Clay Finck (01:50):

Now over the past few years, the investment landscape has changed quite a bit, and TIP has changed quite a bit with it. How has your investment strategy changed over time with things like the emergence of Bitcoin coming onto the scene, many people paying attention to that, and also the federal reserves just increased influence on the markets?

Trey Lockerbie (02:11):

Well, I’ll take the first question first, which is my strategy has been evolving pretty rapidly over the last few years and becoming the host of the show and getting the opportunity to speak with so many smart people who are all using their own strategy has been very influential. And I would say that if anything, on my general investing approach has changed, it’s been that I’ve moved further away from being as quantitative as I used to be.

Trey Lockerbie (02:36):

I would run every screener I was aware of, or that I respected or followed and then I would kind of cross examine what companies were showing up on all the different screeners that are either screening for cheapness or quality or things like that, and I kind of whittle it down and that would kind of limit down my universe. And that’s when I would kind of dig in on the other things like management and hey, does it fit my circle of competence? Do I understand the business?

Trey Lockerbie (02:59):

And nowadays, I generally have set up an approach where I’ve got Berkshire, I’ve got indexes, and then I’ve got my kind of alpha attempts, I would say, using individual stocks. And nowadays I’m building a watch list based on, honestly, it’s based on a lot of the conversations I have from this show. I mean, there’s ideas that pop up all the time that kind of just add to my watch list and then I just keep an eye on them.

Trey Lockerbie (03:24):

And I learned so much that it still hasn’t fit into my circle of competence for me to pull the trigger, but that’s where I’m kind of limiting down my individual stock picks at the moment. I’ve been more heavily into indexes and other kind of a commodity type things. And as far as Bitcoin goes, I look at that as sort of my store of value savings account.

Trey Lockerbie (03:42):

I mean, I dollar cost average into that every week. So every Friday I have a certain dollar amount that goes to my account and that’s kind of set it and forget it for me. I honestly don’t even watch the Bitcoin price anymore because it just doesn’t matter for me. And I’m basically just long term holding and the short term volatility really means nothing to me. So I just have that as a set it, forget it.

Trey Lockerbie (04:01):

I almost don’t even think about it as part of my investing “strategy”. It’s just sort of like my savings strategy. We talk about kind of why I look at it that way too, if you want. But TIP has evolved as well and the tools have changed over time, but the resources that we have here are just the dream tools that I wanted from day one, the IRR calculators, the screeners, the ETF comparisons, the correlation tool. I mean, it’s all so useful. So I use that daily.

Clay Finck (04:30):

I can definitely relate to some of the things you’re saying. You have all these different asset classes and a lot of these things aren’t really quantifiable. You might want to get exposure to say the commodity sector or get exposure to say a hard asset or exposure to Bitcoin, but it’s like, okay, I have these extra dollars, how do I allocate to those asset classes? Now related to the individual stocks piece, do you still find yourself analyzing new companies when you’re investing in these stocks or do you just continue to add to some of your existing positions given all the things you have going on in your own life?

Trey Lockerbie (05:08):

Yeah. So what I’d say there about my allocation to individual stocks, I have a 10% allocation limit. It kind of comes from a niche Popeye and that’s just totally arbitrary. It’s different for everybody. But I’ll generally take a position and it won’t be too small. I’ll probably come in at 2 to 3% if I really like something and then I will build it up from there.

Trey Lockerbie (05:27):

But I also, because I got a limited amount of capital, I want to be mindful of giving other stocks an opportunity as well and not eating the whole thing, which is I’m a big believer in concentration, but I’d only do very 10% high conviction bets like that pretty rarely. I mean every so often, but pretty rarely. And I would say if you looked at my portfolio today, it might not surprise people, but my circle of competence that for the time being is very much in food and beverage.

Trey Lockerbie (05:52):

So I have a lot of food and beverage type stocks. I have grocery chains, I have food distributor companies. I have some individual food companies themselves because that’s just a business that I understand. And funny story about that, one of my holdings is a company, it’s a distributor called UNFI. And when Stig and I were talking about me becoming the host of We Study Billionaires, he asked me to do an intrinsic value write up and I said UNFI and I wrote a whole thing up about it because I thought it was significantly undervalued.

