What Beanie Babies Can Teach Dentists About Money – Episode 74

Have you ever made a financial decision on the grounds that “everyone else is doing it?” When all the facts aren’t readily available, human nature is to follow public opinion. But the herd can lead you off a cliff if you’re not careful. In this episode of Dentist Money™, Reese & Ryan reflect on recent financial trends that led mobs of people to the poor house. They also provide a list of common investment bandwagons that leave dentists holding the bag.

Podcast Transcript:

Reese Harper: Welcome to The Dentist Money Show, where we help dentists make smart financial decisions. I am your host, Reese Harper, here with my trusty old co-host, Sir Ryan Isaac.

Ryan Isaac: Thank you, Reese. The tongue roll on the word sir gets a little longer every time. Can you do that?

Reese Harper: That is more of a Spanish accent.

Ryan Isaac: It just keeps getting longer. One of these days you are going to trademark that though, it’s like the get ready to rumble guy that just holds out the rumble forever.

Reese Harper: Let’s get ready to Sir Ryan Isaaaaaaac.

Ryan Isaac: Almost as exciting.

Reese Harper: No, it is totally not.

Ryan Isaac: Ok, well.

Reese Harper: Carry on!

Ryan Isaac: Today is going to be fun because we are going to start off talking about something that I know is very important to you, it is very close to your heart, you hold it very close to your heart.

Reese Harper: Ya, this is true. You got my attention right there. If it is close to my heart than I am thinking my love for the mountains, a river, a stream.

Ryan Isaac: I was going to say pizza. Today the other thing close to your heart besides mountains will be our conversation on Beanie Babies.

Reese Harper: Of course! Of course, I do love Beanie Babies.

Ryan Isaac: You had some history with Beanie Babies we are going to get into for a minute. I have known you for more than a decade. I know you have some history with Beanie Babies, but this will actually be a new story for me. Let me give a little bit of background, can you tell your story? Most people remember it, I think.

Reese Harper: The Beanie Baby craze?

Ryan Isaac: Yes, you have to remember that.

Reese Harper: I mean, I do, because I was intimately involved in it.

Ryan Isaac: That’s where you made your first fortune. Little background, Beanie Babies started by the guy Ty Warner. He is the guy who eventually started Ty, as in the company Ty. He used to be a plush toys salesmen. He was the worlds best in the worlds biggest plush toy company. Then he started making his own toys on the side, his own Beanie Babies. He said they were filled with, beans in the paws and butt so they could sit nicely on a desk or somewhere, right?

Reese Harper: Yes, but they had a little fluff in the middle.

Ryan Isaac: He took it very seriously. He starts this on the side, gets fired, and then starts Ty the toy company. By the early 90’s he’s got a million in revenue and then everything changed for him, which leads into our discussion today. In 1995 one of his Chinese suppliers called and said, “we have a problem with Lovie the Lamb.” It was a very popular lamb in hospitals. It was being discontinued because of problems in a Chinese factory. All of his customers were getting mad and hospitals were calling saying, “it is our most popular Beanie Baby.” Instead of telling the press he had an inventory problem he actually said he was retiring Lovie the Lamb. He was going to retire it.

Reese Harper: The rest is history!

Ryan Isaac: Over the next five or six years, by 1998, his revenue was almost 1.5 billion. It was the first billion dollar plush toy company in the history of the world. He did it by creating this scarcity shortage, by telling everyone that he makes some animals and then he retires them and then prices surge. Here is my question, tell us about your experience with the Beanie Babies, and the surge pricing, and the retiring? You took advantage of this?

Reese Harper: I’m a little capitalist, let’s be honest. When I started to forecast this Beanie baby craze…

Ryan Isaac: When you saw it coming from the data you had in the early eighties.

Reese Harper: It was interesting, but Beanie Babies had been a big thing for like three or four years when I started into the financial services business. I started in the financial services business in 2003, that was my first year. The day I opened my doors, strangely enough, the world wasn’t knocking down my door to talk to me. I thought they might, got an office, had my name on the door.

Ryan Isaac: You hung your sign and nobody came to pound down the door?

