Episode 165 - Why Dividend Investing Is So Addictive

Welcome back, everyone. Thanks for joining today. On the Joseph Carlson show. We have an interview from Warren Buffett and Charlie, Munger. The two legends themselves. They sat down for about 45 minutes in a CNBC interview and they were asked about a variety of different topics. Now, I think the questions were interesting but I think what was far more interesting was there. Take their actual answer to a number of these questions. For instance.

Charlie Munger was asked about Jack, ma disappearing in China and he gave a different take than what I thought about that. He is on a different. Right side of that issue with Jack ma disappearing. He also reiterated his view on Robin Hood, calling it a gambling, parlor masquerading as a respectable brokerage and that it's beneath contempt. So we're going to go into why he thinks out of Robin Hood and many other questions, and many other things that were

highlighted in this interview. And then another story I think is worth looking at is one of the most incredible engineering and maybe abuses of tax system. This is petered he'll who use this completely legal way. A of turning the everyday middle class Roth IRA retirement account into a five billion dollar tax free piggy bank. That's right.

He took the Roth IRA that you're only limited to six thousand dollars per year of deposits and he turned that into over five billion dollars that now he'll be able to withdraw when you turn 60 completely tax-free and this outlines how he was able to do that. So in this episode, I'll be giving my thoughts on how he accomplished this and going into the details of it. So with that, we have A lot to jump into in this episode before we get into all of it.

It always helps out. If you like the video the little thumbs up button that helps out the YouTube algorithm. Now, let's go ahead and before we jump into those news items

with the Warren Buffett interview. Let's go ahead and look at my portfolio. This is the passive income account. This is my personal portfolio. I share the value of it, the gains and losses every single week. So on the thumbnail of every video in this channel is the value of this portfolio and that goes up or down. If the value of my portfolio goes up or down. I find it almost every month. So I'm constantly putting money into this portfolio, trying to grow it.

But if the market takes a huge dive, this number will go down. You can look at the videos around March of 2020. When we had coronavirus and and that brought down the markets, the value went down and on the thumbnails, the value went down dramatically. So I show the progress of this portfolio every single week, week by week. That's really one of the big things with this channel is if you want to follow along a real portfolio and see how things go over year. Ears of time.

I'm going to continue to track this and build it as my primary Investment Portfolio. The goal of it is to grow a stream of passive income and every single company or ETF that I invest in helps accomplish that goal.

So I've different income funds like the covered call ETF a different real estate holdings and I even have some tech companies that are long-term dividend payers like Microsoft and Apple, but every one of these companies pays dividends and all that, money flows, back into my account through the cash balance this $158. Amen, just through dividends. If I look at different ways to track this. I have a spreadsheet that I offered a patron members that helps track the growth of this overtime.

For instance. It has a section that shows you your upcoming dividends. I can see that Nikes going to pay me, nine dollars on the first of the month. So the first of next month, I'll be paid $9. Then we have tiro price on the 7th, hang me $30, then we have Vici. This is a new holding paying me $108 on the 8th of next month. Then we have store Capital with 136. That's a Reit. That's a big dividend payer. Then we have realty income paying me $15. That's a monthly payer.

And then we have MGP MGM Growth Properties paying me $21. And this is all the ones that are officially declared right now. So this isn't projected income. This is really what I'm going to be paid over the next couple weeks. Now, one thing I have to mention about this style of investing which is dividend growth investing is not only has it been proven to give very good stable reliable returns with limited downside and lower volatility, but it's also an incredibly fun.

Addicting form of investing. It is an addicting form of investing if I go to my activity feed and filter just by the dividends and see how much money is routinely constantly flowing into my account. This is fun. If I look at Visa, they paid me on the first of the month. $7.49. Thank you Visa. Then we have jeppie the covered call ETF. They paid their monthly dividend of $110. Then we have Texas Roadhouse. They paid me $15. I can go and buy a meal at Texas Roadhouse with the money.

