The FTX Crypto Collapse and What We Learned – Episode #364

There’s a degree of uncertainty and potential for loss that comes with every investment. But some come with much greater risk—and you need to know why. On this episode of the Dentist Money™ Show, Ryan and Matt expose some of the issues that led to the FTX crypto exchange collapse, which scammed even elite firms. It’s a reminder of what we all should remember when taking a risk.

 

 

 

 

---

 

Podcast Transcript

Ryan Isaac:
Hello everybody, welcome back to another Thanksgiving episode of The Dentist Money Show brought to you by Dentist Advisors, a no commission fiduciary comprehensive financial advisor just for dentists around the country. Check us out at dentistadvisors.com. In this thankful week of Thanksgiving, Matt and I talk a little turkey and we’re also talking about risk in investments. How do we define what risk really means in different types of investments? And we’re talking about a really hot topic in story right now about crypto and a big exchange called FTX that recently went under and we’re still watching the news to see what’s really going on with all this stuff as the story unfolds. It’s pretty fascinating, it’s kind of sad, but it does teach us some valuable lessons that we can apply to our investing and our smart financial decision making. Many thanks to Matt for spending some time on this turkey week. Hope everyone’s having a good time. If you have any questions for us, we love teaching people how to make smart financial decisions and better financial decisions and you can do that at dentistadvisors.com. There’s probably a 1000 plus hours of free content and if you wanna chat with somebody and ask a money question to a financial advisor, dentistadvisors.com, click the Book Free Consultation link. We love meeting new friends and helping people in their financial journey. Thanks for being here. Hope everyone had a great Thanksgiving. Enjoy the show.

Announcer:
Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is [0:01:30.8] ____ furnished by Dentist Advisors, our registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to The Dentist Money Show where we help dentists make smart financial decisions. I am Ryan and this is Matt. Gobble gobble, it’s Thanksgiving week. Hello, Matt. What’s happening?

Matt Mulcock:
Hello, Ryan. Gobble gobble. I just spilled my protein shake everywhere as we were getting ready to record.

Ryan Isaac:
Perfect. Smooth. That was a perfect way to start.

Matt Mulcock:
It was smooth, a smooth operator over here. You witnessed it. It was embarrassing.

Ryan Isaac:
I like the splash up on your T-shirt was even better actually.

Matt Mulcock:
It was bad. It was like a bomb went off.

Ryan Isaac:
It was good.

Matt Mulcock:
Yeah. That was fun.

Ryan Isaac:
And it makes it better that you were hungry and then you’re like, “Give me a second. I’m starving. I need a protein shake.” And then you made it and then you spilled it all over yourself before you took a sip.

Matt Mulcock:
Literally 10 seconds later, it went everywhere. Like a real idiot.

Ryan Isaac:
Like a fool.

Matt Mulcock:
I’m looking around. It’s still wet everywhere. Anyway…

Ryan Isaac:
Luckily…

Matt Mulcock:
I got to say, I got to say one thing. I was actually pretty happy how I handled that.

Ryan Isaac:
You did. [chuckle]

Matt Mulcock:
I didn’t get angry.

Ryan Isaac:
You were smooth. No, you were chill.

Matt Mulcock:
I was just like, “Dang it. That was not fun.” We just moved on.

Ryan Isaac:
That’s too bad. Yeah. You didn’t ruin any equipment. Luckily for you, this is Thanksgiving week and you are going to eat lots and lots of food. We were talking before we recorded this. I’d love to hear from the audience who… I’ll just post this poll actually. Who is a traditional turkey Thanksgiving person? And who out there is a non-traditional fully celebrating Thanksgiving but without turkey kind of people? It’d be a minority. It’s gonna be a minority.

Matt Mulcock:
I fall in the first camp, you fall in the second camp, right?

Ryan Isaac:
Yeah. We’re ham and red meat and charcuterie. Of course.

Matt Mulcock:
Of course.

Ryan Isaac:
How do you not charcut your way through Thanksgiving? Just a little charcut. Probably charcuterie boards is I never want anything else once that’s on the table. I just want meat and cheese and crackers for like six hours straight and then I’m full of like cream cheese blocks.

Matt Mulcock:
Of course. Yeah. Oh, dude, the cream cheese for sure.

Ryan Isaac:
The cream cheese balls out there. I’m so full.

Matt Mulcock:
Oh my gosh. It’s the best. We do this like raspberry. My wife does this cream cheese block and then she puts this raspberry stuff all over, like you do with crackers. It’s amazing. I feel like with my turkey thing, traditional turkey Thanksgiving, I’m more of a prisoner of tradition more than I am like a lover of turkey. I don’t love turkey…

Ryan Isaac:
You just do it.

Matt Mulcock:
But it’s more like in the name of tradition. It feels weird not…

Ryan Isaac:
Totally.

Matt Mulcock:
Not doing it.

Ryan Isaac:
It does feel odd the first few times. I will say if I had… We have family in town, but if I had people visiting that we were hosting and they were all like, “We need turkey.” I would do turkey. Although I would just go, I have a friend who owns a bunch of KFCs and they just deep fried turkeys for you and you can go buy them. I would just go get a deep fried turkey from KFC actually.

Matt Mulcock:
For sure. For sure.

Ryan Isaac:
Anyway.

Matt Mulcock:
The whole prep of Thanksgiving is wild to me.

Ryan Isaac:
It’s nuts. Yeah, it’s crazy. Not worth it.

Matt Mulcock:
You spend days of… My wife right now is upstairs prepping and she’s going over tonight with her sister…

Ryan Isaac:
Done in 20 minutes.

Matt Mulcock:
To prep… And then, yeah, it’s a 25 minute meal. I’ve cleared two plates. Feeling great, feeling a little sick, ready for some football. But then you look around, it’s like, “Holy cow! That was like… ”

Ryan Isaac:
That was not worth it.

Matt Mulcock:
A lot of build up for nothing…

Ryan Isaac:
It is cool if you’re with people who will sit around a table or a room for a while and just kind of slowly eat and drink and then just chat. That is pretty cool. Speaking of turkeys, Matt, we’re going to talk about crypto today. Does that correlate turkeys and crypto?

Matt Mulcock:
Totally, Yeah, yeah, absolutely.

Ryan Isaac:
Well, the guy running this thing was a turkey, I think that we’re gonna talk about today.

Matt Mulcock:
The old turkey.

Ryan Isaac:
He used a turkey. Today’s episode, here’s what we hope to get out of this. I think this needs to be a discussion about what the word risk truly means how people should think about risk in their investments. I think this a great time for that. This is a good time to talk about how you can protect yourself as an investor in certain kinds of investments. And then, we’re also just gonna talk about this giant debacle right now.

Matt Mulcock:
Yep.

Ryan Isaac:
That isn’t the first of its kind. Won’t be the last but it’s in the news. I think you know more about this than I do. But I’ve been reading about it, especially today. And I’m just blown away by the scale and the scope of how this all started.

Matt Mulcock:
It’s wild.

Ryan Isaac:
Do you wanna give an intro to what. Specifically we’re talking about this giant crypto exchange called FTX and some of its partner companies that it was involved with. And it’s basically overnight multi-billion dollar downfall that just took down a whole… And we don’t even know the extent of it yet. It’s gonna be kind of crazy. Do you wanna give an overview? Or do you want me to give what I think the overview is from a dumber learner perspective?