Reese Harper: Correct, then I went to this investment conference to get continued ed and certification. The firm I was at back at the day was Northwestern Mutual, it was my first job I had. That is where I held my license.

Ryan Isaac: That’s where it all began.

Reese Harper: They contracted with Ty to do a custom Beanie Baby for the conference.

Ryan Isaac: For the conference? Oh man..

Reese Harper: I emptied out my life savings to buy every Beanie Baby they had.

Ryan Isaac: At the conference?

Reese Harper: Yes, I went and saw this big shelf of Beanie Babies and no one was buying them. I wondered if people did not realize that there was a big market for these out there? I knew the story, and I was pretty familiar with the scarcity strategy. I thought, if a custom Beanie Baby from this conference was being made, maybe people would flock to it as well. It was kind of lame. It had a corporate logo on it’s chest…

Ryan Isaac: Ya, they did that for McDonald’s too though! Same thing happened for Mcdonald’s.

Reese Harper: I bought like five of them and immediately posted them on Ebay from the conference, just to see what kind of bite I would get. They were selling them for like $10.00, ya know? I bought the five and posted them. Within three minutes, I had sold all of them for around $200.00 a piece.

Ryan Isaac: Oh my gosh.

Reese Harper: I was like, “No way, I just made like $1000!” In 2003, that was enough to live on for a month. It wasn’t chump change, man. That was enough to feed me for a year based on what I was eating! I just took all of my savings and I bought hundreds of them.

Ryan Isaac: You didn’t tell your wife.

Reese Harper: I filled up cardboard boxes. I stopped going to the break out sessions at the conference and just filled up these boxes with Beanie Babies and took them back to my hotel and just started posting them online. My brother in law was there. He grabbed a bunch and started doing the same thing. It was really cool. I made enough to create a downpayment for my first house that I bought in 2005, a couple of years later.

Ryan Isaac: Oh my gosh, that is awesome.

Reese Harper: It was super cool. I look back and think, “what was my first highly leveraged business?” I made all of that money in fifteen to twenty days. It wasn’t even a month ya know?

Ryan Isaac: Everyone kind of jumped on that as soon as you started retiring Beanie Babies, everyone got that panic. I remember my best friends mom growing up lived next door and she would be organizing her living room full of Tupperware bins of Beanie Babies.

Reese Harper: It was super cool. I loved it.

Ryan Isaac: It is interesting because it ended almost as abruptly as it began. When people would post something on Ebay and it wouldn’t sell. Then it just triggered from there. They would make a retirement announcement, they would retire a line, and then when they wouldn’t sell for more. It just kind of quickly ended, like it began.

Reese Harper: Ya, it was just a Beanie Baby phase. They didn’t appreciate like people thought. I got in and out hot.

Ryan Isaac: I have never heard that story, that is actually really cool.

Reese Harper: You are like forget this investment conference, I’m going to go make some money.

Reese Harper: What you are saying, Ryan, is that you are afraid that dentists are going to buy too many stuffed animals right?

Ryan Isaac: Ding the chime.

Reese Harper: Too many animals at Disneyland.

Ryan Isaac: I’ll give you another quick example of a funny experiment. I sent you a video about this one. I will tell people where to go, but it is something else that people do that is irrational in a large group. If you google “National Geographic Brain Games” and there is one called, “monkey see, monkey do.” I don’t know what city it was in, did you notice, Reese? It looked like Las Vegas or something.

Reese Harper: Ya, it was in Vegas.

Ryan Isaac: Ok, so, I think it is Vegas Strip, tons of people walking all over the place. They put a guy with two velvet ropes making this big long line and they stick a sign at the front of the ropes that says, “line starts here.” Then they stick one guy at the beginning of the line. Then they film what people do. For a while people would come by and ask him what he is doing. He would say something like, “I don’t know, I was just told to stand here.” Then eventually he got two people to go behind him. As soon as there were three people in that line, it exploded. There is this huge line way past the velvet ropes and nobody in the line knew why they were standing there. As soon as there was a small group of people, a big group of people lined up behind this guy. You could hear people in the line talking to each other saying things like, “I think it is a big event. I think it is a really big deal it is going to happen soon.” They were literally just standing there and nobody knew why, so as it got really big they had one of their people come in and lead the line and it goes on from there. They take the line and they lead them through this maze of other velvet ropes that don’t go anywhere. You could see the end of it and it just zig zags, people just kept following them. The purpose of this thing is called the herd mentality or herd behavior. In the video they say that herd behavior essentially means, “we use social influence to determine our course of action, when information is ambiguous or when we are uncertain about what to do.” That is when we use the environment around us to make decisions. Again, go check it out. That is what we are going to talk about today. The herd mentality, or herd behavior.