They just paid me then we Johnson & Johnson, they paid me $14, Microsoft paid me there, $34. Thank you for that. Microsoft. Then Target paid me $7. Nextera energy a utility company. Paid me $8. Then we have realty income Corp. They paid me $15. That's a monthly dividend. Then we have some big ones Home Depot, paid me $52. That's enough that I can go browse around and Home Depot and buy some stuff. Fifty-two dollars is a lot of money.

It's like having a gift card to Home Depot and they pay me this four times a year. Then we have Dominion Energy $41 for them. We have Schwab's dividend ETF. Seh. Di. This one. Paid me a hundred and forty dollars and then we have T Rowe Price, which paid me $11 and keep in mind that this amount of dividends is just in the past month. This is the past 30 days next month. It will be the same thing.

Another slew of companies different companies that pay me dividends and this goes on month after month after month. And in fact this month, these amount of dividends is one of the lowest paying months of the year. So next month. It should be quite a bit more. Now this type of investing where I see the money up here. My cash. Without any type of interaction from me. It just continues to grow without me doing anything is very addicting.

It's a fun way to invest. It's completely passive and I do think that dividend growth investing does have very good risk-adjusted returns some of the Holdings. I've been focusing on more recently are in the higher

yielding category. I'm buying one real estate company called Vici. They own iconic, indistinguishable very complex properties like the Venetian and Caesars Palace in Vegas. They collect rent from them, every single quarter and they distribute that out to their shareholders, which is anyone that buys a stock. And then outside of ichi, the other Holdings I've been adding to right now RSC HD Schwab's u.s.

Dividend Equity ETF. I sold out of AT&T and added that fifteen thousand dollars to this holding. So that's why I have S CH D. This one. I think will do well over time and then we have JP, JP Morgan's Equity premium income fund. This one pays out a very high yield every single month by doing a covered call selling strategy. So so these are two Holdings that I think will increase my income through dividends dramatically. Those are the three Holdings

that I've been building. Up recently Vici geppi and seh. Di, and I'll continue to add to each of these overtime. Now, if you want to see my entire portfolio, there's a link in the description of this video. That's updated. It allows you to click into any of these categories and see which companies I'm holding. So I'll put that link in the description for you.

Now moving on. We have an interview from Warren Buffett and Charlie Munger talking about a variety of different subjects. And I think there's some interesting things to highlight from this. Charlie munger's asked specifically about Jack, ma the Chinese banking system and his thoughts on that compared to the The u.s. System. I don't want the all of the Chinese system, but I certainly would like to have the financial part of it in my own country.

He actually says that he likes the Chinese system in terms of how they regulate their financial companies. And he thinks the way that we regulate our system in the u.s. Is way to lakhs. Although Aunt Financial was bringing banking to a huge unbanked population before. I mean, there were things that they were doing that. I know but you don't want to sway her to run by the banks have the Implicit guarantee of the government and you don't you don't want to let any swimmer rob a bank.

Now, you can look up the definition of swinger and there's a couple different definitions, one of which I do not believe fits within the context that Charlie Munger is using here. It doesn't seem to fit the other one being a lively boisterous person that goes to lots of social events. I think is more appropriate with the way that he's using it but interesting phrase for him to use he goes on explaining why he doesn't want a swinger to be in charge of the banking system. System.

Oh, what about what they've done to Jack? Ma. He's kind of disappeared as well. Yes, but Jack was one of the swingers, so you just got his, they said the hell with you. He basically got damn speech when he said to her one party state, where you guys are a bunch of jerks blown at what you're doing, and I know what I'm doing and I want to do it better and he was going to wade into Banking and no rules and just do whatever he pleased. He also have drunk a lot.

That is gamma is did the right thing. They just called in Jack Vaughn. Say, you are going to do it. Sonny, Charlie. Munger goes on to expound. What he thinks is the problem in the US with the banking system. He terms, it Shadow banking, which is basically a term for fintech people say, well, it's the unbanked. Well, the whole leveraged. Buyout lending aberration practically left, the banks and went to Shadow banks in our own country. He's right?

