[00:03:07] Stig Brodersen: So the strategy made financial sense or at least it did to us. So well, off we went. Now Preston and my podcast quickly changed this name from The Investor’s Podcast to We Study Billionaires, because we, after three episodes about Warren Buffett, thought we should talk about something new, preferably study the success of billionaires.

[00:03:28] Stig Brodersen: Our downloads were in the thousands per month after the first year, and we were very excited about starting monetization. Now, this might sound laughable, but I thought we could likely make 100,000 per month eventually. Though I would be happy to start with a lot less. And I was dreaming of making, I don’t know, ten thousand-ish revenue per month.

[00:03:48] Stig Brodersen: So you can probably imagine my excitement when we, after a year, quote unquote, turn monetization on. And well, I’m going to say that we turned it on. We didn’t turn anything on. And I honestly don’t remember exactly how much money we made whenever we made a conscious decision to make money. But aside from minor book revenue, we already had before we started TIP.

[00:04:12] Stig Brodersen: I want to say it was something along the lines of a hundred dollars combined per month. And thinking more about it, I realized it could have been even less. The second year with TFP was hard. And when we, in the third year still made money in the range of, I want to say zero dollars and change, it certainly felt like we were not getting rewarded for the hard work.

[00:04:35] Stig Brodersen: Now, my point of this is not saying that the rest is history. We’re still very much in the middle of history. Yeah. I think what I learned from the first few years of running TIP is that you have to love the journey. All beginners are hard and you always have more costs than you expect. And you also have low revenue than what you expect.

[00:04:53] Stig Brodersen: And what worked for us was that we wanted to make money, but we were perfectly fine working for a long time for no money because we love talking about investing, especially about Warren Buffett. But as I alluded to before, like so many entrepreneurs, we had to work a lot longer for no money than we thought, but such is the base rate of starting your own business.

[00:05:14] Stig Brodersen: Now, the second thing I wanted to talk to you about here today is I really felt that we reached a tipping point in 2019. And I wish I could tell you a riveting story about how one big thing we did before The Investor’s Podcast Network took off. And if I had to point to a single event, it could have been whenever we hired Bianca Alcera, who’s our first employee and now our COO, but for our business, I would say that success results for thousands of small things working in your favor, it doesn’t just come from one big thing.

[00:05:48] Stig Brodersen: And of course I can only speak for myself. I’m talking about accumulating millions, perhaps tens of millions of dollars. I certainly don’t have a muscle level type wealth, or nor do I expect to reach anything like that level. Maybe for some billionaires, their success can be attributed to big moves but running a small private business.

[00:06:09] Stig Brodersen: And investing the proceeds in public markets is very much about unglamorous hard work and being obsessed with all the small details. If there’s one moment I reflect on, it’s a conversation I have with a Canadian friend back in early 2019 when we’re traveling around the beautiful and I should say challenging landscape of Morocco.

[00:06:29] Stig Brodersen: It had been a trip like no other, and I have to say that not all experiences were good. From plain weird experience like seeing goats in trees. Yes, there was literally an attraction where someone put living goats in trees and you could pay 2 euros for a photo. But also through a series of attempted money scam, we certainly needed a breather from the hustle and bustle from the dusty streets in Morocco.

[00:06:54] Stig Brodersen: And my friend asked me about financial independence. By no means was I there, but I later realized that this was where the tipping point was for me. At this point in time, I had quit my job cheating, so the company income was what I was living off. And for sure no one would call me financially independent at a time, but that was the tipping point.

[00:07:15] Stig Brodersen: I loved running TIP. And I want to spend as much time running the company as possible. But I also realized at the time that I wasn’t much needed for much of the operations. I figured I could likely spend 10, 15 hours per week, making that 10,000 per month. But any additional time could be spent on growing that engine.

[00:07:36] Stig Brodersen: And of course I could tell you the story of how thousands of dollars turned into tens of thousands of dollars that turned into a hundred thousand dollars. And then eventually into millions of dollars. I could tell you about the day we got a 30 million offer on a company, but the tipping point was not about reaching a certain number.

[00:07:53] Stig Brodersen: The tipping point for me was that day in Morocco. I realized that we had set up a business. Yes. At the moment, there was certainly an element, a huge element of self-employment, but the blueprint was there to run it as a business. Now whenever I refer to something as a business, it’s something that can run well and perhaps even grow if you’re not there.

[00:08:15] Stig Brodersen: So it was about hitting your number in an indirect way where you learn to focus on cash flows rather than a big number where you felt you could put that into say low yield bonds and gradually spend through retirement. That takes me to the third thing I learned about financial independence. And that is most people don’t want to be financial independent.

[00:08:36] Stig Brodersen: I am provoking a bit whenever I’m making that statement. I know how ridiculous it sounds, but please bear with me for a second. So let’s take one step back. When we started TIP back in 2014, I read both about stock investing in online businesses over the course of a year. I would have gone through hundreds of interviews with successful people.

[00:08:56] Stig Brodersen: One that still stood out to me was an interview with Tim Ferriss. I likely don’t do him justice, but the essence was something along the lines of, he outlined that he could teach anyone to be a New York Times bestselling author, and then he said no one wanted to do that, even if he outlined step by step how to achieve it.

[00:09:16] Stig Brodersen: And I remember almost being provoked by the interview. If anyone would get the chance to be successful and rich and would even be told step by step how to do it. Who wouldn’t sign up for that now? Ironically today, I think he’s right. And I’ve experienced it multiple times with my passion for teaching.