Matt Mulcock:
I’m good either way. I’ve been so into this lately just because it’s such an intriguing stories.

Ryan Isaac:
You go, explain what this is. And I’ll throw in a few things on the backstory between them and their other sister company, the hedge fund, if there is anything needs to be said.

Matt Mulcock:
Do you want me to start, like very beginning?

Ryan Isaac:
Yeah. I think a lot of people are gonna know what this is. But for anyone who doesn’t, basically a giant exchange where people are buying and selling crypto went under, to the tune of like tens and tens of billions of dollars of valuation and cash and money and it’s all gone. It all disappeared overnight. And so many people were backing this thing. Famous people, athletes, movie stars, banks, billionaires…

Matt Mulcock:
It’s like still coming out.

Ryan Isaac:
Hedge funds. And you still don’t even know.

Matt Mulcock:
May not even come out fully because of all the connect… Like.

Ryan Isaac:
It’s all on the Cayman Islands. It’s overseas, it’s in Hong Kong.

Matt Mulcock:
All the incentives to keep it quiet, right? Some of the people that were involved.

Ryan Isaac:
Because of the people involved. So what’s the backstory here? What happened? What’s going on so far?

Matt Mulcock:
Yeah. So basically, there’s a guy named Sam Bankman-Fried, MIT graduate. Brilliant dude. Super smart. Comes out of MIT and starts working for a trading group. He starts basically getting into crypto and starts realizing the power of how much money you can make doing crypto.

Ryan Isaac:
He’s in his 20s too. These are young people.

Matt Mulcock:
He’s in his 20s. Young guy. And so he starts just trading on his own. He’s working for a separate group. And I think I saw at one point in his, prior to him starting what he started was he was trading. He figured out with Bitcoin specifically how to basically what’s called arbitrage. Arbitrage, all that means is you are finding price discrepancies in a market. So you’re buying… You can find this in any market.

Ryan Isaac:
You buy PEZ dispensers in Kentucky and you sell them in California and there’s a 10-cent margin ’cause California pays more for PEZ dispensers.

Matt Mulcock:
Exactly. That’s arbitrage.

Ryan Isaac:
And that’s how you do it. That’s arbitrage.

Matt Mulcock:
So, he found a way to do that with Bitcoin.

Ryan Isaac:
And it’s scale, and it’s big scale. That’s how you make your money.

Matt Mulcock:
Yep. So he was doing it with Bitcoin and this is his first step into making big money in crypto is he found a market a way to buy it, and I think he was buying it in the US and sell it overseas in other like… By the way, I don’t know how you feel Ryan but I am in no way an expert in crypto. I’m not gonna claim I am. But the way he did this was he was finding these price discrepancies. So anyway, he made a bunch of money. At one point…

Ryan Isaac:
And he was one of the early pioneers of crypto arbitrage, which arbitrage in banking and currencies and stocks. I mean that’s a thing in giant scale. It’s all AI-powered and everything, but it’s pretty, he was a kind of an early person in crypto from what I understand.

Matt Mulcock:
And all that. And again he started to make a name for himself pretty early in these inner circles. So at one point, his peak of this, he was moving upwards of $25 million a day in Bitcoin. So he was doing big, big trades. Anyway, made so much money. He took that and started a thing called Alameda Research. It was basically a hedge fund market maker for crypto. Anyway. And then along with that started a thing called FTX, crypto exchange…

Ryan Isaac:
And his girlfriend was running Alameda, right?

Matt Mulcock:
Yeah. Oh, man. This is gonna be a five-hour podcast.

Ryan Isaac:
He’s blaming her for… Which is the most…

Matt Mulcock:
This could be a five-hour podcast, honestly.

Ryan Isaac:
Yeah. His girlfriend’s the CEO of the hedge fund that he started.

Matt Mulcock:
So, he makes her the CEO. So he grabs his girlfriend who he met at his own or his other, it’s called Jane Street. His other trading firm. He meets her there. When he starts Alameda Research he grabs her and says, “Hey, come help me out here.”

Ryan Isaac:
“You should be the CEO of a hedge fund.”

Matt Mulcock:
Yeah, you should be CEO. She’s 27.

Ryan Isaac:
Yeah, cool.

Matt Mulcock:
Zero trading experience. He teaches her along the way and she becomes the CEO.

Ryan Isaac:
And he didn’t have experience either as a hedge fund manager of any kind.

Matt Mulcock:
No. No, no, no.

Ryan Isaac:
He wasn’t in that. That wasn’t his realm either. Okay.

Matt Mulcock:
No.

Ryan Isaac:
So they were dipping their toes into something…

Matt Mulcock:
Yeah, completely. So he goes and starts FTX, the crypto exchange. She’s running Alameda, Alameda Research and so they build this out. Well, long story short, they start commingling… And again, we could literally, if we went into the actual details of this, it would be, we could talk about this for hours. But long story short, they start to blow up. They start to, at one point FTX becomes one of the top three or four biggest exchanges in crypto in the world. They’re doing like $10 billion a day in crypto transactions on this platform.

Ryan Isaac:
Can I jump in here for a second? So one of the details I learned was how they got that big. And you’ll probably be able to add to this, too. But from what I understand these two companies, like Alameda was small, it was like $55 million, which is a drop in the hedge fund bucket, it’s nothing. But as FTX got bigger, they were able to do what companies are able to do which is say we have this growth plan so we’re gonna go raise capital from private equity and venture capital based on evaluation according to what you think our growth path is. So they would go raise billions of dollars in loans and then they would pass them between these two companies. Alameda would invest most of their funds into FTX, the exchange, and then both of those companies would keep getting bigger and bigger loans. But the people who were investing, giving these loans and all the private equity in seed money were, I mean they’re huge names.

Matt Mulcock:
Huge, BlackRock, Sequoia, yeah…

Ryan Isaac:
The biggest.

Matt Mulcock:
SoftBank.

Ryan Isaac:
So they’re raising all of this money based on these huge valuations. And like you said they’re commingling, they’re exchanging the money, it’s going back and forth between the two firms. I don’t wanna get ahead of the story where you’re going. But the…

Matt Mulcock:
Here’s the…

Ryan Isaac:
Yeah. Go.

Matt Mulcock:
Sorry, to that point though here’s the craziest part of all of this. With the FTX he creates a coin called FTT.

Ryan Isaac:
Yeah. Okay. From my understanding that was, he creates his own coin in order to facilitate its own in-house…

Matt Mulcock:
Everything. Yes.

Ryan Isaac:
Yes. Okay. In-house valuation.

Matt Mulcock:
Yes. In-house valuation. So he creates FTT out of thin air. And basically ascribes or just says it’s worth this.

Ryan Isaac:
Okay. Real fast. Wouldn’t this be like you live in the United States and you use the dollar as your currency and then you’re like “You know what, I’m going to create the San Clemente coin, the San Clemente currency, the surf currency. And then you guys just give me money and it’s worth a hundred bucks a coin.” Like that’s what’s crazy.

Matt Mulcock:
You’re kinda defining crypto.

Ryan Isaac:
That’s what’s kinda crazy about crypto is you can just be like “Here’s a new currency it’s named after a dog.” And then okay, so he creates…

Matt Mulcock:
Old Dogecoin. Shiba Inu coin.

