Preston Pysh  06:50

I think that’s a really hard question. I think you’re not going to have a crash. Okay, like a hardcore crash without some major fundamental element being present. And I don’t see that yet. You know, I don’t see what that element is.

I do think that it’s going to be related to the strong dollar. I think it’s going to be related to the third quarter US… I don’t know how the US is going to come up with some really strong numbers on their earnings for the third quarter. I think that’s going to contribute to this drag, if you will, as far as a catalyst. I don’t know if I’m going to say it’s a catalyst. But I think it’s going to add to the drag and maybe pull equities down potentially further in the third quarter. Because, man, it’s going to be hard. And we’ve talked about it. I mean, in a very significant number of the top line and the bottom line of these major companies come from international purchase orders and things like that. So that’s going to have a very significant impact I think when you’re moving into the third quarter.

07:49

All those things add up. And then I think when you start to see volatility at the way that it is, that volatility breaks things. When you see oil jump 20% in three days, and then come back down another 8% the following day. Like that is not normal that is so abrupt and dislodging to the system that I think it’s just not going to have a good impact over the long haul.

So where that actual breakpoint is where you start to see the defaults, and you start to see these spreads. One thing that we haven’t talked about on the show is that everyone’s scared in the junk bond market because everyone’s talking about how the junk bond market is a scary place to be right now. So you have everyone’s selling out of that, which makes the yield go up. So when you have that junk bond yield go through the roof and go really high, that’s really, really bad if you’re like an oil producer that isn’t making any money right now.

And guess what? You have to go borrow some money in the market for borrowing money, if you’re in a bad condition like that on the high yield market, you’re going to pay a high yield. You’re going to pay a high percent interest on that money. And that’s really bad as these debts mature, and you have to reissue debts.

09:09

So I think that’s a very big concern here is these credit spreads, especially on the high yield are starting to separate from the rest of the good debt. That’s something that I think a lot of people got to be concerned with too. And that could potentially be the catalyst. So I don’t know which one it’s going to be. I know it’s going to be all interrelated to those factors. And you just got to sit tight and wait for it to materialize. But I’m definitely not a bull at this point. I think that there’s definitely more bear. I think people buying into this right now maybe might not understand the bigger market forces. And we recorded that in-between episode with the Ray Dalio talking about how he thinks that the bigger 75-year cycle is really starting to take over at this point and that the Fed is missing the boat on the fact that they’re reacting to a seven-year cycle or business cycle. And that’s a concern.

All right! So really, that’s all we have for the current market conditions. So going forward, just expecting more volatility, really keep your eye on those key factors that we just discussed. And protect your principle, folks. I mean, that’s been our investment advice since February of 2015. Protect your principle. Don’t get greedy in these markets. This is the time to be fearful, as you’re looking around and making sure that you can protect your principle. The time to be greedy, I think is approaching I don’t know if it’s going to be this year. But I   feel like it’s going to be but maybe it’s not, maybe it’s next year, I don’t know.

10:40

With all that said, let’s go ahead and move into the book with Elon Musk. So I thoroughly enjoyed this book. It was very entertaining. And I think that that’s something that a lot of people were going to really enjoy about the book is this is one that you’re not going to really want to put down. Like any biography, it really starts with talking about his roots and a little bit about his family. It starts by talking about his grandfather who originally lived in Canada. And then he moved to South Africa, which everyone attributes to where Elon Musk is from. But his grandfather was this crazy adventurer who would hop in a plane and fly to Australia on a private plane, and do odd things like that. They were all over the place. There are some really interesting stories about lineage. And what the author really takes away from that discussion is that he really gets his roots for high risk and taking on these enormous challenges, really, from those roots of his family.

Something else that was mentioned was his father. So I guess his father is a very, very talented engineer, but has a very difficult personality to get along with. In fact, Elon doesn’t even recommend people to meet his father because he thinks that he’s just a mean person. So that was an interesting discussion as well. And I found some of the aspects of that being ironic, as you look at the way Elon is with maybe some of his employees and his hardcore work ethic, and how some of those traits, I guess, have come out in his own personality, even though he might not really realize that. So I found that a little ironic and quite interesting, as you look at both of their characters and their personalities.