[00:09:38] Stig Brodersen: I have in the past offer to fly people in and it should be noted offered to pay for flights and hotels to get free counseling on how to be successful in podcasting and investing. But I’ve gotten very few takers and I’ve since stopped offering free counseling, free plane tickets, free hotel nights. I’ve learned that it’s not the best way to help the world to achieve financial independence.

[00:10:02] Stig Brodersen: Nor does it bring you a good balance in life to set yourself up for that type of disappointment. But I think I learned that I was looking at financial freedom differently than most people to me. And this is probably going to sound odd to you out there, but to me, financial freedom was as important as the air that I breathe.

[00:10:21] Stig Brodersen: I could not imagine a life without wanting to achieve financial freedom. And I gave myself no other choice than to get there. When I cut back on my savings or read a 10K to find a potential investment. It wasn’t, and today is not a chore. It’s life and it’s fun. And to me, there was just no other way. And I realized for others to get a free ticket to Denmark, a free hotel, a free guidance, step by step guide to financial independence, that’s just a bit inconvenient.

[00:10:55] Stig Brodersen: Financial freedom was great as a concept, but personally would never get there because choosing financial freedom is a way of living your life and immersing yourself in that journey. And that’s just not how the vast majority of people are wired. And I’m not talking about the listeners of this show.

[00:11:13] Stig Brodersen: There’s a clear selection bias to those who listen to a show and who are financially dependent or want to be financially dependent. They say that you can have anything, but not everything in life. And when you observe what other people choose, not what they say, but what they do, they don’t want financial independence.

[00:11:31] Stig Brodersen: Okay, you can likely hear that I’m stepping into Tim Ferriss’s shoes here, and yes, I am provoking a bit here on purpose, but I truly mean that if you ask people, if they want financial freedom without making any sacrifice, everyone, including me. Would of course say yes, but when you ask if they would be willing to step up to the plate and do it, they just don’t want to do it.

[00:11:52] Stig Brodersen: Most people don’t prioritize financial dependence and that is perfectly fine. Different strokes for different folks. There is no secret to getting rich fast. The not so well kept secret is that no one wants to get rich slowly. And here’s the interesting thing. Whenever you start talking to people about money, sometimes they would say, well, money can’t buy you happiness.

[00:12:14] Stig Brodersen: Or they would say, Ooh, if only I had more money, then I would be happy. So that takes me to the fourth point I learned about financial freedom. Money can sort of buy you happiness. And I should first note that. It’s not a popular statement to say that money can buy you happiness. After all, if you have money and others don’t, and you say that it buys you happiness, you’re just a bit of a jerk.

[00:12:38] Stig Brodersen: And the media is very happy displaying billionaires and say, well, he might be a billionaire, but he does not have a happy family life. And that shows that money can’t buy happiness. And there was just something about that, that I don’t like partly speaks to the idea that we all have this sense of justice.

[00:12:57] Stig Brodersen: And it can’t be fair that billionaires have all of that money and are happier than the rest of us. We have to point to something hard to quantify such as family relations and then start judging the other people based on that, to find that cosmic justice. Now I don’t intimately know any billionaires.

[00:13:15] Stig Brodersen: I can’t tell you how happy they truly are. But when thinkers are pointed as successful people in general, and it’s mentioned that that billionaire XYZ got divorced, I feel that it’s been hinted that the person must have been so obsessed with money that it cost him his marriage. And please forgive me, I could not help myself but revert the problem and instead looking at divorce rates for rich people.

[00:13:39] Stig Brodersen: But before I do, I can just anecdotally say that I certainly know a lot of people who have gotten divorced, who have never been obsessed with money or careers. It’s not a one way street. Just like you can’t say that a person with a lot of money must be unhappy. If you got a divorce, you can’t say that not having money automatically means that you will never get divorced.

[00:13:58] Stig Brodersen: But I found this one statistic I wanted to share with you. This is not for billionaires per se, but this is the divorce rates for people with college degrees in the US. That is 30 percent compared to 4 percent overall. And then, of course, I can’t help myself but say, I don’t buy into the notion of zero divorces.

[00:14:15] Stig Brodersen: In many countries, divorce rates are much lower than in the States. But a lot of those places you probably don’t want to live. Now my point isn’t to debate divorce rates, but rather to say that I don’t find any data showing that rich people are unhappier or have worse family relationships. Yes, that is what we see whenever we watch successions and billions and narrative that Hollywood presents.

[00:14:38] Stig Brodersen: But think about it in this way. Would you watch the show if they were better looking, richer and happier than you? We probably wouldn’t. So what can we say about money and happiness? Personally, having had no money and now having a bit more and having relationships with people without money and some with, with more money than you can ever dream of.

[00:14:57] Stig Brodersen: I’ve concluded that money, sort of, can buy you happiness. And yes, this is a good reason why you likely want to be financially free if you’re not already. There is a saying that a healthy man has a hundred problems and a sick man only has one. It’s not entirely how I see money, but I would rather look at it like this.

[00:15:14] Stig Brodersen: You might have 10 problems if you have no money, and if you do have money, you might have nine problems. And some of those nine problems might be smaller than they otherwise would if you didn’t have money. And no, money can’t buy you good health, but it can buy you better treatment and increase your odds of getting better.