And this is clearly what's going on right now? Banking is increasingly being done by non Banks. If we look at M1 Finance for Instance and one Finance is not a bank. It's a brokerage, but I can go to borrow and I'm eligible to borrow up to ninety seven thousand. Nine hundred dollars at 2% 2%, compare that to j.p. Morgan or Bank of America, or Citibank or Wells Fargo. None of them can compete with this, not even close. Even if you have a brokerage

account with them. None of them can compete with this rate banking is being done by non Banks like em on finance and frankly, they're doing it better. They have better more convenient technology. Easier to use. And even their rates in many cases is much more appealing than traditional Banks, but Charlie's primary concern with all of this is the lack of Regulation that exists with fintech companies. It hasn't caused any big trouble yet, but I'll be amazed.

If it doesn't. Well, Jamie dimon is said that and look out for the some of the fintech areas that they're. Yes, I agree with Jeremy down on that. I don't think allowing all this winners in the world act. As though their Banks is a good idea. Jamie. Dimon has brought up this same. Concern. Many times saying that banking is done by non Banks. They don't have to play by the same rules. They don't have the same

regulations. And if this goes on for too long, all these unregulated fintech companies in the financial realm, he thinks it could cause systemic risk. Now on the subject of fintech, Charlie munger's asked once again about Robin Hood. Last time he spoke on this. He said that Robin Hood is not good for civilization. He didn't say anything positive about it. In fact, he was heavily criticised as being elitist.

Now, he's had some time and maybe try Hunger has come around, updated his opinion, on it, and changed. His thoughts on Robin Hood. So, he's asked, once again, about this brokerage. Here's his response. Maybe we should talk about Robin Hood and some of the areas that come up beneath contempt. Okay, so it doesn't seem like his opinion on Robin Hood has changed too much. Why? Well, it's a gambling parlor masquerading as a respectable business.

Well over a gambling parlor, but it is a gambling parlor. It's not incurring people. Encouraging people to buy. A very, very, very low cost, index fund and holder for 50 years. I will guarantee you that you will not walk in there. Get that advice instead you'll get advice on how you can trade options. And and they'll tell you, that is telling people are paying commissions when the commission's are simply disguised in the trading. It's basically a sleazy

disreputable operation. So, Charlie Munger doesn't seem to care too much about the backlash. She received last time. He criticized Robin Hood. He's doubled down on it. He It's a gambling, parlor masquerading as a brokerage, a reputable brokerage, and it actively entices people into short-term strategies that make Robin Hood a lot of money, but they don't generate a lot of wealth for the people pursuing these strategies. So his opinion on Robin Hood, hasn't really changed for the

better. If anything. It's gotten worse. Now, moving on we get to one of, I think the most incredible parts of this interview. They talk about how they purchased a difficult business, a very difficult business, one that's more difficult to run than they anticipated. It was a mistake to purchase. It and they praised the people that sold it because they said it was smart of them to sell this business, but we can see we soon realized it was about to lose what?

Yeah, and so we we sold a department store. It went out of business in 1983, but hussars which was the souks talking department store. They went out of business in not around 1985 or sick, they're gone and the people they're quite understandably wanted to build more Branch stores, but you don't want to put more money into a business. That's Just a value. Now. We put six million dollars in capital on that and the dumb

decision everything. So they described it as this difficult declining business, that's destined for failure. That the people that sold it, where the Smart Ones, they made a mistake buying it and now they needed out. So, they sold the company at a loss collecting, six million dollars and here's what happened with that. Six million dollars. That's 6 million. What would it be worth now Charlie, they got four tenths of Bashar great many billions, so it's tens of billions.

Yeah, out the department store. It. Succeeded. We'd have a nice little businessman. It sounds a little track. But because it failed, we've made 2500, we very much more than 25 billion in that didn't look like that. I Bill had that business, succeeded there, six million dollars would have been wrapped up in that business and they would have had whatever profits that business generated. But since it failed and they had that six million dollars to reinvest into different businesses.

It ended up growing to well over 25 billion dollars. So the failing of the business Actually ended up to be a good thing. But at the time it didn't seem that way. This is one thing that I think is important to highlight from Warren Buffett and Charlie Munger because when they have a failing business, they sell it. They don't hang on to a failing business just because it's buy-and-hold Diamond hands, never sell.

