud is, I actually don't-- I want this thing to be successful. The reason that I do this, there are a couple-- financially, what I would really like to do is create a stream of income, with interest rates where they are, I just don't have enough capital to take care of my mom in the way that I would like to. I would like to figure out a way to be able to do that for her because she's come a long way in her life. She hustles her ass off and she deserves that. The other thing that I like, I just love this stuff, man. I love talking to other investors, I could do it all day. It's funny, the only thing that I don't like is I don't like-- I do enjoy the attention. I wouldn't be doing this if I didn't enjoy the attention at some level. There's also honest to be perfectly candid about it, there's a level of paranoia that's entering my brain that I don't like, just like, why are people engaging with me? What are people trying to get something from me, and I don't like that part--[crosstalk]
Aaron: I'm trying to get you to observe the Sabbath. I'm going to take advantage of you.
Bill: [chuckles] Well, dude, the thing that's nice about you is I reached out to you, so--
Aaron: Yeah, but it was secret. I hooked you with weed. [laughs]
Bill: That's right. Yes. Thank you. You did a very good job.
Aaron: [crosstalk] you're taken to the Sabbath, you thought you were going to talk about cannabis. No.
Bill: That's right. There are nodes to connect with me. One of the nodes is a common interest in marijuana. No, but it's weird. In certain ways, the bigger my world is getting, the smaller it's getting-- I there's a level of trust that I'm pulling back a little bit at times. I hope that that's something that I learned how to deal with, because that’s not an element that I think is good.
Aaron: Well, take a space. Create a time and space where you're just you. You're just you. One of the worst things that may happen to you is actually do become super successful. How are you going to remind yourself that you're just Bill and why you're really doing this? To just ask yourself--
Bill: Yeah. I'm pretty good at making fun of myself, which helps.
Aaron: No, but not just making fun of yourself, just making sure that you're doing what you want to do. You're spending time with the people you want to spend time with. You have space just for you.
Bill: Yeah. No doubt. Well, man, I'm going to let you get back to part of your 24:6 lifestyle, but I appreciate the conversation that we had and I hope the listeners did too. If they don't, at least two of the listeners will, because I'm going to listen and I think you're going to listen, so.
Aaron: [laughs] Yeah, this has been really great. If you ever want to talk more, I would love to be on again. This has been awesome.
Bill: Oh, man, my plan on this thing is to have like, I don't view this as, “Oh, a guest stopped by and that's the only time they come.” I plan on having people back. I hope you will come back and I look forward to it.
Aaron: Awesome.
Bill: All right, man. Take care of yourself.
Aaron: Okay. Thank you.