Stig Brodersen  12:31

Yeah, I don’t know, because we listened to quite a few books about billionaires. And one thing I hear, again and again, is that they have this really rough childhood. And, to be honest, I’m not talking about like Elon Musk, in particular. But I don’t know always if that’s really the case. I also think that we want to be a part of this story where this is a guy who came from the toughest neighborhood and now he’s a billionaire. And that is through hard work and passion. I   felt like the author was trying to put that angle on the story. And attribute a lot of this to his childhood. I don’t know if you felt the same way, Preston.

Preston Pysh  13:13

Yeah, maybe a little bit. I know some of the stories were interesting though. Like, when he was in elementary school or like high school, the kids picked on him a lot actually in high school. He got beat up a few times where he had a bloody nose. They tell some of those stories. So I don’t really know how much of that was pontificated? Or how much of it was maybe underemphasized? It’s a little hard to say. But he does tell stories like that.

The one thing that I thought was really neat about some of the childhood stories was he went back and talked to some of the kids that went to school with him. And all of them were very surprised and flabbergasted that Musk became the person that he did. They are all like, “Well, he was an exceptionally smart, very smart kid, but we never saw him being this emerging global technology giant in the future.” They just didn’t see it coming. But he definitely had a quirky personality.

Stig Brodersen  14:11

One thing I found really interesting was that he was only 17 when he just traveled to Canada. It was I think he has a relative up there that wasn’t there, by the way, but he was like 17. And he’s just got on a plane and he wanted to travel the world. And I guess that really says something about him as a person already at the age of 17. And he really didn’t have any money. He really didn’t have any plans. So I   like that whole immigrant story, fighting against the odds and everything.

Preston Pysh  14:41

One of the key points that I felt was really important to highlight his childhood was his desire to read. They talked about in the book how he had pretty much gone to the local public library and almost had read every single book inside of that library. They described hs characteristic, “If you saw Elon Musk at any given point in time, he probably had a book in his hand, and he was reading it.” And I think that that’s really important for people to understand and to know that a guy like Elon Musk doesn’t become as intelligent as he is. And we’ll get into some of this stuff later on in the discussion here.

15:15

But the one takeaway that I had is this guy is brilliant. He is absolutely a wicked smart dude. And I attribute most of that to the fact that he is a total learning machine. And that’s such a common thread that we’ve found with all these billionaires that we study. They are total learning machines. They are learning something every single day. They’re learning something new. They’re studying things that might not even seem like they’re correlated. And we definitely got that at a very extreme level with Elon Musk, and I find that to be extremely important for people to understand.

So let’s go ahead and not transition the discussion to after. So we’ll quickly discuss his college years. So he went to two years at Queen’s University up in Canada, after he came to Canada. After that he got a scholarship to go to the University of Pennsylvania and go to the Wharton Business School to get a degree in economics. And then he also had a dual major in Physics.

16:15

So early on right there and then, you can see that he had this interest in science. And he also was, which is really neat, has this business background, which you really don’t see with people that also have this hard science interest.

So he went four years to Wharton, and then after he was done at Wharton, he applied to Stanford. He got into Stanford and only spent what like a month or something, a really short period and he stopped his studies at Stanford to start his first business. There was a lot of controversy for people that might know Elon Musk really well and maybe have read a lot about him. There’s a lot of controversy around his time at Stanford, and the timing of his Wharton degree and people say that some of what he says is a farce. And the author does a fantastic job in one of the appendix in the back of the book, to dispel and to really get to the ground truth of what went on there. And I felt like he did a really great job. And I think that when you read that you’ll be less suspect as to calling it a farce because he lays out all the timelines and actually had a personal conversation with Elon Musk about it. So that was really good for him to clear the air with that.

After he left Stanford, which he was literally just there for probably a couple weeks, he started this business called Zip2. This was a GPS application that you could use on the internet over a web browser back when the internet was just first up and coming. And one of the important things to understand is when Elon was at Wharton, he felt that the internet was going to be one of these huge forces in the future that could be used to capitalize on. So he had a total interest from back when he was in college to really come in and do something big in the realm of the internet to create a business. And so this was his first idea which was Zip2.