[00:15:29] Stig Brodersen: And money cannot buy good family relationships, but money can allow you to see your family more often and no money can buy you true friends, but it can give you experiences together with your friends and buy your time to listen to each other’s problems and feel heard, feel understood money can’t ensure that you’re happy all the time and that you’re never unhappy.

[00:15:48] Stig Brodersen: But if it’s done the right way, it can help you live a life that’s just more aligned with who you are. But then you might ask, how much is enough? And I wanted to ponder that question as the fifth section here for this episode. We live in a world of inequality. And if you put me on the spot, I would argue that we always have, and always will.

[00:16:10] Stig Brodersen: It’s inherent in who we are as people. Now, the French economist Thomas Piketty found that throughout recorded history, the richest 10 percent always had between 60 and 90 percent of all wealth. When it neared the 90%, there would be revolts and it would go down towards 60 percent again, but never towards full equality.

[00:16:30] Stig Brodersen: I often speak with people who say, it’s crazy to have money and not spend it. And so I don’t think to myself, it’s crazy to spend your money so you have to work for it afterwards. There is nonetheless a selection bias. Self-made rich people spend less than they make and invest the difference. It’s that simple.

[00:16:47] Stig Brodersen: And it’s that hard spending less money than what you make is half the battle, but it’s a battle that most people never survive. But if you’re meant to spend less than what you make and invest the difference, how much is enough? Financial literature would give you different formulas for best estimating that based on historical data.

[00:17:05] Stig Brodersen: They would typically factor in things like your age, income, For one of the simplest and, and still very useful foam I’ve seen is the 4% rule. Now it’s far from perfect, but it goes like this. Based on historical data, you would be able to take out 4% of your principle every year and live off that, assuming that you invested in a passive balanced index such as the global stock market.

[00:17:29] Stig Brodersen: So let’s say that you need a hundred thousand dollars to live on. You need 2.5 million as your principal as 4% of 2.5 million is a hundred thousand dollars. This implies that the 4 percent number should be enough to withstand inflation and short term volatility. And you can, of course, fill in the numbers that work for you.

[00:17:47] Stig Brodersen: If you need 200,000, you would have to make it to 5 million in investable assets. As mentioned, this is far from a perfect system. And I have previously mentioned in other episodes that I will link to in the show notes that I have some concerns about having a portfolio that’s invested only in stocks. I do, however, think that the 4 percent rule is good to give you a ballpark number of how much money you need to achieve financial freedom.

[00:18:11] Stig Brodersen: Also highlights that inflation is a real tax and what it can do for your odds of achieving financial freedom if you learn how to invest and do it better than the market. Now at this point in time, I can already hear your head spinning. And you’re probably thinking, well, steak, that 4 percent rule is all good.

[00:18:30] Stig Brodersen: And well but are you saying that we need to get to 2. 5 million or 5 million? And how do we get there in the first place? And that’s sort of like takes me to punch six here in this episode. How do we get there? If you want to hit your financial independence number in your thirties, it’s very hard to do if you don’t have equity and can only rely on a salary.

[00:18:51] Stig Brodersen: And it’s a bit counterintuitive. Growing up, I always thought that you would make the big bucks, you would have to get a corporate job, but then get promoted a ton of times. And then you would sit in that fancy office that I saw in the movies. And sure, you can still do that, but it’s not a very efficient way of getting to financial independence.

[00:19:11] Stig Brodersen: Now, it is possible to retire based on salary, but you typically need to climb the corporate ladder for a long time before doing so. But while you do that, it’s very hard not to be susceptible to lifestyle creeps that won’t allow you to set money aside and invest wisely. One of the things that I was surprised to learn as I was on this journey to financial independence was that you can make considerably more as a small business owner in an industrial company with a hundred percent equity that you would if you climbed the corporate ladder for two decades in a prestigious law firm.

[00:19:42] Stig Brodersen: Even so, running your own company comes with its own challenges. One of them is that you typically also have most of your wealth tied into a liquid asset. So please allow me to speak for myself first and then speak more generally about it. I have looked at my number very conservatively, put the number of tip to be 0 whenever I estimated, whenever I could in theory retire.

[00:20:03] Stig Brodersen: And I’m, I’m likely way too conservative. You can perhaps set it at 25 percent or 50%. The point I want to make is that the way you have to think about financial independence is through cash flows. And if you don’t have any, or your net worth is very liquid, the lack of cash flows can still wipe you out. I also firmly believe that running your own business isn’t more risky than having a job.

[00:20:28] Stig Brodersen: Yes, your company will also become your cash engine and things can go wrong, but you can also get laid off in any job. In any case, it speaks even more to the point about having investable assets that generate cash flows, and then putting a conserved number of your human capital. And the business that you might be running, but what about the return on your investable assets?

[00:20:47] Stig Brodersen: And how does that relate to the 4 percent rule I spoke about just before? I started my track record back in 2014. And since then, it’s been a bull market. I’ve managed slightly above 20 percent CAGR, but I don’t think I can sustain that. Partly, I’m quite sure that I’ve been quite lucky in outperforming the market, but even if it’s not, it is much easier to generate a 20 percent return when the S& P 500 is up 13 percent over the same time than if the market went sideways for years.