Ryan Isaac:
So, they create their own to create some… Because they were just before they were an arbitrage company, then an exchange where people could buy and sell other crypto. Then they said, “Let’s make our own coin and that’ll create some in-house kind of valuation and value.” And that coin blew up. It got huge. Everyone was buying it.

Matt Mulcock:
Here’s in the story game they call a cliffhanger, a little teaser.

Ryan Isaac:
Yeah, do this.

Matt Mulcock:
FTT ends up being his demise and we’ll get to that here in a second. So, he creates FTT, this fake coin, it’s just a coin, he just makes up out of thin air.

Ryan Isaac:
Here’s a currency, buy it.

Matt Mulcock:
And starts… Yeah. Yep. And he controls it all. That’s the thing. There’s like quotes coming out from like former employees that are like he controlled all the books, he controlled all the exchange transactions going from Alameda to FTX and back and forth.

Ryan Isaac:
And it’s good to mention that they started in the United States but moved all of their operations overseas to Hong Kong and the Caymans, right?

Matt Mulcock:
Yeah. So, they ended up… Their headquarters were out of the Bahamas.

Ryan Isaac:
Bahamas.

Matt Mulcock:
So they ended up buying a $30 million mansion. There was 10 of them. The inner circle was 10. So that’s the thing. He starts building out this inner circle. And they’re all just random 20 year olds from…

Ryan Isaac:
Yeah. Like really young people.

Matt Mulcock:
[0:14:18.1] ____ and from MIT.

Ryan Isaac:
Smart young people.

Matt Mulcock:
Just all these young… Yeah. Smart kids. But like there’s now employees coming out being like this was all just kind of a big joke, like they were all just like partying in the Bahamas.

Ryan Isaac:
Yeah, they were all… That’s what the stories are now they’re like, it was a giant like dating scene and there was dating each other.

Matt Mulcock:
A polyamorous relationship.

Ryan Isaac:
Partying in the Bahamas with billions and billions of dollars from the biggest people in the whole world. And they’re like 24 and just like what is this.

Matt Mulcock:
So, he ends up becoming a rockstar, right? So he’s basically a rockstar. And here’s the other thing. Here’s what is not totally known yet. And I think you could easily be like, say, I think my first reaction, like, well, this is all out fraud. This dude is just, like you said, a turkey. Just a clown show, like he was just like overtly and intentionally with malice, just like basically ripping people off. That’s probably the most obvious answer.

Ryan Isaac:
Yeah, that’s Occam’s razor.

Matt Mulcock:
That’s Occam’s razor. The most obvious answer is that that’s correct. The other, like what is not totally known yet is did this thing just like get kind of out of control. Like he just kind of lost control of it. Again I think it’s…

Ryan Isaac:
Hard to say.

Matt Mulcock:
Maybe a little bit of both and like he starts to rationalize decisions along the way and it gets bigger and bigger and bigger.

Ryan Isaac:
Do you know why, really fast, why he was… Like I kept reading things that along the way he was really viewed as this big like philanthropic charitable.

Matt Mulcock:
Right, exactly, yes, yes.

Ryan Isaac:
Do you know why? Was he donating or building stuff for people or what was the deal? Do you know why?

Matt Mulcock:
So, here’s what’s not totally known yet about this part, is that he starts to become a rockstar not only in the crypto world and the finance world, but also with this whole movement of what’s called EA, Effective Altruism. I think that’s what they call it. It’s this whole big movement around like where can… Like being more thoughtful with your money in regards to like how far can my dollar… Well, when you’re going to give to charity, it’s like how far can my dollar actually go and trying to approach altruism from like, and charity giving as far as like an objective, really pragmatic approach. So for example, as opposed to saying like, “Okay, I went to MIT. I’m now a billionaire, I’m gonna go give charity or give money to MIT ’cause it’s my local community,” all that. It’s like, “No, I’m actually gonna go give money to malaria causes ’cause that’s where my money can like be the most… ”

Ryan Isaac:
Go the most or you go the furthest.

Matt Mulcock:
Get the most bang for my buck basically.

Ryan Isaac:
MIT doesn’t need a 100 grand, but Malaria Foundation needs it or something.

Matt Mulcock:
Exactly. So he’s a part of that and this is a whole other separate movement.

Ryan Isaac:
The whole movement.

Matt Mulcock:
He becomes almost like one of the biggest faces of. And so what is not totally known yet is like was this all a ploy and a planned front for him being viewed like obviously in the media…

Ryan Isaac:
More trustworthiness.

Matt Mulcock:
More trustworthy. It helped him gain more traction with investors and with celebrities. Was that all planned or is he truly altruistic. So at one point he was dubbed not only the youngest billionaire ever, he was 28 and he was worth $16 billion at one point. Ended in a weekend. But he was also dubbed like the most generous billionaire of all time, in like many articles. And so again we don’t know if that…

Ryan Isaac:
That’s a really fast, like it’s just one of those principles in life it feels like, when things happen that quickly, when someone becomes the fastest, youngest billionaire and the most charitable billionaire in the matter of like months, that feels a bit like you should probably pump the brakes on dubbing someone that.

Matt Mulcock:
Maybe a little bit.

Ryan Isaac:
Easy come easy go man.

Matt Mulcock:
Well, the funny thing is he was really… Like people were talking about how he drove like a Toyota Corolla. Everyone’s like, “Oh it’s like he wears T-shirts and never does his hair and he has the worst flip flops. He drives a Corolla.” I’m like, well, he also flies on private jets and has a $30 million mansion in the Bahamas. But yeah, totally.

Ryan Isaac:
Word totally got you. They could have an office building, the $2 million office building but have a $30 million mansion. It’s just like 20, 25-year-olds just dating each other and living in the mansion together basically.

Matt Mulcock:
Yeah, they’re literally… I think that that is pretty wild if you think about it. You’re 28-years-old. You’re just partying in the Bahamas with…

Ryan Isaac:
Sounds amazing. Yeah.

Matt Mulcock:
All these people. And you are a billionaire almost overnight.

Ryan Isaac:
How else would you wanna spend your 20s, man?

0:18:38.8 Matt: Right, c’mon.

Ryan Isaac:
I mean I spent it raising kids, but I digress. Okay, so this thing peaks at a point where both Alameda and FTX have taken on tons of loans, and the loans start getting called. One of the first big loans… I think I just got rid of the article, but one of the first big loans from a huge investor got called, which means they’re like we… No more payments, we just need the principal back.

Matt Mulcock:
Yeah, exactly. So basically there’s…

Ryan Isaac:
What was the tipping point that you know about?

Matt Mulcock:
Yeah, so basically with… It’s all kind of interrelated to what’s happening with interest rates right now. And so interest rates started to move up, capital started to get more expensive and things started to get a little bit shaky in the crypto market. So he created this coin, FTT, and everything was basically… He was going as far as saying… Money would come into the exchange and he would give them FTT tokens. So he would take real money, give you the FTT which is fake, and then he would take your money and he would go do other things with it.

Ryan Isaac:
I’m telling you man, Surfer coin is “Give me money and you can have a Surfer coin.” Geez.