If the business is failing, if it's declining, if it's destined for failure in the future, they sell it. And look for better opportunities. Now, the last little thing that I'll highlight from this interview that I thought was interesting, was that Charlie has fallen in love. Of with zoom and this is brought up at the last part of the interview. She asks him. Why he likes Zoom So Much Charlie. I hear. You're pretty Adept at Zoom. Oh I fall in love with them.

How often do you talk to people on Zoom? At least three times a day. I made a deal on Australia. I think Zoom is here to assist it just adds so much convenience. Now. Buffett does point out that Charlie munger's in a little bit different of a situation, the most people because he's 97 years old. So he's more reliant on video conferencing just because he's less. Mobile. He's not as mobile and agile as they used to be. Now, even though he's he's heaping Praises on zoom in particular.

I don't think that's a reason to run out and buy stock and zoom just because Charlie Munger likes it because they do have a long list of competitors that are well, funded and ferociously competing with zoom. Right now. You have apple with FaceTime. They're making big changes that are mimicking. Zoom. You have Microsoft with teams. They're going to make that at the Forefront of their new operating system.

You have course have other companies like slack, you have gue I'll meet you have lots of different alternatives to zoom. So we'll see if Zoom can pass the test of time right now. They're basically competing directly with all the big tech companies. So that's some of the things that I thought were the most interesting from this interview.

If you watched it and you found other things, let me know. Now, moving on, we have to jump into this article called the Lord of Roth's. This is one part of a series of articles that have come forth that highlight how the rich and wealthy. People that have billions of dollars are using very creative ways and loopholes to Shield them from paying any Axes in some case. They're making billions of dollars of real money real realizable gains and paying no taxes on that money.

This is just one segment of it. One part of this overall series, and this one's called the Lord of Ross and it highlights Peter teal. Now, if you're not familiar with Peter teal, he is one of I think the smartest people in the world. He's created a lot of companies like PayPal can name one. That's a pretty decent company that he founded his also started palantir.

Another, pretty cool company. That you may have heard of if you've been on YouTube for more than Five minutes, he started all sorts of creative amazing companies and even more. So he has a history of doing pretty incredible things to get things the way that he wants. For instance years ago. It wasn't well known that Peter teal was gay because he wasn't ready to come out with that information. It was a secret something that he wanted to keep private.

Well a website called Gawker outed him and they did it without his permission. They did it revealing a secret that was personal to him and Peter too. Didn't appreciate that. So silently, he looked for ways to exact revenge on Gawker, and he found an opportunity. The case with Hulk Hogan and the explicit personal video that Gawker decided to reveal Peter teal silently funded, Hulk, Hogan's case with the most expensive, lawyers.

That money could buy, he bought Hulk Hogan the best lawyers and they destroyed Gawker. It's out of business because of Peter teal. Now, I think he did the world, a great service and taking down Gawker personally, but that's a side from the point. The point. Is that Peter teal. All is probably a genius. He starts companies very big good companies and he even

destroys companies. Seemingly at will, he's not somebody that you would really want to mess with or want to insult because you don't know what he's able to do. Well, teal is also very public with his politics and he's outwardly critical of our tax system. It says, a founder of PayPal has publicly condemned quote, confiscatory taxes. He's been a major funder of one of the most prominent, anti-tax political action, committees in the country and he's bankrolled a group that promotes.

Building floating Nations, that would impose no compulsory income taxes. So he's actually trying to create a new nation. The whole goal of the nation is that it won't tax, you know, compulsory taxes. That's the level that he's going to because of his hatred of taxes, as he's wanting to bankroll the creation of a new nation that won't tax him. Now this article goes on to explain how he didn't necessarily need to create a new country in order to avoid paying taxes.

It says over the last Last 20 years, teal has quietly turned his Roth IRA, a humdrum retirement vehicle intended to Spur Americans to save for their golden years. Into a gargantuan tax-exempt piggy bank. So someone got ahold of these confidential IRS documents, and they're sharing it. Now. They say using stock deals. Unavailable to most people, teal has taken a retirement account worth less than two thousand dollars in 1999 and spun it into a five billion dollar windfall.