18:19

Something else that was discussed in the appendix of the book was how he got his idea for Zip2. And there’s a lot of controversy over him potentially stealing this idea from another gentleman. Zip2 is like Google Maps where you have turn-by-turn navigation with like advertisements and local businesses that can advertise based on where you’re located at. That’s what Zip2 was all about. And he was one of the hardcore initial programmers of this company. So he wasn’t just the guy like comes up with an idea, hires a bunch of programmers, and then manages them. He was actually down in the weeds, programming, and writing a lot of this code. And they talked about the crazy hours, like 20 hours a day where he was just writing code day in and day out.

Stig Brodersen  19:07

He would be writing code for 20 hours, then he would be sleeping like in his chair. And then whenever he woke up, he would just continue programming. And I don’t know how these guys can do it. It was a lot of fun to listen to.

Preston Pysh  19:14

They said that he would tell the employees that whenever they’d come in in the morning to just bump him on the leg and get him out of the chair where he had fallen asleep so he could keep writing code. So I think it really speaks to how passionate Elon Musk is about the stuff that he does. He is totally ingrained into whatever his new focus is. He just goes in full force and doesn’t hold back. And I think he has a really hard time focusing on anything else other than what he’s trying to create at the present moment. So in the end, Elon sold Zip2 to another company and I believe his cut of what he came out with was around $22 million. So a really great first venture. I want to say he was around the age of what would you say, Stig, like 26 or 27 at this point?

Stig Brodersen  20:13

Yeah, he was not that old.

Preston Pysh  20:15

Yeah, he was in his 20s. And so after that, he had this idea to start an internet payment company and he really wanted to disrupt banks.

Stig Brodersen  20:26

Last week, we read the book about Mark Cuban and I just found this really really interesting because Mark Cuban said that after he sold his first company, he was just looking to party and have a good time and enjoy his money. Now that didn’t end up to be whatever he chose to do. He did something else. But that was not the story of Elon Musk. It’s not like Mark Cuba didn’t have a lot of drive. But I think that when you see someone like Mark Cuban and hear his story, you’ve gotten the impression that this is a guy who likes to have a good time. And good times is definitely one of the most important parts of what he is. Whereas someone like Elon Musk, we really got the impression that he wants to change the world. The money that he has accumulated, that’s a byproduct of what he’s doing. Whereas for someone like Mark Cuban, it’s probably has been one of the goals along the way just to have a more convenient lifestyle.

Preston Pysh  21:21

And I think some of that change… When he was running Zip2, he talked a lot about the fight over the equity, the fight over really like how he was capturing funding. And I think for him early on in his early 20s, or mid-20s, really, he gained this appreciation for how easy it is to go out and find good funding and find millions of dollars if you have good ideas and you are creating initial products. I think he found that to be easy.

And so I also feel like because he had that opinion, he really felt like he could maybe take large risks and always be able to find himself back on his feet again because he was able to find funding and create new products, new services, new businesses in the future. And so he’s this huge risk-taker. And he was willing to take this  $22 million that he just got from the sale of his first company, and throw a lot of it right back into the next company, which was X.com. And this was this internet online payment company.

His goal was to change the banking industry. That’s what he wanted to do. He wanted an internet bank. He felt like there were so many frictional costs in traditional banking. And we got to remember he has an economics degree from Wharton, so he understands banking really well. And this was his attempt to go ahead and change that.

22:48

Now, the other thing that was happening at the time was a company called PayPal. So both of them were creating a very similar product and Peter Thiel was the PayPal guy, then you got Elon Musk, who was X.com. Both of these companies were very similar in nature. And so they’re going toe to toe with each other and basically fighting for market share. And they realized, “Hey if we team up, we’re not going to devour each other.” And so they merged together. And that’s where Peter Thiel and Elon Musk and Reid Hoffman, and all these guys formed together and became the PayPal mafia.

So that business does really well. It was really interesting to hear some of the insider discussions on how Musk was basically taken out of the CEO position. And Peter Thiel came in, took the X.com came out and pretty much used the PayPal name. They had the thing going on with eBay at the time. And that whole discussion of how all that took place was really fascinating. I think for people that are interested in knowing how all that went down, I think the author did a fantastic job laying that out.