Matt Mulcock:
Exactly. He would take… Now there’s records of him taking billions of dollars in personal loans to him and his staff. Anyway. The interest rate starts moving up. Crypto starts getting a little shaky. The scheme all works as long as FTT has perceived value. The problem is it starts to get a little shaky, things start to get… People start to ask more questions. The real tipping point was when something gets leaked from Alameda Research. Their books basically get leaked. And people start to see that some stuff doesn’t…

Ryan Isaac:
Oh really? Someone leaked their books.

Matt Mulcock:
Yeah. So something gets leaked.

Ryan Isaac:
Was this part of the drama with his girlfriend? That maybe… Or was that something different, who the leaker was? Wow.

Matt Mulcock:
Yeah. I don’t know if they found out who leaked it.

Ryan Isaac:
Wow.

Matt Mulcock:
So, that led to… Kind of in the interim, his greatest rival was this guy who runs Binance. They call him CZ. Awesome.

Ryan Isaac:
Jeez, man. [chuckle]

Matt Mulcock:
All these SBF, CZ. So, he runs a company called Binance. They started out as friends, then kind of became rivals because they run rival exchanges, right? At one point CZ bought a… [chuckle] I know. [0:21:02.1] ____ That name can’t be said without giggling.

Ryan Isaac:
Can’t be serious, yeah.

Matt Mulcock:
He buys a piece of FTX. So he gives, I think it was something in the range of 20 million or whatever. It was quite a bit money.

Ryan Isaac:
Money’s not even real. I swear, in this world now that we live in, money’s not even real.

Matt Mulcock:
Not even real.

Ryan Isaac:
Just throw as many zeros on.

Matt Mulcock:
It’s monopoly money. Yeah.

Ryan Isaac:
It doesn’t even matter anymore. Billion, trillion, quadzi… It’s like Dr. Evil. He’s like, “One fofillion… ”

Matt Mulcock:
“A gazillion billion.”

Ryan Isaac:
Yeah. It’s like… What is this?

Matt Mulcock:
I actually think he gave… It was $100 million for 20% stake or something like that.

Ryan Isaac:
Yeah, and he gave cash.

Matt Mulcock:
So, he gave cash.

Ryan Isaac:
[chuckle] And he got…

Matt Mulcock:
Then what happens is SBF, the FTX owner, buys the stake back for $2 billion. However he… This guy, CZ walks away like, “Oh man, I just crushed it,” but he gets most of it back in FTX… Or in FTT, right?

Ryan Isaac:
FTT. His coin, yeah.

Matt Mulcock:
Then when Alameda… The books get released, this CZ now has… Basically, he has leverage. So he’s thinking, “All right, all I have to do to basically take this dude down is crash FTT.” Because he’s now got millions and millions and millions of dollars, fake dollars in FTT coins. So the whole thing here is, the motivation CZ had… Saying that is just making me giggle.

Ryan Isaac:
CZ, like he’s this coolest dude in the whole world. [chuckle]

Matt Mulcock:
I know. So his motivation was that in the interim as Sam Bankman-Fried’s SBF is growing in notoriety, he’s starting to make connections along the political spectrum, right? He is speaking in front of Congress. He’s now starting to lobby to basically legitimize his exchange as the main crypto exchange and basically just building credible moat around FTX and basically push everyone else out. So the owner of Binance says, “Great, I’m going to take this thing down.” Because he’s already realized it’s a total fraud. He sends one Tweet. One Tweet.

Ryan Isaac:
Oh yeah.

Matt Mulcock:
It’s literally… This all came crashing down because of one Tweet. So CZ basically posts, and I should have had it ready, but he basically says he’s now going to sell… He references some issues with FTT and basically says, “I’m unloading something in the range of 2 million coins,” or something like that. Basically crashing the entire FTT. So he sends that. Everyone… It is a run on the bank.

Ryan Isaac:
So everyone wants to cash in.

Matt Mulcock:
Everyone wants their FTT back, or they wanna exchange FTT for dollars. It crashes FTT 86% in less than three days. So at that point it’s basically all over.

Ryan Isaac:
Insane.

Matt Mulcock:
Because SBF and FTX did not have anywhere close to the actual real dollars housed to actually pay out all of these people asking for their money.

Ryan Isaac:
Yeah, it didn’t exist.

Matt Mulcock:
So they said they were short up to $8 billion to $10 billion…

Ryan Isaac:
Just a little.

Matt Mulcock:
In these exchange, to actually give money back.

Ryan Isaac:
Little chunk.

Matt Mulcock:
So, from there it basically just completely unravels literally over a weekend. And now it’s gone completely bankrupt. SBF has stepped down, now obviously there’s stuff coming out that he…

Ryan Isaac:
There’s bankruptcy and now there’s lawsuits and it’s being…

Matt Mulcock:
Oh yeah.

Ryan Isaac:
I saw this whole thing.

Matt Mulcock:
He’s most likely gonna end up in prison I would imagine. I mean, he’s got a lot of connections politically but…

Ryan Isaac:
There’s a billion dollars of actual cash missing from the thing. And something about…

Matt Mulcock:
Oh, there’s still hundreds of millions of dollars that they can’t account for.

Ryan Isaac:
I was reading things that they started buying along the way. They were buying multiple $100 million resort properties with their funds.

Matt Mulcock:
Oh, ton’s of real estate.

Ryan Isaac:
They’re a $100 million stake-owner in Twitter with Elon.

Matt Mulcock:
Yep.

Ryan Isaac:
Now while Twitter exists. By the time this comes out Twitter might not even be in existence anymore. We don’t know.

Matt Mulcock:
Yeah, who knows. Who knows.

Ryan Isaac:
I’ve gotta read some Tweets first.

Matt Mulcock:
They were using customer funds…

Ryan Isaac:
Yeah, Ponzi.

Matt Mulcock:
From the FTX side to go over to the Alameda side, just all-out fraud.

Ryan Isaac:
And pay back… Yeah, so they were using customer funds as Ponzi. They were using customer funds to pay back their loans. They were getting called as people are running on their coin. And so exchange is going down. They have no liquid assets to back up any of the valuations. They can’t pay back their stuff. And their coin… Their flagship product is now worthless, basically.

Matt Mulcock:
Oh completely. So what they did when SBF stepped down they… When companies go bankrupt, the CEO steps away, they bring in a new CEO that specializes in basically bankrupt companies and help them basically go through the process. They brought in the dude who oversaw Enron when they went bankrupt. He came in and after a week he comes out and says, “This is the worst.” He’s been in this for 40 years and he oversaw Enron. He said, “This is the worst corporate governance I’ve ever seen in my life.” He’s like, “I’ve never seen more fraud and less due diligence done by these big groups.” He’s like, “This is the biggest mess I’ve ever seen in my life.”

Ryan Isaac:
Yeah.

Matt Mulcock:
And this dude would know.

Ryan Isaac:
[laughter] He oversaw the Enron entanglement.

Matt Mulcock: He would know. Yes.

Ryan Isaac:
So, let’s touch on that for a minute. There are lawsuits now. Where’s the article? There’s so much here, it’s insane. There’s a lot of lawsuits right now against famous people, against athletes, against professional sports organizations, against musicians, singers because they were promoting this stuff. They were directly promoting FTX on, I mean everyone saw it like…

Matt Mulcock:
Tom Brady, Steph Curry.