So when he turns 60 Have five billion dollars, completely. Untaxed. None of that wealth generated. There is going to the government, that is absolutely incredible. Now, to put that in perspective. The average Roth IRA is 39,000 Peter thiel's Roth IRA is 5 billion. So we have that little speck there. That is the average then you have Peter thiel's Roth IRA. They give another comparison just to show how much money this is.

They say that if every one of the 2.3 million people in Houston, Texas were to deposit two thousand dollars into their R bank account today that still want an equal this five billion dollars. So, newsflash, five billion dollars is a lot of money and Peter teal is going to have a lot of tax free money available to him when you turn 60 years old. Now, how did all of this happen?

How was Peter teal able to grow a Roth IRA with a limit of only six thousand dollars per year, being able to be deposited into it? 25 billion dollars. Well, it starts with the formation of PayPal, way. Back in 2001. Someone named Tom Anderson, who is the pens, co-founder? Worked with Peter teal and the other Executives when they're setting up PayPal, if you really think this is going to be big, you know, you might want to consider this new Roth. You're not going to pay tax on

it when you take it out. It's a no-brainer. The math was compelling teal. Wouldn't get a tax break up front. But he'd avoid an immense tax bill later on if the investment surged in value, they immediately grasped that Anderson said and they did it. So he was able to purchase a lot of PayPal, right at the founding of it. They paid. Zero zero one dollar per share. That's just a tenth of a penny. So he purchased with $1700 $1700. He purchased 1.7 million shares of PayPal in hindsight.

I think that was a pretty good deal. Now, from there. He basically did the same thing over and over again, to grow this Roth, even more, it was upwards of 60 million dollars in value in like 2011. And he used it to invest in other Silicon Valley startups, even ones that he found it again that weren't even private, so he could buy in Bargain deals. Another company. Outside of PayPal is Palin Terry.

This is another one that he helped found way back in 2003, that he was able to purchase a ton of shares. They're called founder shares before. The company was even public. So of course, it wasn't worth much when he put it in his Roth IRA, but now palantir is a big public company worth tens of billions of dollars. So in both cases, he continued to buy these Founders shares and different companies and hold them in as Roth IRA to let it grow into billions of dollars of untaxed money.

Now, in an interview, one of the author is a propublica comments on on the hacking of us tax law by these billionaires. This is one of the questions that he's asked seems like us. Tax law is getting hacked by the rich. In this case. We're talking about billionaires and there's sort of this asymmetrical data thing going on, where the billionaires can constantly, adjust their approaches their tactics to find these enormous loopholes.

And yet Congress doesn't have even anonymized data to understand how the law is. Being exploited. I'm sure they're just as surprised as we are today that this is even happening because we've heard some of the response to Pro public has initial reports. Oh isn't this sort of a structural problem where you know, for especially the digital age? Congress has to change. The way law is made, they need to be able to push out software updates to the IRS on a constant

basis. They talk about billionaires hacking tax law. But one thing I want to point out is that in 1999. I don't think that Peter teal was a billionaire. There. I think he was probably well off founder of a company, but I don't think he had any where near the wealth that he has today. All of that happened after PayPal was a success. So, this isn't like some already, big billionaire found some loophole.

This was somebody that put founder shares of a company that still had a lot of unknowns in his Roth IRA. And it turned out to be one of the biggest successes in Silicon Valley, even companies like pounder is an incredibly unique success. Most companies started in Look on Valley fail and Peter, thiel's PayPal could have been one of the unknown thousands of companies that failed and you would not have billions of dollars in its Roth IRA.

If that was the case. The reason that he has billions of dollars in his Roth IRA is because a company that he founded turned out to be successful. So that's my thoughts on this. I think it's going to be very difficult for Congress or the IRS to update laws on this because everything that Peter Thiel did was a little bit of luck with his company's turning out well and just good planning. He put these companies in as Roth IRA deck.

Jade's ago far before, they were the big monstrous companies that we see today, but that's all for today. I hope you all enjoyed the show. I'll have another episode out soon. So make sure you're subscribed to the channel. I'll see you next time.