Stig Brodersen  23:57

Yeah, I would really recommend If anyone’s interested in what happened with PayPal to read both from *Thiel’s one and also the Elon Musk book because even though that you might be thinking it should be the same story, it’s definitely not the same story. And I think that’s really, really interesting. And also, if you look at someone like Peter Thiel, as well as Elon Musk, you can also get the impression that for those two to be working together for a long time, with the visions they’re having and the way they run the company, that was probably bound to go wrong at some point in time. Now, I do want to say that I think it was a good thing that they actually merged because basically, they were just you know, cannibalizing each other instead of improving each other. And I think that would be too bad. But I think it’s really, really interesting to hear both sides of what happened.

Preston Pysh  24:47

After they sold that off to eBay. He got a very large chunk of money from that. What was it, Stig? ver 100 million or like 200 million or something like that?

Stig Brodersen  24:56

Yeah, something like that.

Preston Pysh  24:58

It was around 200 million, I want to say. From the sale of PayPal off to eBay, based on the equity that he owned, he had a very large chunk of money at this point. He moves to Los Angeles, and he really wants to get into the space industry. And he has this idea to start his own space company. There’s some time in between here where he’s living in LA and really trying to figure out what is it that he really wants to do in space. And he’s in these different Mars societies. And he’s donating money to these research stations and things like that.

But in the end, he decides that he wants to start his own space rocket company and really go into the private space industry. Now, where I think the story was really awesome in the book. He talks about how he wants to go over to Russia and buy some of their rockets to start his own space company. So he goes over to Russia and he just has a really bad visit with them. And they really didn’t take him seriously because he’s like 29 years old. He’s still in his 20s at this point. He goes over to Russia and he’s like, “Yeah, I want to buy some of your rockets.” And they look at him like he’s absolutely crazy and weren’t really playing ball really with him.

26:15

So on the flight back, he went over there with some of his close friends that he was wanting to start this space business with… And on the way back, he pulls out his laptop computer and has like all the components listed for basically building his own rocket. And he looks at his friends and he says, “We don’t need to buy this rocket from Russia. Let’s just do our own. Let’s just make our own.” And I think his buddies were looking at him like, “This guy’s going off the deep end.” He’s in these Mars society wanting to the initial thought was let’s put a plant on Mars. So we can say that we put life on Mars. And just this discussion in the book was absolutely fascinating. I think anybody who would read this part would really get a kick out of it.

But anyway, Elon was not in the least bit deterred by how crazy it might be to start his own rocket company and create his own space company from the ground up. I mean, literally, from the ground up and not be buying any of the components from anybody. He’s just like, “We’ll make it all and we’ll just do it.”

Stig Brodersen  27:20

I think it was just so much fun because what people don’t realize that if they listen to the book is that he has a very detailed plan of how to colonize Mars, like, “This year, there should be so many inhabitants. And this year, we should fly this out to Mars.” And if this came from anyone else than Elon Musk, I don’t know… The FBI will probably arrest that guy because he thought he was crazy. He is one that would harm other people. I don’t know. He just sounds so crazy.

But the interesting thing is that all of these things and we were talking about Tesla, and later on, but all these things that he said that would happen, actually happened. I mean, I can see why people would think he would be crazy with his plans about building a rocket because no one does that. Usually, you have countries doing this and it would take decades for countries to do it. But he just flies out to Russia with a friend of his to buy rockets. And when they said no, he just built his own. And he just seems so unrealistic that’s even possible.

Preston Pysh  28:23

You know, the thing I didn’t know before reading this book is I just thought the mission of SpaceX was really to pump all these private satellites into space and be profitable and bid on government work and stuff like that. But that wasn’t it. The mission of SpaceX is to colonize Mars. And I mean, they say that in a very straight face manner. Like that’s the thing that I think is so crazy. When I read that in the book, and I heard that for the first time, I was pretty much flabbergasted like, “Oh, that that was probably not right.” And then it keeps coming back up and keeps coming up. And I’m telling you, folks, the mission of SpaceX is to colonize Mars and to put human beings in colonies on Mars. That’s what Elon is wanting to do.

In fact, that mission statement is so strong for him, that he will not take the company public until that mission is pretty much assured. He will not take the company public. So that’s just totally… I find that to be total insanity. Okay, I really do I find that to be totally nuts because I just don’t think that you would find too many people in this world that would want to do that. Maybe I’m wrong. Maybe I’m out in the left field, but I don’t think you’d find too many people that would want to do that. Let alone would have the money to pay to go do that and live in those conditions. I just think that’d be really dismal. But what are your thoughts on that? Is he out to launch?