Ryan Isaac:
Yeah, huge. So now, there’s giant loss.

Matt Mulcock:
The Miami Heat Arena was named FTX Arena.

Ryan Isaac:
Exactly, yeah.

Matt Mulcock:
Cal, Berkeley had a big sponsor. There was the field, they named it FTX field. They owned a Formula One or something in that racing world. They owned a team like this has…

Ryan Isaac:
Crazy.

Matt Mulcock:
He was basically touching every aspect of society with this from politics to…

Ryan Isaac:
What’s the timeframe here? How fast did this develop? When did it begin? Do you know?

Matt Mulcock:
That’s a good question. I mean it’s all kind of developed in the last few years. I don’t think it’s been…

Ryan Isaac:
I know. I’m just going to check this really quick.

Matt Mulcock:
I don’t know when it was founded.

Ryan Isaac:
May 2019. Holy! You go from May 2019 to fast forward three years later and you own arenas and I mean you have the biggest names in celebrities, music, sports backing you, the biggest names in private equity and banking backing you in three years.

Matt Mulcock:
Yeah, isn’t that wild?

Ryan Isaac:
Does that kind of tell you that nobody at any end of the spectrum whether it’s just like your everyday average Joe, day trading with 500 bucks, or multi multi billionaires running hedge funds and banks… Everyone is susceptible to jumping on the greed bandwagon. Everybody is. It just seems a little unreasonable that in three years someone could gain that much power and notoriety and influence with money and finance based on something that doesn’t really even exist at all.

Matt Mulcock:
Yeah, totally. Yeah. My biggest takeaway from this, we talked about it on a live we did today, is the power of a story that picks up momentum and it’s like a snowball rolling down a hill. It can bring in… Like you said even the biggest players in the industry who are supposed to be experts in due diligence. Again you’ve got the biggest names, when BlackRock is investing, when Sequoia is investing…

Ryan Isaac:
Then how do you not. Yeah, I mean this is why you…

Matt Mulcock:
How do you not, right?

Ryan Isaac:
Get calls from a dentist going “Have you heard about this? I should put money in there, right?”

Matt Mulcock:
Totally.

Ryan Isaac:
I mean of course you’re gonna think that.

Matt Mulcock:
Well, ’cause they’re looking at the celebrities. Sequoia and BlackRock… All it takes is one. Meaning, he gets one of the big players, and then all he has to do is float back to everyone else in the industry and everyone wants in.

Ryan Isaac:
Well, they jump over themselves.

Matt Mulcock:
Yes.

Ryan Isaac:
When I talk to you, you probably hear the same stories from… Just like talk to Reese who’s raising money and building an app, on a tiny little scale. They’ll go raise money and he’ll say, it’s so hard to get a term sheet and an offer letter, but as soon as you get it from one person…

Matt Mulcock:
They all want in…

Ryan Isaac:
Then you can get 10 more. It’s crazy but that’s exactly…

Matt Mulcock:
This guy closed a $210 million investment from Sequoia, which for those of you that don’t know Sequoia is…

Ryan Isaac:
The who’s who.

Matt Mulcock:
One of the biggest hedge funds in the world. Or VC funds in the world. He closed a $210 million investment allegedly while playing a video game. So he was sitting in front… He was on camera like on a Zoom playing this League of Legends whatever in his gaming chair and he’s talking to these… The biggest kingmakers in the investing world and they gave him $210 million. If that doesn’t show you the lack of due diligence in that process and just getting wrapped up in the social proof fever…

Ryan Isaac:
Totally.

Matt Mulcock:
I don’t know what does, or what else does.

Ryan Isaac:
It’s kind of a hot take, but I… The younger generation… I think that’s really cool. There’s something really punk rock about the younger generation not showing up in a suit with a deck prepared, but taking a call over FaceTime while sitting in your gaming chair, streaming on Twitch and closing a $200 million round of investment.

Matt Mulcock:
It’s pretty wild.

Ryan Isaac:
And you’re like, hold on, I got to play this level. I mean total scam… I’ve got to hand it to the younger generation for just being like, “I’m gonna do me.” It’s kinda funny.

Matt Mulcock:
Totally. But that’s exactly why he became a rockstar. And then with every new level of popularity he reached, it just got worse and worse and worse. So people stopped asking questions…

Ryan Isaac:
Totally.

Matt Mulcock:
Because they were like “Oh look at all these people involved, look at Tom Brady… ”

Ryan Isaac:
Stopped asking questions.

Matt Mulcock:
“Steph Curry, Sequoia.” Everyone just didn’t even ask questions at that point because he was in the pockets… I should say he had politicians in his pocket.

Ryan Isaac:
Totally.

Matt Mulcock:
I mean across the board people just, again they stopped asking questions ’cause they were like he’s in it, she’s in it, they’re in it, I’ll get in it too.

Ryan Isaac:
I don’t want to forget that phrase you just said, they stopped asking questions, because that’s going to relate back to tying this all into, when you try to pursue an investment and you’re trying to define what your risk is going to be in any investment whether it’s a practice or a house or a stock or a private investment. Not asking questions or just the process of stopping asking questions is… That’s a red flag and a problem. I want to read a few tweets here. These are a few tweets that are just like probably out of thousands that describe this whole situation. This is kind of in reference to all the famous people that were jumping on supporting this thing. This person said this is… And they reference an ad from Tom Brady and Gisele when they were a thing. Are they divorced now?

Matt Mulcock:
Yeah.

Ryan Isaac:
Are they gone? They’re gone?

Matt Mulcock:
They’re divorced, yeah. RIP their relationship.

Ryan Isaac:
I don’t know. I don’t keep up. He said this…

Matt Mulcock:
Probably because of his investment in FTX, now we know the truth.

Ryan Isaac:
Now we know why. He said this was basically an ad for a pyramid scheme and it just ran on TV with no warnings like they were selling laundry detergent or car insurance.

Matt Mulcock:
So true.

Ryan Isaac:
And it’s so funny, but yeah, this completely bonkers, unregulated, blazing out of control forest fire, just growing, consuming everyone. No one’s asking questions. Everyone’s jumping in. And now it’s on just mainstream TV commercials with the most famous people in the world who probably don’t know anything about it either ’cause they were sold by their business manager or their accountant or their financial advisor or something.

Matt Mulcock:
Yeah.

Ryan Isaac:
Just totally touting this stuff. And it’s being put across TV commercials to the average household as if it’s as simple as buying laundry detergent, like this person said.

Matt Mulcock:
Exactly.

Ryan Isaac:
It’s exactly how it ran. Yeah, just put your life savings in here. Like it’s laundry detergent. I wanna read another thing. Okay. The downfall, someone else said, I thought this was a great description. This was the… So the downfall of FTX was the insanity of Theranos which… We’ll talk about this. The insanity of Theranos, the speed of Lehman, and the scale of Enron. So everyone knows Enron, the speed of Lehman how fast that collapsed, overnight. One of the biggest investment banks in the entire world in the history of the world. And Theranos, if nobody knows, what was the book called? You said this?

Matt Mulcock:
Bad Blood.

Ryan Isaac:
Go read Bad Blood. Elizabeth…

Matt Mulcock:
Elizabeth Holmes.