[00:21:18] Stig Brodersen: So to be conservative, I use 5%, which is something I feel comfortable about generating in perpetuity. And please remember that whenever I refer to 5%, it’s after inflation. So I would need to do better than 5 percent on nominal numbers. And also remember that a rising tide lifts all boats. So the other side of the equation is that my investment would likely rise with inflation.

[00:21:40] Stig Brodersen: And so in any case, I define financial independence is whether my family can live off 5 percent adjusted for inflation. Um, my investable portfolio. So if you’re with me on this premise here that you would need to have unlisted assets as a way to generate wealth, to achieve financial independence, it also raises the question about how do you adjust for the value of your illiquid equity?

[00:22:03] Stig Brodersen: And I’m going. Thank you. A bit out on a tangent here, because this is a segment that would not resonate with every listener, but it’s something I still want to discuss. We know that we have many business owners and self-employed listeners, and it might be interesting to hear the process of valuing illiquid assets.

[00:22:20] Stig Brodersen: I’ve certainly been surprised both on the positive and negative sides in the process. And I would like to elaborate more. Using DMS as podcast network as an example. So in 2024, TAP roughly made 1. 5 million profit before tax. And you can apply any multiple you want to this number. So typically for smaller businesses, unless they’re have a solid growth rate or they have something with a motor around them, or perhaps it’s something new and exciting in the tech world.

[00:22:48] Stig Brodersen: You know, you would typically get a single digit multiple, perhaps Five to eight times, sometimes a little less, sometimes a little more, but it depends on a lot of different factors. For example, if you look at a company like The Investor’s Podcast Network, you can argue that it relies on cyclical advertising, which typically implies a lower multiple, the key man risk is certainly also there because it’s very host driven that also speaks to a lower multiple.

[00:23:13] Stig Brodersen: However, we also own multiple. Communities with our recurring revenue was typically command a much higher multiple. If you look at the public markets at the moment, it’s not uncommon for recurring revenue businesses with markets like tip that are in excess of 50%. To be, let’s say 25 times earnings, sometimes even higher than that.

[00:23:33] Stig Brodersen: So you might wonder why the multiples are so different in private and public markets. And one thing is that public markets really like recurring revenue and stability because the opportunity cost are very often treasuries. There are similar, but typically have a lower coupon. So public equity is just perceived in another way that private equity is because you come with different opportunity costs.

[00:23:57] Stig Brodersen: Private businesses typically also sell for lower multiples because the risk profile is different and it’s so illiquid. Of course, the situation can be different if a buyer comes to you. We regularly get asked by various companies. If we’re interested in being acquired, we’re not, but it’s also a fun conversation to have what you experienced as a small business owner, especially if interest rate is low, is that you get approached by private equity funds and they’re not so interested in your business.

[00:24:24] Stig Brodersen: And to be frank, they are more curating different target lists and exploring whether or not you are a motivated seller. And they do that because it gives them a chance to potentially acquire you at a good multiple or to pass you on to another buyer. These are typically not the leads you want to pursue, at least not if you want to get the best valuation.

[00:24:43] Stig Brodersen: You want to speak with buyers who specifically want your company because it’s your company and not because it’s on some random list. We recently got approached by a potential buyer who was promising in many ways. It was a multi-billion dollar company with a highly respected brand and products, and they were quite informed about us and competitors in our space.

[00:25:02] Stig Brodersen: As they approached us, the conversation is a little bit different. So for example, I emphasize that I wasn’t interested in a multiple on the free cashflow. So let’s say that I’ve used a multiple of 10 for a pre-tax profit, 1.5, that would give you a 15 million valuation. Now I am well aware that we are under earning.

[00:25:19] Stig Brodersen: Which is something, whenever you’re the seller, you’re supposed to say, but so please take it with a grain of salt. But we know that many of our competitors raise money through the podcast show and typically make significant more money from that part of the business than from advertising and memberships.

[00:25:33] Stig Brodersen: And so I came from a place that would consider the 1.5 million pretax profits. And then I also wanted to take into account the management performance fees of raising, say a hundred million dollar fund, where some of that would drop to the bottom line. And I don’t know where you would land on that valuation.

[00:25:52] Stig Brodersen: Let’s say anywhere from 15 to 4 million. So I told you that story partly because it’s a fun experience. I wanted to share with you partly because. I’ve learned so much about valuations that I really wish I knew whenever I started on this journey towards finance independence, but it’s also because. It illustrates how arbitrary a discussion about financial independence can be whenever it’s tied to owning equity in a small private business, which is how most people achieve that.

[00:26:21] Stig Brodersen: And luck plays a big role when you’re exiting your business. The stars align and the right buyer comes to you. It’s a completely different story than you being a motivated seller due to life circumstances. Even more so, you can’t control the interest rate and whether it quickly goes up, You get widely different valuations for a business that is fundamentally the same.

[00:26:42] Stig Brodersen: In any case, as arbitrary as valuation can be a private equity, once you hit your number, or once you hit that target cash flows, it ironically matters. And in a way it doesn’t. And that takes me to the eighth thing I learned about financial independence. It’s really about the why, once you reach a number.

[00:27:02] Stig Brodersen: So what do you do whenever you reach your number? I was conversing with the members of our mastermind community about it. And one member said it so well, he reached his number and said, now it’s about the why, now that you can do whatever you want to do. What do you do next? It likely doesn’t surprise anyone that Buffett has profoundly impacted my life.