Reese Harper: It is like when you buy a five dollar stuffed animal for four grand. Ya, I almost had that. I didn’t quite get that high. It was crazy though how on the same day people would pay different prices based on how many bids there were. This was back when I didn’t want to do buy it now. It was when eBay was truly an auction bidding process. It was amazing how I would have 100% price swing day to day just based on how many people were bidding. People would find this random Beanie Baby with a corporate logo on its chest and be like, “I don’t have that one!” A lot of people are bidding on that one right now, must be hot.

Ryan Isaac: $300 bucks!

Reese Harper: How does this help dentists make smarter financial decisions, young man?

Ryan Isaac: To understand how this can help dentists make better financial decisions let’s take a look at a couple of financial examples of herd mentality. This is where information was ambiguous, there was a lot of hype, people were uncertain but so many people were involved that everyone just kind of went with the masses. The first one we will start with is the .com bubble of 2000. What was the .com bubble?

Reese Harper: Well, the real issue was that everyone just started purchasing tech companies as they started growing a lot.

Ryan Isaac: Or even as they just registered a domain name!

Reese Harper: Ya, you would have a domain name get registered and people would flip them like it was Manhattan real estate. It was a very interesting time. We hadn’t really seen an industry take off like that before in the history of the stock market. There just really hadn’t been an unknown commodity like the internet that promised to change the world and everyone just started trading it. I mean a lot of people quit their jobs to go and trade full time. You really didn’t do a lot of analysis as long as it was an internet company.

Ryan Isaac: Yes, that is why it was called the .com. As long as it had a web address, if it was a .com, someone would set up shop.
Reese Harper: There were a lot of companies that went under and there were billions of dollars in market cap loss, but the reality was that the valuations weren’t supported by any underlying business, ya know? You can go through a whole bunch of examples of interesting companies that really went under. I don’t know if anyone remembers pets.com? That was a big one. That was a multi billion dollar gig that just evaporated. It was eventually re branded, but they lost everything. There was Etoys, that was another big one. How about Geocities?

Ryan Isaac: Oh, I had a Geocities web site.

Reese Harper: You did? Well done! We had theglobe.com, go.com, there was a bunch of really interesting ones and some weird ones, but a lot of these companies were just talking about tens of millions of dollars in marketing capitalization and it just went up and imploded.

Ryan Isaac: You mentioned the NASDAQ. So the numbers to it, basically the tech boom lasted form about 1995-2000 where it peaked. A little perspective. The NASDAQ, the index that tracks tech companies, in those five years it went up 562%.

Reese Harper: That is crazy.

Ryan Isaac: That is more than 100% every year for five years in a row. Just to put it in context how fast that went up. The bottom was in October 2002, that was when the very bottom of the NASDAQ hit. Since then, we are fifteen plus years later, or three times as much time has gone by, the NASDAQ has returned 404%. It is still up and it is great and it has moved, but it has taken 15 years to not even get the same kind of growth that it had in those five years. When it ended, from 2000-2002 like you were just saying, about three quarters of the value of that whole index was gone in two years.