Ryan Isaac:
Elizabeth Holmes Was just convicted 11 years in prison. She ran a blood testing company that was pioneering blood testing technology which I was super hopeful for because I hate giving blood and it scares the crap out of me. And I was personally pumped for it, but it was a total sham. It was a complete scam the whole time. And they raised billions and billions of dollars. And nothing worked. No one asked questions, everyone piled in. And she was just convicted. And so the insanity of Theranos, which was totally insane. Speed of Lehman, scale of Enron. And that’s exactly what we’re looking at. Which is why that guy that came in from Enron was like, I’ve… This is…

Matt Mulcock:
Never seen this.

Ryan Isaac:
Never seen this before.

Matt Mulcock:
And a lot of people are actually saying, once this all shakes out, the estimates I’ve seen is that this will be twice the impact of Enron when it comes to total money lost.

Ryan Isaac:
Probably. Let me throw out another thing you can give some context on here. Someone had tweeted out, “Warren Buffet and Charlie Munger on crypto in 2018… ”

Matt Mulcock:
I love this. I love this.

Ryan Isaac:
“Absolutely nailed it.” They put a link to a conference that Munger and Buffet had, this is 2018. And he said, “Turns out the old guys actually know what they’re talking about. Who knew?” Little sarcasm there.

0:34:57.9 Matt: Weird.

Ryan Isaac:
What were they talking about Matt? What was this statement Munger and Buffet said?

Matt Mulcock:
So, they’re at a conference, I don’t know the exact… There’s a longer clip.

Ryan Isaac:
These old idiots.

Matt Mulcock:
Yeah. These old… They got killed for this…

Ryan Isaac:
Yeah, they did. Yeah.

Matt Mulcock:
By the way they got crushed on Twitter for this, ’cause this was 2018. So crypto is just blowing up.

Ryan Isaac:
Oh, it was screaming up.

Matt Mulcock:
Right. At the peak…

Ryan Isaac:
Yeah, yeah, yeah.

Matt Mulcock:
Of all of this stuff. And they are at a conference and they get asked about crypto, and Warren answers first and basically is like, it’s a joke, right? This is… There’s no value here.

Ryan Isaac:
Okay.

Matt Mulcock:
It doesn’t… There’s no intrinsic value. There’s nothing being offered. There’s nothing being generated. There’s no… Nothing.

Ryan Isaac:
Yeah. Yeah.

Matt Mulcock:
He says it in a nice-ish way.

Ryan Isaac:
He’s an old farmer guy. That’s grandpa. It is great great-grandpa.

Matt Mulcock:
Yeah, just like… It’s not my thing.

Ryan Isaac:
Yeah.

Matt Mulcock:
Charlie Munger then comes in and is like, “Oh, Warren’s actually nicer than me.” And goes off and basically just says like, again the core of it is… They’re like, crypto’s a joke basically and this is gonna end poorly is what they said. Something along those lines. And they got crushed.

Ryan Isaac:
So much crap.

Matt Mulcock:
People on Twitter were like “Oh, they’re too old. The times have passed them by.” “They used to be legends, no more.” Whatever. And now it’s coming back and it’s like, well, maybe they know a thing or two.

Ryan Isaac:
At least something to listen to. Yeah. And I think it’s probably fair to say this. This isn’t some kind of judgment or prediction as if… There’s no such thing as cryptocurrency and it will never exist in the future and it will never be a thing that anyone ever uses. That’s not what we’re saying. I think the picture we wanna paint out of this… One big question for me because we are financial advisors and investment advisors for dentists, and we get asked questions from our clients all the time like, where should I put money? And one of the pieces of that conversation is always, everyone always talks about reward usually. What am I gonna get out of this? But the other… The marriage in reward is married to risk. They’ll never divorce by the way. They are not Tom and Gisele. Risk and reward will never divorce ever, ever, ever, ever.

Matt Mulcock:
Cannot separate them. Yeah.

Ryan Isaac:
They’re not Kim and Kanye. That is never going to end ever. Because they cannot be separated. They just can’t be. So for me, I hear all these stories and this isn’t to me, this thing that saying like, “You are all suckers and crypto won’t exist in the future. It’s dead.” ‘Cause I have no idea. I don’t even know. Full disclosure, I bought Bitcoin and I don’t even know. What did I buy Matt?

Matt Mulcock:
Ethereum.

Ryan Isaac:
Did I?

Matt Mulcock:
I think, I don’t know.

Ryan Isaac:
Open my Coinbase, hold on. I’m down like 70%. Ethereum, that’s what I bought.

Matt Mulcock:
Yeah.

Ryan Isaac:
Someone told me, my clients said we’re buying it, so I bought some.

Matt Mulcock:
Did they tell you have fun staying poor?

Ryan Isaac:
Yeah, totally. Yeah.

Matt Mulcock:
Yeah. And then you texting them back after this and you said, “Hey, have fun being broke.”

Ryan Isaac:
Okay, so here’s some context. I bought it at the same time, it was a year ago at the peak of the market before a lot of this stuff happened, the peak of crypto. Now that we know, I mean it’s all hindsight. I had just sold a house and moved. So I had a chunk of house equity. I put some down payment and then I had a bunch of cash and I wanted to invest that, and not put it into my house. So I bought… I put a big chunk into my brokerage account, bought some stocks, same portfolio our clients have, and then I put a tiny chunk into Bitcoin and Ethereum. I don’t even know, like, I don’t even freaking care. But I did it purely because my clients do it. And I was like, “I wanna, all right.”

Matt Mulcock:
You wanted to learn?

Ryan Isaac:
I’m gonna experience what you’re experiencing.

Matt Mulcock:
And how’s that going?

Ryan Isaac:
Well, my crypto’s down like 70% in 12 months and my stocks are down 10%. And that’s not, you know because my my crypto can go up 70% too because I think it did actually in the first few months after I bought it.

Matt Mulcock:
Yeah, I remember you text… You were live tweeting me.

Ryan Isaac:
[laughter] I was like, “I’m killing. Why am I buying stocks?” But it’s been an interesting experiment to just kind of see these two asset classes. And for me this whole thing is just a lesson in… It’s not necessarily an indicator of the future of what the future holds. It’s just a lesson in risk when you’re investing money. And I think you said the best thing which is people stopped asking questions. And we see this from clients where people… There becomes enough momentum behind something that people just stop asking questions. And in the fit and fury of all the meme stocks from Reddit, [chuckle] you know, like two years ago and then Tesla was going crazy, you heard this everywhere. People who have no interest in finance, no interest in investing, were all of a sudden downloading apps and pumping money into GameStop and Tesla because they heard it and there was just like fury behind it. And there’s no buried entry. It’s not like a hot housing market. People do pile in, but that’s a lot harder to pile into a housing market. Gotta get a loan and down payment and all that stuff than it is to buy some GameStop or some crypto.

Matt Mulcock:
Yep, exactly.

Ryan Isaac:
So, for me this just begs the question, like what does risk even mean? Which probably would be another second really great conversation to how someone like Robbie CFA would define, like technically what risk means. If we can talk for five minutes about what this sheds a light on when clients are asking you “Where do I put money? How do I invest? What’s the risk and return? How would we… ” And I’ll frame it like this. A lot of times people invest in the stock market for the first time, and if they put in 10 grand and then they put it in during a time when markets are going down and it goes from $10,000 to $9000, which is very common drop, a 10% drop, they would identify that with risk. My $10,000 went to $9000 and that was risky. So let’s just chat about that for a minute. There’s a difference between that and then something that literally went to zero and evaporated overnight. And so how would you… What are the… When someone says risk to you, is that risky Matt? Are stocks risky? How do you help someone define what risk means? Or how do you help them just understand there’s degrees of risk or what you’re calling risk might not even be called risk actually?