[00:27:24] Stig Brodersen: When I started my journey into financial independence, I remember that he said that his life wasn’t too different from the rest of us. And I remember thinking that cannot be true. It must be very different to be in his shoes than in mine. What he highlighted was different than what I would have expected.

[00:27:41] Stig Brodersen: So he said, his wealth allowed him to speak with more interesting people. That was the real difference. And that is something that always stuck with me today. That’s a big part of my, why BMS is podcast network is the perfect vehicle to connect with interesting people. I otherwise wouldn’t have access to, and I should say for the record, I don’t necessarily talk about our guests on the show.

[00:28:04] Stig Brodersen: That is one component. And But that is not what I mean, refer to the company is a business card to meet interesting people with interesting stories from all walks of life. Whether they’re billionaires, college students who listen to our show, and that is why I conservative has set the value of TAP as zero in my portfolio.

[00:28:24] Stig Brodersen: I can’t imagine a life where it wouldn’t be interesting to speak with interesting people. Another why for me is empowering the team. I’m a bit ashamed that helping and being kind to others didn’t sink in until I realized that I could seriously gain a lot from empowering the team. TAP is so much my life, and my life is TAP, and I selflessly wanted to be as happy as possible and I get happy when people around me are happy.

[00:28:50] Stig Brodersen: So I realized that if I focus most on empowering the TIP team, I didn’t have to look out for myself. The team did that for me. And guess what? Life is just more fun that way. It’s not too different from when I met my wife and I realized that instead of always thinking about myself, I focused on getting her the best possible life and being the best version of herself.

[00:29:13] Stig Brodersen: And guess what? She would do the same for me. And I guess in short, what you give us, what you get, and if you don’t, it’s probably not a relationship you want to continue to build on whether it’s professionally or romantically. I learned that everything good in life comes from compounding, whether it’s capital or relationships with wonderful people.

[00:29:33] Stig Brodersen: As some of you know, I’m currently looking into buying multiple private businesses. I do it because I think I can get a better return than in the public markets, but I also do it because it allows me to put the best people in the best position in those companies. When you only have one company, especially if it’s a small company like TIP with only 20 team members, it can be hard to find the perfect role for everyone.

[00:29:54] Stig Brodersen: I’m one of the ones being worked with amazing talent that just couldn’t flourish in our setup. And having a portfolio of companies can get the best of both worlds. When you empower the people around you who in turn will empower you. And empowering wonderful people today is a big part of our why. And I’d like to think that it makes me a good person saying so, but that was certainly be too generous towards myself.

[00:30:15] Stig Brodersen: I sometimes hear how people start a business or take a job to help others. That was unfortunately not the case for me. I started The Investor’s Podcast Network because I love talking about investing. And when I realized that I could make money from doing so, I started My mind wasn’t providing for my family more than making the world a better place.

[00:30:36] Stig Brodersen: And today, whenever I think about my why, yes, it’s about empowering good people, but it didn’t happen in that order. I selflessly wanted to take care of my family first before anything else. The ninth thing I learned about financial independence is that whenever you reach a number, it’s about finding your negotiables and your non negotiables.

[00:30:56] Stig Brodersen: I used to have a job trading in the energy markets from 11 PM to 7 AM in the morning. It was a time right out of college when I had very little morning, but I had time and I had energy also, believe it or not, it was a job I volunteered to do not so much because it paid more, although it most certainly did, but I could not be a good version of myself if I’ve worked in an open office environment during the day.

[00:31:22] Stig Brodersen: In other words, working nights were certainly negotiable for me because of the opportunity cost I had back then. And I would not have chosen differently with what I know today. I learned so much from that time that benefit me today. I’m a slow learner and I sometimes need to experience things for myself for them to really sink in.

[00:31:41] Stig Brodersen: And having had no money and today having a bit more has made me reflect on what is negotiable for me and what is not. So today my opportunity costs have changed. I won’t work from 11 p.m. to 7 a.m. five days a week like I used to, regardless of how much you paid me. On the contrary, I run a business where many things are negotiable, which is perfectly fine. I like to stop having calls after 5 PM. Still sometimes when family life permits or an outstanding opportunity could significantly impact our earnings power, I would take a later call. And money does that to you. It allows you to decide that you have some things in your life that are just non-negotiable and some that you are willing to compromise on at the right price.

[00:32:24] Stig Brodersen: And you don’t want to have non negotiables because you want to be difficult. But simply because there are some things in life that you no longer feel you need to compromise on and you can afford not to, but it can also be too much of a good thing. I’ve also seen very wealthy people who have too many of those and it can have a limited effect on their lives.

[00:32:43] Stig Brodersen: And it might sound ironic, but I think you can lose your resilience and you can damage your character if you have too many things you do not want to compromise on in life. And it’s certainly more art and science to strike that balance because you want to reward yourself for had done good. But it has to be done correctly.

[00:33:01] Stig Brodersen: And that takes me to the next point, and that is point 10. And this is a big one, lifestyle creeps, because perhaps the most challenging aspect of having financial independence, if the lifestyle creeps. When I started on my journey and first learned about financial freedom, it was from a friend of mine who told me about a book he read about creating passive income and how that could lead to a life of abundance.

[00:33:23] Stig Brodersen: And I should say that the idea of passive income certainly appealed to me. And I started reading everything I could to find how to achieve that. And I’m not going to say anything new here when I say that keeping your expenses low is at the very core of financial independence. And even if you do manage to create passive income, that money can quickly be spent on your new lifestyle.