Reese Harper: The reason that happens, what is important for our clients to understand, is that when a business model is really kind of unclear and there is not a lot of certainty about how something is going to make money, there is no way to quantify it. A lot of people really rely on social proof and social evidence right? In order to take risks in areas where the information, as Ryan said earlier, is ambiguous or uncertain. Meaning, if I don’t know how to price a company, people generally tend to overweight social proof as a way to place a price on something. It is important not to let social trends, or social proof, allow you to put a price on an asset. You don’t let the fact that everyone is investing in stocks, or the fact that the internet is going to take over the world, or the fact that everyone is investing in the internet, be the rational for people to invest in the internet. It needs to have some sort of underlying rationale behind why it is going to be able to drive revenue and drive profit. There have been a lot of examples. Technology has had a lot of really solid contributions to the overall stock market. It represents a small portion, relative to other segments of the market, but it is not more than half the market. Most of the stocks in the market are pretty diverse. They comprise industrial companies, and financial companies, and food, and they call it consumer staples, things that we use every day. There are a lot of different sectors of the market, technology is just one of them. A lot of people used that period of time to invest in something that they thought was a bright prospect, but there wasn’t enough value to be placed on that. How was pets.com, garden.com, or geocities.com going to make money? The more you invest in things that don’t have underlying business models that you can measure and place a value on, the more likely you are to run into trouble. Sometimes social evidence can be really persuasive and make people do crazy things.

Ryan Isaac: Ya, and that kind of leads us to our second example that happened in that same decade. Reese, did you ever watch the movie or read the book, “The Big Short?”

Reese Harper: Definitely read that, and saw the movie. It is a very interesting part of our lives in the last ten years.

Ryan Isaac: I also read the book and viewed the film. One of the most interesting parts that stood out to me is when they were out investigating different people and homes that they owned. They started digging into neighborhoods and different professions and they were finding people who had no business even owning one home. Meaning they did not have the income for it, they did not have steady jobs, or cash, or anything like that. They not only owned one home, but they owned multiple homes. They would buy a house, pull equity out and buy another one. We saw this happen, we lived through this. I bought a house in 2005, I think you did too. A lot of our clients did, how did this effect dentists out there? You saw it happen, you read about it and things like this, how do you think it affected dentists?

Reese Harper: Well, for people who don’t know, here’s a little bit of context. The gist of the Big Short is that there was some investors that had a theory about something that was going wrong in the real estate market. What they were trying to figure out was whether certain mortgages that were normally rated really highly, like a montage is typically a very stable bond investment, they get very highly rated. They get rated by different rating agencies for the quality of the credit of the bar. So someone likes Sir Ryan Isaac, with excellent credit, he is a AAA rated bond. He is a really high quality borrower, with great credit, and he has never missed a payment in his life. His mortgage should be a really highly rated mortgage where someone else who maybe didn’t put any money down, or had poor credit, should have a rating that was lower on their bond. What these investors found was that mortgages were starting to get offered to people that had poor credit, and that couldn’t afford to pay, but they were getting rated like they were AAA rated mortgages. These investors were just trying to do research anecdotally in the community and talking to asset managers and banks and mortgage brokers and they just really started seeing a trend that there were a lot of people that owned residential rental property that probably couldn’t even hold down one mortgage, ya know? They didn’t have to put any money down and they borrowed a lot and had a lot of property. The context behind that was there was a period of time from probably 2005-2007/2008 where everyone really thought they were missing out by not having rental property. There was a really high influx of rental property ownership during the mid to late 2000’s. That was uncommon for our market. Our market overall in the country didn’t really have as much real estate rental ownership as a percentage of the total population as it did in those years. We got into a situation where a lot of people just felt like they were missing out. I saw countless examples of clients and friends and family members who purchased property at very high valuations during that period. I mean, immediate family members, I can think of ten probably off the top of my head that during 04-07 purchased a rental because they really felt like real estate was going up and they were missing out on it. It is creepy for me to think back of the conversations I had with people during that time about how much I was going to be missing out. I bought a house in 2005 because I needed a house. I wasn’t immune to buying a rental property either. I went through a lot of emotional swings on whether or not I should buy one. It was a really hard decision even for me. Luckily, I am not in that situation today where I am still carrying rental property that I have had since 2006. It happens. It is a good example of something similar that happened almost ten years later from that tech bubble. I mean it is just really interesting. Ok, well, let’s take a quick break, when we come back we will address how dentists get trapped into herd mentality.

Reese Harper: Thank you for joining me again, that was a nice break.

Ryan Isaac: You went hiking.

Reese Harper: Let’s get into examples of how dentists do some of these things that are common decisions with herd mentality and give a few examples of how it occurs in the market. Then let’s take a look at how dentists end up doing it.