Stig Brodersen  29:55

I don’t know. I mean, as a value investor, I guess this is probably one of the worst investments I can think of, but I think the interesting thing here is that there is really no business model. There’s really no sustainable business model when it comes to colonizing Mars. I mean, right now, he’s making his money because he has the government in a contract and he’s helping them in a lot of things. But it’s not like he has signed a contract with people that wants to go to Mars. I mean, he doesn’t have like, well, he has a very decent plan of how to colonize Mars, but he has no discipline, as far as I know, in terms of how to finance that. And whoever wants to pay for it, I guess. But again, if someone will ever succeed in this, I can think of no one else than Elon Musk.

Preston Pysh  30:43

Yeah, I’m highly skeptical of that whole mission. Now, here’s the thing that he is doing right. Okay, so on that side of the fence, I think he’s absolutely nuts and out of his mind. On the other side of the coin here, he has created this company, SpaceX. He has absolutely revolutionized the cost to get into space. So if you’re launching a private satellite and you want to get that into space, hands down the cheapest route are through SpaceX. He has just crushed companies like Lockheed Martin, Boeing, all these people. He just crushed them on the cost to get into space.

And so that’s where he is… Is it profitable? Yeah, I think that this is a company that’s going to do fairly well into the future, simply because he has a fantastic model. Everything that he has designed has been to eliminate costs, to increase efficiencies, and to make a fantastic company from the ground up. And I think that his competitors have been lulled into government spending, government contracts really don’t have efficiencies built into their model where he has taken that and flipped it on its head and really created an amazing business that I think is going to do very well into the future because they have… I mean, think about how many companies want to drop these microsatellites and everything else up in the orbit. He’s the guy. I mean, he has created a company that can do that and does it well. So great business model there for him. But just really suspect of the underlying mission statement, which I think is out in the left field.

Stig Brodersen  32:16

So just a quick, funny note on the whole SpaceX thing and just how Elon Musk thinks about things. One of the things I really like is that he’s saying to his employee, if he finds that someone they’re doing is too expensive, they would say, “Go invent something that’s cheaper. You have three days.” And that’s it, like no instructions or anything. I love that.

Preston Pysh  32:40

Yeah, I agree. I see so many similarities between his approach and Steve Jobs’ approach. I don’t know if people have read the Steve Jobs books by Walter Isaacson. But in that book, you really get a lot of the same cueing and the personality between Steve Jobs and Elon Musk, with this time element of like, this is going to be the best thing we’ve ever going to make. And you’re going to do it in two days. And the person’s just looking at him like, “Sure.” And then it takes them a month to do it.

I don’t know if he really believes that can be done in two days and or he’s just that optimistic about timelines to produce. It was an interesting discussion in the book where they were talking about how a lot of the subcontractors that work for SpaceX and Tesla, Elon would be promising these deliverable dates that were just grossly optimistic and how that would be just really bad for the business and not in the realm of reality. So that was an interesting discussion.

Stig Brodersen  33:42

Yes, I think there were a lot of reasons for this. I think one of the reasons is that Elon Musk is so much on his own head that he thinks that people can produce at the same pace as himself. I think that’s one of the other things.

Another thing is clear that he wants to put pressure on other people to deliver But I also think that Elom has an urge to get this done fast because he has these ambitious goals. I mean, he knows that his time on this planet is not indefinite. So he’s actually, in the last part of the book, actually talking a lot of these very philosophical things like life and death, reproducing yourself where he wants to die. That’s Mars, by the way. And I   think that that’s like the underlying principle like he had this vision, this dream from when he was a kid. And for that to happen in real life, people around him just have to work hard to make this happen. So I think that those three parts are other reasons why he is pushing people so hard.

Preston Pysh  34:47

So the next discussion we’re going to move into is when he founded Tesla, the electric car company. And I’m sure a lot of people in the US specifically are familiar with Tesla. He’s really taken this electric car thing and ran with it. He’s one of the first people to actually do this too. And I’m talking specifically 100% electric vehicle. Now, Chevy came out with a vehicle was the Chevy Volt. I think it’s horrible for Chevy. But Musk seems to have a really good equation here and a good product for Tesla. And I haven’t really read too many bad things about these Tesla cars. Have you seen anything bad about them, Stig, at all?