Trey Lockerbie (06:22):

And at the time I think it was trading around $6 and today it’s at almost $42. So I was like I did pretty well on that one. But things like that that are very much… Even if I’ll come across certain companies in conversation with other people, if it ultimately isn’t something that I truly understand, I generally stay away from it. And I try to diversify into other industries as well, but my bias tends to lead me to food and beverage.

Clay Finck (06:45):

Congrats on that pick with UNFI, that’s a pretty impressive IRR over just what, two or three years.

Trey Lockerbie (06:52):

To be honest, so UNFI just so people know is the primary distributor for Whole Foods. And my thesis at the time was really that Amazon should just buy it because they’re basically the exclusive distributor. And since Amazon owns Whole Foods, you would think that they might want to own the supply chain as well. And it was so cheap. It was like few hundred million bucks or something like that. They really could have picked it up, but luckily for me, they didn’t, and it’s gone a little higher.

Clay Finck (07:17):

When you do look at individual stocks, do you still use the IRR tool in the TIP finance that you mentioned earlier? Or how are you know looking at the opportunity cost between one stock versus another?

Trey Lockerbie (07:30):

That’s exactly it. I mean, so this question is interesting to me because this is something I’ve been thinking a lot about. So for example, this goes back to actually to a conversation I had with Morgan Housel. And we talked about how a lot of people don’t take the first step in investing. And what I mean by that is they don’t establish what is “enough”, right?

Trey Lockerbie (07:49):

So even though this is the most boring thing you could think of, going through sort of a retirement calculator and figuring out what is ultimately enough for you will help you determine the yield that you’re trying to get. Rather than just being like, “Hey, I want a 15% yield, I want a 20% yield.” Well yeah, everybody does. But that can get you into a lot of trouble if you’re not really going off of any foundation that’s getting you to your ultimate goals.

Trey Lockerbie (08:13):

So for me I did ultimately define my yield. And so the companies that I do look at, I do obviously go compare them to my goals. And it’s usually 15% honestly. And if I had more discretionary income that I was allocating to investing, it might be less, might be like 7%. But I’m starting with a smaller account and I want to be highly concentrated or as much as possible.

Trey Lockerbie (08:36):

So I’m looking for things when you’re only talking about a 10 position portfolio probably, you should probably allocate that to something that is going to get you at least 15% or so. So for me, that’s what I look for but it’s the last thing I look for. So it’s got to meet my circle of competence. It’s got to be cheap and it’s got to compare to the other opportunity costs of the portfolio holdings I have, but that’s sort of the last thing I check, is the yield.

Clay Finck (09:01):

It’s funny you mentioned Morgan Housel and finding that point where enough is enough for you. I recently started doing many episodes for Millennial Investing released every Saturday. And I actually did a book review on The Psychology of Money, that’s episode 171 for those of you who haven’t tuned in yet. And during that book, Housel tells the story of Jesse Livermore.

Clay Finck (09:23):

I’m not sure how familiar you are with him, but he’s one of the greatest traders to ever live. He made over a billion dollars during the great depression. He’d caught the downturn. Everyone thought any trader was just going to get wiped out during that time period, but he was actually on the right side of the trade. And what Livermore ended up doing was continuing to bet the farm on his highest conviction bets.

Clay Finck (09:45):

He’d use leverage, he’d just take these extremely risky bets. It worked out for him for a while, but eventually he lost everything because he never found that point where enough was enough for him. And essentially you’re was just like a gambler. You can be the best poker player in the world, but if you keep taking excessive bets, eventually you’re going to have that unlucky swing and just get completely wiped out.

Trey Lockerbie (10:08):

Yeah. And I believe Jesse Livermore built up a huge amount of wealth and lost it multiple times, at least like twice. So he was almost a degenerate gambler at the end of things even though he was so talented when it came to investing. It’s a wild story and actually brings up a really interesting point, which is when to sell and when to do less, because that’s the hardest part of investing in my opinion. And that’s, I think why Buffett and Munger are so adamant about just buy and hold strategies because it kind of in theory eliminates that issue, which is like where you get caught up the most, right?Should I sell? Is it overvalued?