Matt Mulcock:
Yeah, I think this is one of the biggest misconceptions when it comes to investing and thinking about money and all this kind of stuff. To your point, people bring up risk all the time and I know they’re saying risk but what they’re really saying is something else. So this is an example I use all of the time. When we talk about risk, like with insurance, we use the same word when we talk about risk with insurance, like let’s say life insurance.

Ryan Isaac:
Yeah, you are insuring a risk. The risk of me dying or disability.

Matt Mulcock:
We’re using the word risk when it comes to insurance, like insurability, you’re insuring my life. And I’m also using the word risk when I’m talking about investing in a globally-diversified portfolio with stocks. Those are not the same thing. Not even close, right?

Ryan Isaac:
No.

Matt Mulcock:
When I’m insuring my life or you’re insuring your life, it is a black and white risk. And an insurance company can measure that.

Ryan Isaac:
Oh yeah.

Matt Mulcock:
Right? They use what’s called the law of large numbers, like they’ve got actuaries behind closed doors. These people that are looking at spreadsheets and they can… Actually it is a mathematically…

Ryan Isaac:
Definable event and risk.

Matt Mulcock:
Definable and calculatable if that’s a word.

Ryan Isaac:
It is now.

Matt Mulcock:
Yeah. It is something you can define and calculate and measure over with enough people and enough time, right?

Ryan Isaac:
Yep.

Matt Mulcock:
And so the risk there is…

Ryan Isaac:
Almost predict it…

Matt Mulcock:
Very predictable.

Ryan Isaac:
Without saying it’s predictable you can almost say it’s predictable.

Matt Mulcock:
It is. No, it is. Like, they can run calculations on this and say…

Ryan Isaac:
Totally. Here’s what’s going to happen with a large group of people…

Matt Mulcock:
And here’s why your premium is what it is, because on the back end we know how risky this actually is.

Ryan Isaac:
So, you could say that, make the same argument for any casino which we’ve been talking about lately.

Matt Mulcock:
Exactly.

Ryan Isaac:
With enough law of large numbers with enough sample size, they can say, “We know what our risks are.”

Matt Mulcock:
Exactly.

Ryan Isaac:
“So this is what we can pay out. These are the odds.” Yeah. It’s calculatable.

Matt Mulcock:
Yep. It’s calculatable. And then if you compare that to when people say risk with investing let’s say vastly different. Most of the time what they’re actually saying, what they’re referring to is uncertainty. It’s volatility.

Ryan Isaac:
Yeah, volatility. It’s the discomfort of volatility.

Matt Mulcock:
Yep. And let’s use it in the context of even just investing. So forget insurance for a second. Let’s say the risk of putting all my money in one stock versus the, again, “Risk of a diversified portfolio.” Not the same thing.

Ryan Isaac:
Not even close. Yeah.

Matt Mulcock:
When we talk about risk of putting all my money in one stock, one company, with all these different things that can happen to it and my money going to complete zero, that is a real risk.

Ryan Isaac:
Yes. It’s a possibility.

Matt Mulcock:
Possibility and real risk. You’re putting all of your money in a diversified portfolio of let’s say 1000 companies all over the world or more.

Ryan Isaac:
Which in a diversified portfolio, it’s probably it’s over 10,000 usually.

Matt Mulcock:
Could be.

Ryan Isaac:
Like in the ones we’re building.

Matt Mulcock:
Yeah, if you’re buying index funds, exactly.

Ryan Isaac:
But thousand companies.

Matt Mulcock:
Yeah. The chances of that going to zero…

Ryan Isaac:
The world’s over.

Matt Mulcock:
The world is over. So I guess there is probably a… I’m sure Nassim Taleb could give you a calculation of like what that is but it’s basically zero.

Ryan Isaac:
The world’s over.

Matt Mulcock:
The chance of that is basically zero. And yeah, the world’s over and so who cares. Who cares what your 401k balance is. So what you’re… When we talk about risk in a diversified portfolio focused on the long term, we’re really just talking about uncertainty and volatility.

Ryan Isaac:
Discomfort.

Matt Mulcock:
Discomfort, exactly.

Ryan Isaac:
Yeah. I mean to me it’s like saying a dentist who’s running a successful practice and has a plan and the numbers to support a second location and they’re talking about the risk of it. I would say the risk of you permanently losing all of your investment in that is probably really, really low. And if you were to ask like Bank of America what the default rate is on a startup, it’s like less than a quarter percent.

Matt Mulcock:
I love that, there’s a risk to that that they’ve measured.

Ryan Isaac:
It’s definable.

Matt Mulcock:
They defined it, they’ve measured it, they know exactly what’s happening.

Ryan Isaac:
So I’d be able to give like a new student… A new graduate a million dollars in two weeks, a decent rate.

Matt Mulcock:
‘Cause they know the risk they’re taking on.

Ryan Isaac:
Yeah. So I would say like, yeah, the bigger risk if you’re going to buy another location and you’ve already proven to be a good business owner, the bigger risk is it’s going to take an emotional toll. The toll that running a team of people takes on you, and responsibility, and it’s going to take some of your time. That’s a bigger risk than you permanently losing all of your investment in the thing. And a diversified portfolio like you’re saying is the same thing. People say risk but I would just call it emotional discomfort from volatility, because if you have… Like my portfolio, I put a chunk of… I did the thing people are really scared to do which is like I got a chunk of money that’s really precious to me. I don’t get this chunk of money like ever. I’m going to put it all in one day in my portfolio. I did that thing. I did it a year ago and I’ve… I don’t experience the emotional discomfort because I’m so conditioned and used to it.

Matt Mulcock:
Because you’re surfing.

Ryan Isaac:
It’s like a dentist seeing blood on a daily basis out of a mouth. Like I would freak out. They’re like this is an hourly occurrence. But for me I’ve experienced or someone in my position would experience emotional discomfort, but I still own the same amount of shares in thousands and thousands of companies all around the world. And like we were saying calculable risk with enough history and a big enough sample size like insurance companies. Well, I know that I’ve invested in an asset class, the market that has enough history and sample size to say like you… Without saying I’m predicting what’s going to happen, I can kind of say what’s going to happen, like we go through dips and then it keeps on growing and my money is not going to disappear to zero.

Ryan Isaac:
Like I didn’t run the risk of putting in a chunk of money and then it goes to zero. I just ran the risk of putting in a chunk of money and then it was less valuable than it was when I first put it in and it makes me annoyed for a few months or maybe 12 months. But then it goes and then it just keeps going back up if the world continues. And that is very different than what you were saying, like you put your money into something that has no financial oversight. And this just isn’t about crypto because clients ask us all the time about opportunities that are like a friend startup. We’ll even blame the brother-in-law again. It’s a brother-in-law startup.

Matt Mulcock:
Always.