{chime, chime, chime}

Reese Harper: That is my chime! I just wanted to turn the time over to you.

Ryan Isaac: I was wondering where that thing went, man? Someone handed that to you, that was kind of cool. You have a chime assistant.

Reese Harper: My chime assistant brought me my chime because I said, “I would like to play the chime during my podcast.”

Ryan Isaac: Let’s start with one example, I’ll start with a question. Do you think your friends or peer group determine what type of house you will buy and live in?

Reese Harper: I know the answer to this question, so I can’t play naive. But completely, I know it does. For a fact. I think it has a huge influence on it.

Ryan Isaac: Would you have thought that ten years ago before seeing the data on this?

Reese Harper: Maybe not. I like to think that we are independent and take nothin from nobody. You like to think that you are capable enough as a financial steward of your money to be like, “I don’t care what kind of car people drive, house they live in, I don’t care what kind of vacations they take! I do what I do…I do me!”

Ryan Isaac: I am just doing me.

Reese Harper: I just do me, alright? I know that is not the case. From personal experience because I know it effects me, I know it affects my clients, and I read the data.

Ryan Isaac: Yes, anecdotally we know it is true. So there was this interesting survey that Facebook did. It was a voluntary survey, I thought it was going to be like, “we just stole data and information.” But it was a voluntary survey of residents in LA county, they just surveyed five different areas about the size of house, price, down payment, whether they were likely to go from renting to buying, and something else. What the survey found was that people were more likely to buy bigger homes, use larger down payments, and transition from renting to buying when their peers were optimistic about their own real estate choices. The converse was true too. When their peers were negative about their real estate choices, they were less likely to go from renting to owning, buying to something else.

Reese Harper: If all my friends houses prices are going up, then I’m going to be willing to spend more on a house, buy a larger house, put more money down, and probably quit renting and buy. All just because my friends are telling me that their housing prices are going up. It is a significant number, right?

Ryan Isaac: Oh ya, in a population, yes. Maybe that is just LA county, maybe you would never do that.

Reese Harper: I would definitely do that. I mean it is just interesting. There has been a lot of research and studies like this. I have found that it is basically an example of herd mentality at work again. I mean, if prices are going up, people do stuff with real estate. If prices are going down then they don’t. That is where it is kind of interesting to watch. It is the same thing in the stock market. When prices are going up, we get a lot of phone calls, saying, “I want to be an investor, now.” It would have been nice to start four years ago, but there is never a bad time! There is never a bad time. People are just very influenced by social stimulus. I think that is a really interesting look at it.

Ryan Isaac: Ok, so same question, different topic. How about how much money you spend personally and at home. Does your peer group or those around you affect how much you spend?

Reese Harper: Totally!!

Ryan Isaac: Keeping up with the Joneses, everyone wants to say, “no, we don’t.” I don’t think anyone consciously looks at their neighbor’s car or sees their vacation on social media and thinks, “I have to have better than that.” But eventually you become your surroundings and the nicer cars become the norm and the better vacations become the norm.

Reese Harper: Ya, I just got off the phone from somebody a few days ago. This is not a client, and does not listen to the podcast, so it doesn’t matter. But it was interesting. I’ll text them and let them know I am throwing them under the bus. I got the phone call from someone they had lived in their house for probably six years. The three people on their cul-de-sac all had racquetball/basketball courts dug out under their garage floor.

Ryan Isaac: Ok.

Reese Harper: In some states, people will dig out underneath their garages, dig a hole super deep, because you don’t have to go a lot deeper to get your foundation wall tall enough to put a racquetball or basketball court in. This house is a big house already, but this person wanted to move because they didn’t have a racquetball/basketball court in their house and they were worried that none of the kids would want to hang out at their house anymore because all the kids are hanging out at everyone else houses. It just blew my mind because I am like going, “seriously, is that a real thing?” Yes, this is real! This is not the only example I give you, I can tell you about a car decision that is the same thing. It is which cruise line you go on, it is which vacation you take, which part of the country you travel to, which part of the neighborhood you live in, what is the name of your street, what school do your kids go to? All of these things are highly influenced by your surroundings. My best financial advice I can give to people is have really poor friends, who don’t make any money. Go live in a place where everyone around you is worse off than you. You will always spend less money. If you want a quick recipe for financial disaster, move to the most expensive neighborhood and have really, really wealthy friends. You will be out of money in five years. It will take you ten times as long to retire.