Trey Lockerbie (10:41):

Now sometimes Buffett and Munger’s actions don’t correlate directly with their words. But I think generally speaking, the theory is correct. And knowing when to sell has been really interesting. I don’t think I’m that good at it. I will say that I’ve just for fun, I have been kind of in and out of Tesla and I’ve been calling the top and bottom of that pretty well because it’s hitting this range of 700 to 1200 and I’ve just ridden that wave a couple of times.

Trey Lockerbie (11:05):

And that’s more for fun, it’s more just for educational purposes. And again, this is all just in pursuit of my own style, my own strategy, what feels right to me. And I will say that after 10 years or so of doing this stuff, I feel, which is not a long time in the world of investing, but for me I feel like I’m getting into a little bit more of the like Jedi mode where it’s going off the gut, right?

Trey Lockerbie (11:28):

It’s like, I’ve seen so much, there’s a lot of pattern recognition and sometimes you just feel something and you’re like, “Nah, it’s time to sell.” There might not even be a quantitative reason, but I’ve been noticing that more and more. And we should talk about maybe some indicators that maybe lead into those decisions, but really it’s really hard to explain and I don’t have a great system. I’m not like Brian Feroldi with a 15 point checklist unfortunately. I should be, but I’m not there yet.

Clay Finck (11:50):

Hey, there’s a lot to be said for having that intuition. Sometimes you just can’t explain something, it just feels right. And you mentioned Tesla, I have to ask, is that something you’re a big believer in for the long term? Say we see the depression type scenario that everyone’s talking about now, is that something you would consider adding to as a long term holding or what are your thoughts on Tesla?

Trey Lockerbie (12:13):

Yeah, so I would actually say I am long term very bullish on Tesla. I own a Tesla and my dream is to have Tesla solar panels on my roof that are powering my house and charging my car. And I really believe in that future. I think it’s just an exciting one. And to be quite honest, I’ve followed Elon long enough and followed Tesla long enough that I do feel like it’s a business I actually really do understand.

Trey Lockerbie (12:34):

Now, I think a lot of people get caught up on comparing Tesla to other car companies. I think that’s actually a big mistake. I’ve fallen into that trap. It probably kept me out of Tesla too long in the beginning. But I actually just heard Elon talk about this at an event a few weeks ago and he describes Tesla as almost 12 different startups. And they’re vertically integrated, they have a lot of supply chain down and handled internally.

Trey Lockerbie (12:54):

And a lot of people also get tripped up on this idea that Elon sells the dream. And as much as he does do that, the solar panels are kind of a big one that haven’t really come to fruition, at least the tiles, I don’t necessarily see anything wrong with that. I mean, I think as an entrepreneur I’ve experienced a little bit of that myself. You sometimes do have to sell the dream in order to make it happen. Because it’s like a chicken or the egg situation.

Trey Lockerbie (13:17):

Where do you start these? The money doesn’t just appear. You have to go get it and finance these things to make them happen. And he’s been really good at doing that so far. So I’m really bullish on Elon, I’m really bullish on Tesla long term. I do think for where the company is today, it’s been in this kind of, I think in the 1200 range, it’s been a little overheated.

Trey Lockerbie (13:35):

So that’s why I’ve been riding that up and down, but I don’t recommend that. I mean, I think if it gets like today’s price, it’s probably a fair price in my opinion. And I think it’s in the 700s or 800s now. And buying and holding that thing for 20 years, I think you’re going to do just fine.

Clay Finck (13:50):

I listen to a lot of the We Study Billionaires episodes and love the variety of guests you Preston, Stig and William are able to bring onto the show. And I can also relate to seeing that variety, talking to someone that is pitching gold or pitching silver, talking to someone that’s pitching an all individual stock portfolio or Bitcoin.