Ryan Isaac:
I want to be like a seed capital angel investor into startups. I want to like be in like early stage private investments, whatever. You do run the risk of permanent loss of capital. You also layer on the risk of no oversight. Like in these crypto investments, there is no oversight. In your brother-in-law’s app startup, there’s no oversight. There’s no external accounting organization that’s going to provide any kind of oversight whatsoever. There’s no reporting, you don’t have liquidity. So if you give them 50 grand, you can’t just be like, “Oh, you know what? I want that back.” You can with other investments like your stocks. So, yeah, you do run the risk of permanent loss of capital. No liquidity, no oversight, higher expenses than you think you’re going to have to pay. Yeah. The term risk just gets applied just too generally to things, and I think this is just a great example. If we’re thankful this week as we are.

Matt Mulcock:
Of course.

Ryan Isaac:
Because it’s Thanksgiving, I would just say this is a great example to help us just look at the world and go, okay, this teaches us something. This teaches us something about what risk really is and how to do it. So if you want to dabble in this stuff, don’t do it with an amount of money that you couldn’t stand having evaporate tomorrow because it is a possibility, and that is risk, not some of the other things we’ve mentioned.

Matt Mulcock:
And by the way I’d say the same thing with an individual stock of a company who actually produces something. So this isn’t even an indictment on crypto. Again, this is just the flavor of the day. This is more of a reflection of human nature than it is anything else. Although I will say that crypto… I think crypto seems to make it easier almost. It’s almost like an accelerant on a fire.

Ryan Isaac:
There’s no barrier on entry. You just put on… Go grab an app on your phone and then throw… Hook your checking account to it and then you’re done. You’re a crypto investor.

Matt Mulcock:
And there’s such an information gap right now. It’s almost like we’re living in the ’80s in a way of like where the ’80s were with stocks at the time. Where stockbrokers were kind of like the guardians of all the information of how stocks worked. The disparity of information.

Ryan Isaac:
Disparity of information. That’s why returns become so absurd. Dude, that’s such a good point man. When you get into markets where there is more information, like a real estate market or buying Honda Accords or dental practices or stocks of… Especially stocks. When there’s a plethora, I might add, of information.

Matt Mulcock:
: When it is ubiquitous.

Ryan Isaac:
When information is ubiquitous in a plethoric amount. That’s not real. Yeah, return disparities don’t… They become normalized. When there is a severe lack of information exchanged between buyers and sellers, that’s when you have crazy returns and that’s why you see it in markets like that that are still happening in assets like crypto. There’s still a disparity of information.

Matt Mulcock:
Massive, like Grand Canyon sized disparity.

Ryan Isaac:
Coupled with no regulation, no oversight, no real clear rule. I mean this is an asset that was invented to fund arms dealing, drug trafficking and human trafficking like 10 years ago.

Matt Mulcock:
Yeah. And it still is by the way.

Ryan Isaac:
What was that book from the inventor of the Silk Road. Do you know what book that was?

Matt Mulcock:
Oh man…

Ryan Isaac:
That was so good.

Matt Mulcock:
It’s an incredible book. American Kingpin.

Ryan Isaac:
Was that it? American Kingpin. Yeah.

Matt Mulcock:
About… So it is…

Ryan Isaac:
Silk Road? Yeah.

Matt Mulcock:
Unbelievable.

Ryan Isaac:
Unbelievable.

Matt Mulcock:
go read that book. It’ll blow your mind.

Ryan Isaac:
There’s the beginning… That’s the birth of crypto and we just haven’t seen it mature yet. So I think that you’ve made a really good point in saying people behave the same way in other asset classes too. We would just say look, we want to help educate people on what the definition of risk really means and because buying a bunch of private equity in something, in a startup, or crypto is not the same as buying stocks in a diversified portfolio or another practice or even a building. I mean you can lose money on a building and have to short sell it, but it still exists. It’s still a building sitting on some dirt. It can’t disappear into thin air and just be not there anymore. Just like, Houdini’s.

Matt Mulcock:
Yeah. And your portfolio can… Your portfolio diversified stocks can go down in value a significant amount…

Ryan Isaac:
And then you have to sell it.

Matt Mulcock:
Yeah, but you still have ownership. You are still an owner in companies that actually produce and employ people and like create value for society.

Ryan Isaac:
Yeah, and your shares still exist.

Matt Mulcock:
And your share still exist.

Ryan Isaac:
So, you could put in a hundred grand and it goes down to 80,000 because you’re in a bear market, but you still own 50,000 shares of stocks and you might need the money and have to cash in that loss and take your 80 grand and you put in a 100,000 and that sucks, and you didn’t foresee that problem happening. But if you don’t need the money, you don’t cash it in, you still own the 50,000 shares of all the stuff you bought and you can just let it ride and keep going.

Matt Mulcock:
Yeah. So, Jeff Bezos asked Charlie Munger a couple years ago, whatever, asked him at an event. He said, “Hey, why don’t people just copy what Warren Buffett has done? I mean, it’s all out there what he’s done. Why don’t people just copy what he’s done?” And he just responded, “Because people don’t like to get rich slowly.”

Ryan Isaac:
Yep. We don’t like to do anything slowly.

Matt Mulcock:
And to me that’s what this comes down to. Yeah, like people are always looking, and again this is just more… What’s happening now with crypto is more of a reflection of human nature. People get caught up in that craze. That’s my biggest takeaway here, is that people get caught up in the craze because they’re trying to find that life hack cheat code. And I will say there is no cheat code for compounding, for compounding your wealth.

Ryan Isaac:
It’s time. Yep.

Matt Mulcock:
Yeah, it’s time. And in most cases, when you look for that cheat code, you end up blowing yourself up. Like that’s just kind of a general rule of life.

Ryan Isaac:
Yep. Matt, thanks for doing this, it is a longer episode, but this was a fun discussion.

Matt Mulcock:
Yeah. It was awesome.

Ryan Isaac:
I hope you have a good Thanksgiving with your traditional turkey. Your dry turkey.

Matt Mulcock:
Yes, you too. I know. Such a loser.

Ryan Isaac:
It’ll be good.

Matt Mulcock:
It’ll be. I mean the sides are amazing.

Ryan Isaac:
It’ll be good. Thanks everyone for tuning in. We hope you also… When this comes out it’ll be post Thanksgiving. Hope you had a good one though. I hope the year is ending up… It was a crazy year for a lot of people. A lot of stuff going on. A lot of growth coming off of COVID. But then also weird stuff with inflation and rates and pausing some growth in some things that people want to do. So I hope everyone’s having a good year. If you have any questions for us, all we want to do is help people make smart financial decisions and answer your money questions. And we can totally do that. Go to dentistadvisors.com, click the Book Free Consultation link and let’s have a chat.

Matt Mulcock:
We also give hugs if we see you in person.

Ryan Isaac:
We’ll give you hugs, we can do that now.

Matt Mulcock:
That was weird, sorry.

Ryan Isaac:
Come to the booth, hug Matt. That’s it.

Matt Mulcock:
Come to the booth. Give Ryan the bones and give me a hug.

Ryan Isaac:
There we go. Thanks everyone for tuning in. Have a great week. Thanks Matt. We’ll catch you next time on another episode…

Matt Mulcock:
Yeah, thanks Ryan.

Ryan Isaac:
Of The Dentist Money Show. Take care everybody. Bye-bye.

Investing