Stig Brodersen  35:31

That might be a bit too expensive for most people. But I guess that’s the same thing with all disruptive technology.

Preston Pysh  35:37

And I think that was part of his model initially was, “Hey, I’ve got to come in at a higher-end market and then  slowly work my way down into a broader context.” But what’s really fascinating with all this is how all of this is fitting into a bigger picture for Musk in the way that he’s generating these companies that are all interconnected. And that’s where… I think a lot of people might not see that right now. But I think in 10 or 15 years from now, they’re really going to see how this is all interconnected. Musk also started a company called Solar City. So Solar City, did he start it, Stig, or did he just own a large portion of the equity? I don’t really know.

Stig Brodersen  36:19

I actually think it was his cousin from South Africa who started it and he was a really early investor.

Preston Pysh  36:24

Okay, so he’s a very large equity holder in Solar City. So what Solar City does, just to give you some context and how this relates back to Tesla, Solar City goes out, and they basically get contracts in order to install solar panels and basically create autonomous electrical power for people’s homes. So if you have a house and you want to put solar panels up on the roof and generate your own electricity, you can do that through Solar City. And what they thought was, “say, let’s not build solar panels. Let’s just basically install them and get a contract to install them and then finance it for people So that they can put the solar panels on their house and there’s no upfront cost.” And then it’s just the way that it’s structured, the way that it’s paid in the future. So really brilliant model, a really smart way to go about it.

And so with them in the solar business, Musk is creating these charging stations, where people can recharge their electric vehicle for free. If you go out to California, Nevada, a couple of other locations throughout the United States, he’s now starting to put in these charging stations that run on solar power. They’re charging a big battery cell at the location. And then if a person pulls up in the car, they can plug in and how fast you can recharge the car, it’s like a half-hour or something, maybe 20 minutes.

Stig Brodersen  37:48

Yeah, it’s fast. I was quite impressed when I read that.

Preston Pysh  37:51

So the car can get a 200 or 300-mile charge on one of these charging stations within a 20-minute window and it’s completely free. So I think that that’s really fascinating.

One of the other things that they talked about in the book, the way that they were going to design the car is that the battery cell, which is a big, large battery cell on the bottom of the vehicle, broken into numerous cells inside of that overall battery pack that’s attached to the car. There’s an idea that you could go into these charging stations, and there would be a machine that you’d pull up underneath of this machine and the machine would remove the battery cell from the car and replace it with a newly charged battery cell. And the cost to do that would be equivalent to a tank of gas. So what he’s trying to get to, is this idea of, do I want to pay because I need it now? Or do I want free energy put into my car to continue my commute? Just an amazing discussion and approach and this is what I really like about Musk is he just takes common knowledge of well, you got to have gas in a car. That’s pretty much the only way you can. You can commute across the country. And he’s flipped this on its head and he’s like, “No, that’s not the only way you can do it. You could go from coast to coast in America for free.”

That’s how big and we just did the book on the “Magic of Thinking Big.” That’s how big this guy thinks. He will take something and say, “Oh, well, not only could I reduce the cost, but I could make it completely free.” That’s how big he thinks. And I think that that’s awesome. I think that more people need to think like that and to go after these big ideas and take it to the extreme because if he shoots for that, and he ends up you know, it only costs $100 to go across the country. Well, that’s leaps and bounds from where we’re at right now.

Stig Brodersen  39:47

Yeah, I think the best way of thinking about this is when Elon is saying, when people think about a phone, they think about something like a smartphone, they’re not thinking about something hanging on the wall like we used to. And he says that I want people to alter this view about what a car is. We all have a view of what a car is and that is something that runs on gasoline. But Musk is saying that’s not a car necessarily. I can just come up with something completely new. And that will be a car.

We need to rethink everything that we do in our daily lives. And I think that was something that stuck with me that after reading the book. He was just thinking so much out of the box.