Clay Finck (14:11):

I think hearing all these different viewpoints can help keep you grounded to where you’re not falling into this eco chamber where you’re hearing the same stuff over and over again. You have that confirmation bias where you’re only looking for the information you want to hear. And I think you and I both know that with high inflation, it could be a really tough road for stocks over the next say 5, 10 years. Has that led you to allocating to some of these hard assets like commodities, gold or silver, or what are your thoughts on that approach?

Trey Lockerbie (14:42):

I’m going to answer that, but I want to touch on what you just said a little bit because I do actively seek out differing opinions and it actually comes from this position. I was talking with Dan Rasmusson who I know you’ve had on your show about just being almost a nihilist where you kind of believe no one knows nothing.

Trey Lockerbie (14:56):

While we tend to put experts on the show and we take their advice, everything should be with a grain of salt. Everyone has their own motives or their own biases and no one can predict the future. So while it’s such a fun game, it’s important, I think to always remember not fall into any one ideology. And Buffett and Munger, it’s the same thing. When I started, I was very much a Buffettologist for a very long time and then got introduced to Ray Dalio and said, “Well, wait a second.” And then that kind of was like a gateway to other people.

Trey Lockerbie (15:23):

And I had just had Brent Johnson and actually yesterday had a guy named Jeff Snider and he was pontificating on this idea that flies in the face of everything I’ve learned on the show. He doesn’t think there’s too many dollars in the system. He thinks there’s actually a dollar shortage. He thinks that while a lot of people we know think that the dollar even Ray Dalio is saying that the dollar might be losing its world reserve currency status, he thinks it’s the exact opposite.

Trey Lockerbie (15:46):

So it’s just so fun to get differing opinions that stress tests your own framework, because that’s ultimately what we’re trying to do. And one of the guests I really like a lot who I’ve had on my show is Josh Young and he’s an oil expert. So he actually got me really interested in oil and just happened to be around the time that Buffett was also buying Occidental.

Trey Lockerbie (16:05):

So I have a position there in oil based on this thesis that oil’s going higher. And I actually think it is. And it’s not due to really any other reason than just the lack of investment that’s gone into expanding production capacity. I think that’s just been completely ignored and I think that a lot of businesses and not just oil companies, but a lot of them took the stimulus and just bought shares back. And they didn’t invest in the long term and that’s a big problem.

Trey Lockerbie (16:27):

So now I’m seeing oil, I think it’s going to go a lot higher and I have a position there. I have sadly been holding gold and silver also for many years. And it’s a small position. It kind of goes to that all weather mindset, but they’ve been real drag on my portfolio quite frankly. Gold popped a little bit as of late, but silver’s just been a dog. And luckily it’s a very small position.

Trey Lockerbie (16:46):

To be quite honest, one of my best trades of the last two years was actually just buying a commodity ETF. I bought GSG and that’s been my biggest performer over the last couple years. Whether it goes higher from here, I’m not really sure, but I will say this kind of ties in with inflation where it is. I mean, it’s important to understand what makes up the CPI number and a lot of it is oil. A lot of it’s energy really, it’s oil and natural gas.

Trey Lockerbie (17:09):

And if oil’s going higher, then you can kind of expect the CPI number’s going to stay higher or stay the same or go higher. And that’s kind of my thesis right now. Now there’s a lot of people I interview who think that inflation’s going to roll over any minute now. And that might be the case, but I have concerns just because of the oil side of things. I think a lot of the other components in CPI will come down, used cars, things like that.

Trey Lockerbie (17:29):

I mean, a lot of things that are stuck in supply chain issues I think will get resolved and that that will help. But since it’s such a big component, I’m not so sure. And then there’s the whole food side of things, which is basically the other major input for CPI. And with the war in Ukraine and things not being planted, there’s probably going to be some supply chain issues with food.

Trey Lockerbie (17:47):

I mean, Ukraine is the bread basket of the world and they make up almost 60, 70% of the carbs that people intake around the world. We could supplement that with rice but the usual commodities like bread and pasta and some things like that might be in short supply later this year. So I have a thesis that inflation is probably going to continue to go higher. And to me that means that commodities will probably continue to do well.