[00:33:48] Stig Brodersen: And at the time I just started in my first job and in a household, we were spending just an excess of 4,000 net of taxes every month. And so my wife and I went through every expense every month in Excel spreadsheet to discuss our spending. It was a great exercise, but as you can imagine, it wasn’t too much fun.

[00:34:08] Stig Brodersen: And whenever you come home after long workday. Especially if work started at 7 a.m. in the morning, this is not what you want to do. It’s a bit like eating a veggies, you know, you’re supposed to do it, but it’s not what you want to do. And you think, can I just give it this one time? But whether it’s your diet or your budget, when you have skipped that, or you’re supposed to do enough times, you realize then whenever you’re easy on your habits, life will be hard on you.

[00:34:36] Stig Brodersen: And when you’re hard on your habits, life will be easy on you. And one thing I noticed from traveling around third world countries, and also what I learned from speaking with the wealthiest people on the planet, is that no one really feels they’re big spenders. If you spend 1,000,000 or 500 a month, you compare yourself to someone who spends more than you.

[00:34:58] Stig Brodersen: Even if you spend less money than your peers, because you have different values and goals, other people’s consumption habits still look silly to you. Some people would fly business class and happily pay 3,000 for a 6 hour flight. Which looks silly to some, after all, it’s only six hours of your life.

[00:35:16] Stig Brodersen: However, the same people who would never buy a business class ticket might be paying 3,000 for a watch. Whereas the business traveler might argue that a watch is just a silly debt thing. Now, spending is a game of relativity and not absolutes. You can think about it like this. When you are on the 7th floor and look outside the window, the 11th floor looks tall to you and the 40th floor is just another world.

[00:35:41] Stig Brodersen: But similarly, whenever you are on the 14th floor of a building and then you look down, there seems to be no difference between the 7th and the 11th floor. It is certainly not easy to avoid increasing your expenses as you accumulate wealth. And I can’t say that I’ve succeeded. Quite the contrary, perhaps.

[00:35:59] Stig Brodersen: Like everyone else, I want to spend away, but I’m very cautious about doing things in the right order. Now, so what do I mean about the right order? Well, you want to build an engine generating cash first, and then you want to pay yourself first. And I set my limit to 50%, which should go towards my investments.

[00:36:18] Stig Brodersen: As your engine grows, whether it’s your job or your business, you increase your earnings power. And you generate more investment income, so you can keep it at 50 percent and as time passes, thereby also increasing your spending and the amount you set aside for further investments. So some of you might rightfully say that you can’t save 50 percent of your income now, and I can completely understand where you’re coming from when you say that.

[00:36:43] Stig Brodersen: This is another angle I refer to whenever I say that things have to be done in the right order. I just started my first job when I systematized my approach to financial independence and my wife and I married while we were still students. So we had real salaries but spent like students. And that of course made the transition a bit easier.

[00:37:01] Stig Brodersen: And I should also say that all of this is much easier said than done. We’ve certainly had years where we spent more than 5 percent of our income and we failed time and time again to be patient with our lifestyle creeps. Like everyone else in life, we are flawed. No, I should say my wife’s not flawed, but I certainly am.

[00:37:17] Stig Brodersen: And I sometimes feel that life and personal finances have knocked you down. And when that happens, and it will happen to all of us, all they can do is to keep fighting the good fight, all the bruises you’ve gotten, and we are definitely no different in our household. And I think what I’ve learned is that a journey towards financial independence can be surprisingly lonely.

[00:37:40] Stig Brodersen: And that takes me to the next point. Point number 11 is that it’s hard to find people you can speak to about your journey into financial independence. I know zero people outside of the universe of The Investor’s Podcast Network that I could go on this journey with now, please don’t get me wrong. I’ve certainly tried.

[00:37:59] Stig Brodersen: I have friends I’ve talked to multiple times, but most people just want to talk about financial independence. They don’t really want to do anything about it. Like I alluded to previously in this episode, most people come from a place where they would like to become multimillionaires. If they can do it relatively quickly and without too much inconvenience, but I met no one outside of the TIP universe and the value investing community that have taken their journey seriously.

[00:38:29] Stig Brodersen: And why should they? So this is what happened to me. And perhaps some of the listeners can resonate with what I’m saying here, because my friends, they bought a house in the suburbs, they got a mortgage, bought two cars, had kids, had lifestyle creeps, and the paychecks we just spent. And I should stress, there’s nothing wrong with any of this life just happens.

[00:38:51] Stig Brodersen: And I’m well aware that I’m an outlier. And I thought about financial independence since I was a child. I know that’s not how the rest of the world is just like most people can’t seriously imagine a world of financial independence. I’ve never been able to imagine a life without it. It might sound odd, but I don’t think financial independence is for everyone.

[00:39:10] Stig Brodersen: I compare the pursuit of financial independence to the pursuit of being a professional footballer. Everyone likes the good things about it. If you’re a footballer, it sounds fantastic, you get a lot of attention, money, there’s lifestyle, but few people are willing to make the sacrifice to become a professional footballer.

[00:39:27] Stig Brodersen: When you truly live that life with the attention, the downside of the money, and whenever you get used to that lifestyle. Well, then life as a professional footballer is likely not as appealing as it looks at first glance. And that really takes me to the next point I want to talk about here, what I learned about financial independence.