Preston Pysh  40:32

He’s definitely an ultra-optimists optimizer. I guess that’s an awkward way to say that. But he is constantly thinking about how can I make this better. You could show him something that you would argue is perfect, and can’t be improved any further. And he would probably tell you, it’s the worst thing that’s ever happened and that there is not only one way to improve it, but there are 1000 ways to improve it. And I think that when you have people like that you have some backing and have some money and then can actually go out and produce and follow up their discussion with action. You get a guy like Musk. That’s really what we’re getting at here.

So pretty amazing things that he’s doing and just amazing thoughts. The one thing that I do want to highlight and I think it’s really important that we discussed this is at the end of the I want to say around 2008 right during the last market crash, Musk was literally on the cusp of bankruptcy. Both of these companies, Tesla and SpaceX, were right on the cusp of total bankruptcy. And they talked a little bit about some of those discussions where he’s dealing with venture capital firms that were just totally trying to mess with him in the final hours of getting more funding to keep the companies alive. The discussions were really fascinating. It was really fun. If you enjoy business stories like that, I think you’d really get a good kick out of it.

41:55

I think it shows you here’s a guy who in his mid-20s, late 20s, and had over $200 million sitting in his pocket. And because he took on such huge risks, maybe overextended himself, because he’s building these behemoth companies simultaneously. He’s traveling from LA up to the San Francisco area every week, back and forth. He’s got his hands and Solar City and all these other things. He wanted to accomplish a lot. And he was trying to do it all at the same time. And it was almost his Achilles’ heel. And he almost lost it all. And let me tell you, it probably is a little hard to come back from that and get funding in the future when people know that your mission was to put humans on Mars, because most people I think, probably will think that’s absolutely nuts. And I know if the guy did go bankrupt, and then he wanted more funding, and I was a venture capitalist, I’d probably be a little hesitant to give him more money in the future.

But he came out of this and he came out of it in a big way because his current net worth is around $10 billion. So he has turned it around in a very short amount of time. And I think the glide path at this point… Sorry to use the aviator term there. The direction now for the business is a very good one. And I think that he has a lot of upside potential. I think that his Tesla company is way overpriced with the market capitalization, but as an investor speaking. But I do think that the company has a lot of promise.

Stig Brodersen  43:24

I don’t think that I would be too surprised if Elon Musk lost all his money, and I don’t want to seem arrogant or brash. That’s really not my intention. But if you read the book, you will see that he has been very close to bankruptcy several times. He was almost broke, like most people when he started his first company. That’s no surprise, but when you saw that, I think it was for 22 million. He was almost broke before he started PayPal. I mean, he invested so much and it didn’t make any money. And then all the money he got from PayPal, which he invested in Tesla and invested SpaceX, he almost got broke. He raised some money, and he almost got broke again.

When you hear that his net worth is like 10 billion, I would say, yes, it’s probably true. But as Preston is also saying, a lot of those assets, they’re tied into a company that he doesn’t want to sell. Just like when he owned a huge share in PayPal, when the owner started out in Tesla, and the like… On paper, he would be really rich, but he would be cash poor.

And he is not the one who’s thinking about kicking back. I mean, he’s saying to his wife, at some point in time in the book, “I would rather move in my in-laws’ basement than sell Tesla or SpaceX.” I just want to mention that because that really shows his drive and how much risk is he’s willing to take. And I think that like a risk aversion that will either allow him to do great things, even greater things than he has accomplished so far, but there’s also the risk that he might lose all of it. Because he always seems to be on the edge of doing either a giant breakthrough or a complete bust.

Preston Pysh  45:07

And he doesn’t care about the money. I really don’t think based on reading the book that he really cares about money at all. I think the thing he cares about is changing the direction of mankind, is really what he’s after. He wants to make big changes drastically. And that’s really what gets him excited. It’s not the money piece of it at all.

The one thing I wanted to really throw out there with the discussion of when he almost went through bankruptcy was how close he is to Larry Page in Google. So he had a prenegotiated contract that if things did go down, and he basically lost control, because it went through a bankruptcy, that there was some type of precondition that he would sell in the final hours to Larry Page, at a pre-discussed price and whatever, of Tesla off to Google. So I think that there are very close ties to both of these companies to Google, and I think that’s something that people can really pay close attention to because Google’s just flush with cash. So they’re able to acquire something like this. And what the reason Musk really wanted that is because he was going to be able to still keep the mission statement in place for the companies, if that would actually happen, and he’d be able to stay on as the CEO and run the business.