Ryan Isaac: Let’s talk about the social influence on a dentist’s investment choice then. Specifically on higher risk investment choices. We have seen everything over the years. We have seen everything from restaurants, to tech start ups, to solar companies, gold mines, and car dealerships. I think we have seen it all. Let’s talk about a few of the examples that we have seen. How different periods of time when there was different hype around these investments or the crowd was creating the influence for a dentist to make a decision on the investment.

Reese Harper: Yes, I remember one case where if it wasn’t for a particular client’s family, they would not have invested in these oil wells at all. But oil wells and natural gas drilling or raw materials drilling, is a very social thing. I don’t think everyone wakes up in the morning and says, “ You know, I need to have some oil in my portfolio. I want to try to find some Texas crude. I am looking for that.” You don’t wake up thinking that in the morning, ok?

Ryan Isaac: Ya, ya, ok, I don’t. You are totally right.

Reese Harper: I do remember several cases, but one in particular, where someone literally knew nothing about this industry and within like two months they are an expert. They want to dump hundreds of thousand of dollars into exploratory drilling in West Texas.

Ryan Isaac: You are not talking about buying shares in a fund, you are saying buy the equipment, land, people, drill the holes, run the crew?

Reese Harper: Yes, that was what this particular person did, ya. You will see less intense investments where people are just purchasing the partnership interests in an existing operation or they will buy through a broker a limited partnership interest in a well that is already struck oil. There is a lot of different ways to go about it, but oil drilling has a huge social component to it. I think it is less market driven. I don’t have people telling me that their taxes are high so it is time to own an oil well. Even though that is a component, or a benefit of drilling. A lot of it has to do with social influence, I don’t know that that necessarily invalidates the investment, but it is the reason that I see a lot of people doing it, right? They don’t do it because they have a large enough portfolio and they are independently wealthy, so they want to add 5% energy exposure. Which some is drilling and then they kind of do it in the context of a broader diversification strategy. They usually do it with not a lot of money to their name, and the bulk of it going towards a project like that. That goes through for a lot of things that people do based on social pressure. Herd mentality and oil wells themselves. They go hand in hand.

Ryan Isaac: Very social. I was going to say another one that reminds me of that, that we have seen is farmland. The average person doesn’t dream of owning a few hundred acres, but in the social circles where that is common, that happens a lot. I want to take my extra money, or all my money, and buy some farmland.

Reese Harper: Ya, and I don’t want to say there is anything inherently wrong with oil wells, or farmland. This same thing will happen with IPO’s, those strike me as a big social factor. When Facebook IPO’d there were some opportunities to purchase shares that were circulating and it went viral. I was getting emails from people within hours that had come from tons of different channels all from the same solicitors. Somehow word got out to like ten different social networks, and I was getting so many emails about this IPO all within an hour from very different people. I was so surprised. They would tell me that, “Tom told me, then Sally and John, and Susie passed it over.” It is surprising to me how viral an IPO can be. See, there is scarcity there? There is timing? Time is of the essence.

Ryan Isaac: Especially we have seen it with local companies too. When there is a local tie or story.

Reese Harper: If something goes public? Yes, we have had that in Utah. There is a segment of the market here called Silicon Slopes. It has got a lot of press if you just google it over the last year, pretty much the last five years. Utah has had a lot of billion dollar IPO’s that have come out of the state. So on a per capita basis, we are one of the higher IPO to people ratios that have become what they call unicorns or billion dollar companies. A lot of the times when a local company goes public, it is a mad purchasing fest.

Ryan Isaac: Yes, for weeks! I remember one of the last ones, I heard about it everywhere. All over the place, not just clients, but neighbors and friends were talking about it.

Reese Harper: Sometimes it is just fun to own a piece of something local that you have history with. Many wealthy people can afford to speculate and they will. That doesn’t necessarily mean that it is the worst decision.