[00:39:44] Stig Brodersen: It’s about sacrifice. I wish I could give you a song and a dance about how much sacrifice I’ve made to become financially independent over the years. But I honestly don’t think I made any meaningful sacrifice. I don’t have an emotional story about how financial success cost me health and marriage and how I had to sell my soul to capitalism to succeed.

[00:40:07] Stig Brodersen: And so I can’t give you a wonderful story from wrecks to riches and tell you about all the hardship that I experienced. It’s a very boring story like so many others about a lot of hard work and then keeping my spending in check to get wealthy very slowly. And yes, it doesn’t make a good Hollywood movie but knowing many financial independent people.

[00:40:30] Stig Brodersen: Today, I realize the recipe is more or less the same. They found something they were passionate about, and perhaps just good at, and they were lucky that what they were passionate about was rewarded in a capitalistic world. A financially successful friend told me the other day that he made so and so much money, and his brother, who was a doctor, made significantly less.

[00:40:50] Stig Brodersen: And then we mused about why allocating capital should pay more than saving lives, but that’s just the world that we live in. And I’m certainly not saying it’s fair, but it is what it is, and you must make the best of it. Many who listen to this podcast have been immensely lucky. They were likely born in a country where they had access to capital markets and social mobility.

[00:41:10] Stig Brodersen: So like everyone else, they needed luck to get ahead. But some people’s circumstances just make life easier to attract. Working 12 hours a day, 7 days a week is a sacrifice for some. For others it’s what they need to do to barely survive. And for others again it’s their passion. And to others, again, it’s just the way that they’re wired.

[00:41:30] Stig Brodersen: Luck is sometimes a chicken and egg thing. But if there is something I would like to pass on, I would like for you to think about it like this. Only way to surely become wealthy is to do it slowly. Time passes by anyway. And if you think about it like that, you would likely do some things differently. It takes me to the 13th and last part.

[00:41:52] Stig Brodersen: And I titled it the journey is the best part. I said to my wife the other day that I felt that I was always and never working and she turned her head and said, it feels like you always work. And this is going to sound like a cliche, but I feel that I don’t work and please don’t get me wrong. This is not a story of rainbows and unicorns and everything being perfect.

[00:42:14] Stig Brodersen: If you tell me that that is your job, I would not believe you, but it’s about seeing your journey to financial independence as that, a journey where you can be the best version of yourself, despite the bruises that life and business will eventually bring. I start working eight o’clock in the morning and I stopped reading at 11 or 11 30 PM.

[00:42:34] Stig Brodersen: I do that for seven days a week. And I want to clarify that this is not 15, 16 hours a day for seven days a week. Okay. I used to work at a dairy farm whenever I was a teenager. It was one of the best jobs a kid from the countryside could dream of. And I worked there for years until I unfortunately discovered you can make more money playing online poker than working with dairy.

[00:42:55] Stig Brodersen: But I could not work at a dairy farm for say seven times 15 hours. I would die of exhaustion. But the point is that I’ve changed my mind set about work. First, work is not a negative word for me, and it’s also not binary. So let me explain. My steady state is what many would refer to as working. It’s what I do whenever I don’t do other things.

[00:43:19] Stig Brodersen: So if I watch a football match or go for a run, it’s not what I’m doing whenever I’m done working. It’s what I do in between work and taking time off is not something I do when I’m done working. It’s the first thing I think about when I wake up. And the last thing I think about when I go to bed, when I say that work is not binary, it’s because I do many things that, well, it’s not work.

[00:43:41] Stig Brodersen: I would read a 10 K about a company I would never invest in and certainly never talk about here on the show. But reading a 10K is like reading a good book that may or may not be about investing or watching a show about nothing on Netflix. However, whereas most people would say that Netflix show does seem like work, reading a 10K is the same for me.

[00:43:59] Stig Brodersen: It’s just, well, fun and interesting. I read because I love learning and whether it’s an investment book or a book about salt and sand. Yes, at the time of writing, I’m reading a book about sand and salt. My point is, it’s more about the process. I was recently on a call with members of a mastermind community.

[00:44:17] Stig Brodersen: One member said he didn’t believe in retirement, and I completely agree. I don’t ever want to retire. And the funny thing is that the people who never want to retire becomes financially independent in their thirties, forties, perhaps their fifties. Whereas those who work, so they can retire typically have to wait a lot longer.

[00:44:37] Stig Brodersen: Now I can’t tell you what the right path is for you. It’s most certainly is not my path. If I can give you a piece of advice is to design a system where you can be the best version of yourself and where becoming financial independent is not the goal, but the simple proceed of your process. At the end of the day, the journey is the best part.

[00:44:59] Stig Brodersen: I want to conclude this episode with a reflection about risk. You have now heard my story and heard how naïve and ignorant I’ve been, and I probably still am both of those things. We all have our strengths and weaknesses. If I had done exactly the same as Michael Jordan, I would never have achieved the same as him.

[00:45:17] Stig Brodersen: I said at the top of the episode that it wasn’t a step by step guide to financial independence, and I’m sure you agree after listening to the episode. Perhaps my story is the product of survivorship bias, and perhaps if you’d done the same thing as me, you’d have made 10x the money and had better relationships than I have today.

[00:45:34] Stig Brodersen: And I should say I sincerely hope that that would be the case. But I want to address one thing before I let you go, because I’m sure some of you would say that I took a lot of risk in my journey. But it never felt risky to me. Perhaps that speaks to my ignorance more than the reality. Perhaps it just speaks to how we’re different.