Stig Brodersen  46:22

Just a very quick anecdote on this, Preston. I seem to love that apparently, the author interviewed Larry Page. And he says, “Yeah. So Elon is a funny guy. Sometimes he would call me up and say, ‘I’m not really sure I have a place to crash tonight. Can I just drop by, like in a few hours?’” And I mean, I don’t know if any other billionaires can call up I don’t know… His billionaire friend, Larry Page, and say, “Can I crash with you? I don’t have any place to stay.”

Preston Pysh  46:51

I don’t know if this is true but implied like he had no place to stay whenever he would come up to San Francisco to work up at Tesla and he would just stay at a friend’s house each time he comes up. You’re going to love the book like I thoroughly enjoyed this. This was one of the better books that we’ve read this year. I’d say that because the stories are fantastic. They’re really fun and interesting stories and Elon Musk is a very interesting cat, to say the least. But so that’s really the book. The name of the book is “Elon Musk.”

There are a couple of different books on Elon Musk out there. The one that we read was by Ashlee Vance. He’s a very accomplished writer, probably one of the better books on Elon Musk, I’m willing to bet just because of the publisher and the writer. He’s an accomplished guy. So that’s the one we read. And if you guys want to go check it out, I will have it in our show notes a link to the book, if you guys are interested.

So if you guys enjoyed the summary that we just did of Elon Musk, go to our website, you can sign up on our subscription list. And what Stig and I do is we send out an executive summary of every book that we read. The executive summary that we typed up for the Elon Musk book is around five pages.

49:05

But at this time, we’re going to go ahead and take a question from our audience. And this question comes from David Finkbeiner.

David  49:11

Hey, Preston Stig. My name is David. I’m from Detroit, Michigan. I’m a huge fan of the show. I’m in my mid-20s. And fortunately enough, I’m able to make monthly contributions to both a company Roth 401k and also a personal Roth IRA. I’m interested in knowing what is the better allocation strategy for the two accounts? Option one: do I view the accounts as separate vehicles and mimic the investments and pick the same mutual funds and ETFs? Or option two: do I view the accounts as one vehicle and select different mutual funds and ETFs to create one overall balanced retirement portfolio? Once again, thanks for all the help and great work you do for us investors.

Preston Pysh  49:54

All right, David. Fantastic question. Stig is going ahead and kick this one-off.

Stig Brodersen  49:59

So, David, I think that the first thing to say is that clearly, there’s a lot of tax issues and all these tax issues might be independent. You can contribute a smart way or you can smartly withdraw your funds for like future tax purposes.

But when it comes to selecting stocks, I don’t think this situation is that different. Like sometimes you hear people say that you should include growth stocks in your Roth IRA. After all, you can take that off tax-free because you’re using after-tax dollars. To me, that really doesn’t make any sense. You will always try to maximize your return. You always want to find the best stocks or the best ETFs is what you’re saying. Whether or not you will have to pay tax on that or if you’re using after-tax dollars, I   feel like the situation is somewhat the same. Just to really sum this up really fast. I would consider this as one vehicle. I don’t say that you had to mimic that but I’m just saying that I look at my retirement as one portfolio. And it’s the same with the funds, I have a side of my retirement.

Preston Pysh  51:06

I think at the end of the day, everything that I invest in, I’m trying to mitigate the tax piece of it and hold it as long as I possibly can. So when you look at that, whether it’s a tax account, like an IRA, or it’s just a regular account, it really doesn’t make that much of a difference to me, because I’m just trying to minimize the turnover as much as possible on either one of those accounts.

So that’s why I’d say maybe you just treat them exactly the same. But if for whatever reason, if you’d have an investment that you really think is maybe a short duration investment, and you know, maybe you put it in one or the other, depending on where you could benefit the most from.

Great question, David. We’re going to go ahead and send you a free signed copy of the Warren Buffett Accounting Book. And for anybody else out there if you want to get your question played on the show, go to asktheinvestors.com and you can record your question there. And if it gets played on the show, we’ll send you a free signed copy of our book.

Preston Pysh  51:57

Thank you so much, everybody, for joining us and we’ll see you guys next week.

Outro  53:55

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