Ryan Isaac: Ya, you are not disparaging it. You are not saying any of these are the wrong choice, just what were the reasons for doing it?

Reese Harper: Yes, and what was the financial circumstances of the individual that made them feel like they could take that risk? What Ryan and I are concerned about is that too many people do it too early in their life with too little money and they don’t really have the financial wherewithal to stomach the losses that will come from some of these. We had another thing that was really popular during that real estate crisis during 05-07, a regional thing. I don’t know if it really made it to the East Coast, but a lot was happening in the West.

Ryan Isaac: Lot’s of land, wild west…

Reese Harper: When real estate prices were going up, what people would do is re-appraise property and land often. Then they would take out the cash from the property and buy more land with it. Instead of just saying, “I have got 50% loan to value.” You know you put 10% down and a year later your property has gone up 25%, so a lot of people would go and re-appraise the land and rip out the equity to go buy more land and lever up. Just to buy more property.

Ryan Isaac: My first home was a 50% increase over 18 months when I refinanced my mortgage!

Reese Harper: Yes, I remember that same case. I think a lot of people can relate. If you bought housing between 03-05, you saw a big uptick in your home value. People would borrow money out from property and buy more property and just keep leveling up. What started to happen is that there were funds that started to develop called private placement memorandums, or PPM’s, that is just a formal name for an investment that is not..

Ryan Isaac: That is actually the name of the legal filing.

Reese Harper: Yes, it is not like a mutual fund. It is a private fund that is not regulated the same way as a public security. It was crazy, but during this period of time a lot of people would contribute the bulk of their life savings to these funds that would go out. If you google equity milling, there are a ton of lawsuits that happened during that period of time. It was a huge herd mentality issue. People would put money into these funds that would go do this and get promised a certain percentage return each month. In some states it made the state’s top ten list of financial fraud and scams. They were paying out 3%-4% sometimes 5% per month during this price appreciation period. Almost everything just imploded. None of these properties are worth that 100% increase in value. They spiked and they fell and everyone had levered up their property so much to buy more property that everything just kind of came crashing down. There was not enough equity in any of the funds to sustain the crash in the prices.

Ryan Isaac: I think there were even people doing it with exotic cars.

Reese Harper: You are right. It was happening with exotic cars, but it was happening with standard cars too! You could get a lot better value on exotic cars, but cash was cheap and interest rates were low. We saw people borrowing money on highly appreciated aggressive appraisals. There were a lot of people who went to jail for that. It was a weird period of time. The market had so much liquidity and the values of real estate and land were just so high. Appraisals for different assets started to become more flexible. I mean people just weren’t as worried about giving an appraisal on a car that was probably really inflated. It was just weird. Anyway…that is the mid 2000’s.

Ryan Isaac: Alright, well, I think that was some sage advice.

Reese Harper: You gave it all.

Ryan Isaac: Thanks for walking through it with us today. Any thoughts, just curious now, since you called the Beanie Baby crazy early on? Any thoughts on the next Beanie Baby phenomenon?

Reese Harper: I would love to forecast it, Ryan, but I can’t be giving away my secret sauce. I just can’t let that out.

Ryan Isaac: I’ve seen the spreadsheets, but I won’t let out the excitement. It has to do with Root Beer.

Reese Harper: “Pundits don’t forecast because they know, they only forecast because they are asked,” that is a Burton Malcom quote I really like. Anytime you ask me to forecast something, I’m not going to do it because I know, just because you asked.

Ryan Isaac: We will end it with that, and thank everyone for listening. We really appreciate people downloading these episodes and streaming them online. We would love to ask everyone a quick favor to leave us a review on iTunes. Last time we checked we were around number six on the list in iTunes when you search for Dental Podcast. If you go to iTunes, you can do it on the app, that will help our podcast climb to the top of the list and be easier to find for more dentists when they search for it. If that is not too much to ask, we would really appreciate you doing that. You can also see a list of all the Dentist Money episodes on dentistadvisors.com/listen. While on the site you can book a free consultation with us, give us a call, leave a comment. Thank you very much!

Reese Harper: Carry on!

Behavioral Finance, Investing