[00:45:52] Stig Brodersen: So, what is risk? Well, whenever you address such a question, quoting some of the greats is tempting. So, for example, Buffett would say that risk is the probability of permanent loss of capital. He would also talk about opportunity costs, and then others would say that risk is what’s left whenever you considered all variables.

[00:46:10] Stig Brodersen: Others, again, would use all kinds of Greek letters to give you a mathematical explanation of what it is and what it’s not. I think I want to go into the discussion of risk from a different angle. There are some objective risk factors like permanent loss of capital, but I want to discuss some subjective risk factors.

[00:46:28] Stig Brodersen: For example, I put myself through school playing poker. And I think many would say that it’s risky. I certainly remember my parents being very uncomfortable with that. And I’m pretty sure that for good reason, many who listen to this wouldn’t like to learn their kids are playing semi-professional poker.

[00:46:46] Stig Brodersen: To me, poker just never felt risky. Poker is like stock investing. It’s about understanding math and psychology. And if you do that right over time, you can’t avoid but make money. Now, the stock market has, of course, a leg up on poker because it’s not a zero sum game. And if you want to achieve financial independence, it’s likely much better to learn how to invest in stocks than playing poker.

[00:47:09] Stig Brodersen: So I hope it doesn’t come across the wrong way whenever I’m saying this. But the point is this, to some people, and I would imagine for many listening to this, poker sounds risky, whereas stock investing does not. And I would ironically also imagine that many of your friends think that you’re a risk taker because you invest in the stock market.

[00:47:27] Stig Brodersen: And they have their savings in a safe money market fund. And that is not the risky part, but a money market fund probably to you sounds risky because you know, stocks, and you know, that over the long run, they perform better and they won’t be diluted by inflation and taxes the same way as a money market fund.

[00:47:46] Stig Brodersen: So risk can be quite subjective to who you are, to your skillset and to your personality. I’ve seen people at the poker tables losing their shirt. And great poker players who made money as if it was their office job and they could stop at any time they wanted. Similar, I’ve seen people enjoy beer and I met people who had terrible addictions to alcohol.

[00:48:07] Stig Brodersen: And I can’t tell you why some people have addictions and others do not. I can only share my observations. What is risky to one person might not be to another. We all shape our experiences. I recently read this book called The Wealthy Elite, which was a series of interviews with ultra-high net worth individuals in Germany.

[00:48:26] Stig Brodersen: They all said they felt they took less risk than what others say that they did. And I don’t think it’s only true for rich people. I think that’s true for all of us. Now let me shift gears here. Schools are teaching us to be employees. They don’t teach us to be business owners, and they don’t teach us to become financially independent through owning private equity, and they certainly do not teach us to take any of that profit from operating businesses and invest in public markets.

[00:48:51] Stig Brodersen: A friend of mine said to me the other day that nothing is as addictive as cocaine and a salary. He never tried cocaine, but he had a salary for many years, and it was very addictive. So he could only speculate on the cocaine part. Now, whenever I started my journey into financial independence, I quickly saw the risk of getting a stable job.

[00:49:11] Stig Brodersen: If I were to reach my goal, collecting a conventional salary, just. It seemed risky because I looked around and saw my friends get married, buy a house, buy cars, have kids, and I quickly saw where their paycheck went. It seemed very risky because of the probability of getting that addiction to a salary and the probability of lifestyle creep seemed to be close to 100%.

[00:49:33] Stig Brodersen: So yes, I know how running it sounds that getting a safe, secure job seems risky to me. Now Munger tells us that we should invest the same way Senkhauser plays bridge. So the question is, how does Senkhauser play bridge? Well, he thinks in probabilities and decision trees, and he knows that risk and investing go hand in hand.

[00:49:52] Stig Brodersen: And the way that I’m wired, starting my own company and again, funding all that proceeds into public markets seem to be as close as risk free as anything I can think of. And perhaps you just wired differently. I don’t think I’m easy to work with for a boss. Actually, I have a good on court from a previous boss that I’m not.

[00:50:09] Stig Brodersen: So I would have to assign a relatively high probability of getting laid off by my employer. You are hopefully more easygoing than me and your probability of becoming financially independent from the salary in a corporation is likely much higher than mine. We all wired differently. We all have different personality.

[00:50:25] Stig Brodersen: We all have different experience and we all live in different realities. The path to financial independence are different for all of us. And for many of us, it’s not the right pursuit doing what I want with who I want for as long as I want is at the very core of who I am and what I want to be. It’s never been about seeing a number of a bank account go up, but about the independence and autonomy money brings.

[00:50:48] Stig Brodersen: It’s about being empowered to be the best version of yourself. With all the flaws and shortcomings that you may have. And others would rightfully see the pursuit of financial freedom as maniacal and missing out on what is most beautiful in life, whatever that is for them. But just like beauty, risk lies in the eyes of the beholder.

[00:51:07] Stig Brodersen: I hope you found this episode inspiring, perhaps even a bit provoked. You may be on your path to financial independence. Perhaps you already achieved it and perhaps you have deliberately chosen not to go there. Regardless of where you’re coming from, I hope you choose the path for you or the journey is the best part.

[00:51:24] Outro: Thank you for listening to TIP. Make sure to follow We Study Billionaires on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.