Clay Finck (18:08):

Yeah. I feel like the general consensus is inflation’s going to come back down, but how many people are taking that kind of approach you’re taking where maybe inflation doesn’t come down. Like am I hedged against that sort of scenario? It’s kind of a shorter term approach. A lot of these stock investors will be like, “Yeah stocks might go down, but eventually they’ll come back around.”

Clay Finck (18:28):

And I’d like to talk more about this macro theme. I love the guests you guys bring on, Brent Johnson, you mentioned, Luke Roman, Lyn Alden. Inflation looked like it might have rolled over. CPI, that number hit 8.5 and then down to 8.3%. And the federal funds rate is still below 1% at the time of this recording. Is it possible for the fed to bring down inflation without breaking the economy?

Trey Lockerbie (18:55):

That’s always hard to say. I will say that I think the fed is operating under their dual mandate and saying, “All right, unemployment is low and inflation is high and that’s our dual mandate. So we have to cover the one and we’re going to let everyone else figure out what to do with the rest.” I don’t think they care if high flying and growth stocks get hit and go down 30%. I don’t think they care a whole lot. I think their main concern is runaway inflation.

Trey Lockerbie (19:18):

And there are some reasons, someone would say that what the fed is doing is just expectation setting. And it’s almost like placebo like they have to raise rates to control things even though it might not actually tighten the monetary supply, that’s a whole nother discussion. But I think that the fed is going to continue to raise rates as much as they possibly can.

Trey Lockerbie (19:37):

And what’s going to break first is really hard to say, but I honestly can’t imagine what it would be. The dollar’s just going to continue to go higher, which would make debt around the world more expensive for everybody holding it, which means they have to devout their own currency to cover it, or they have to liquidate their positions. So that’s where you can feel a lot of pain once the dollar keeps climbing higher.

Trey Lockerbie (19:56):

And so I guess long story short is I think the fed can and will continue to raise rates, which is a concern. And the only other question I guess, from that is how much is already priced into the market and I don’t know.

Clay Finck (20:10):

One thing I’ve learned just recently with this rise of inflation is people talk about the Taylor rule. Could you talk about what exactly that is and how that potentially plays in here?

Trey Lockerbie (20:22):

Yeah. So it’s got basically three indicators, the federal funds rate, price level and changes in real income. And basically the idea is that interest rates should follow the Taylor rule target. And right now there’s a huge gap. I think the Taylor rule is suggesting that interest rates should be in the 8% or higher range and we’re at less than 1%.

Trey Lockerbie (20:42):

So you see this huge gap, but historically it tracks pretty closely at fairly good correlation. So it’s just suggesting that interest rates are going higher. Is it something that the fed uses as a metric? I’m not entirely sure, but I think that a lot of people will look at that and say, well, if history’s any indicator, then interest rates could and will probably go higher.

Clay Finck (21:01):

Yeah. I almost think of it as a natural law where if someone’s lending out money, that should at least cover the inflation rate. Well, CPI inflation today is over 8%. So your interest should be at least at that level. Over time, it’s generally followed that rule, but there are times where there’s exceptions where crazy things can happen in the economy, and for whatever reason it might not always follow that rule. It’s just kind of like a general rule of thumb is the way I think about it.

Trey Lockerbie (21:28):

Yeah. For some reason I kind of have this sense that all bets are off and I could be really wrong. It might be like that this time is different thing where really it’s not at all. But I kind of feel like the playbook has been thrown out the window and I think it does go back to 2008. So when you kind of go back in history to like even the ’70s and other time periods, first of all, we didn’t have nearly the amount of debt that we have now.

Trey Lockerbie (21:49):

So yes, they were able to raise interest rates up to 15% but I think we had a 30% debt to GDP at the time. Now we’re like 120%. That’s a totally different scenario. And I’m not sure how much the fed is considering back when they, like I said, I think they’re going to say, “Well, the treasury will figure that out and maybe we continue to debase the currency and buy up more bonds to cover it.”

Trey Lockerbie (22:09):

But I think that once 2008 happened, we started the TARP program and the money printer started. I was going to think of a good analogy. The money printer starts roaring a little bit, if you will. I think the playbook has kind of gone out the window. I don’t think the fed will be able to raise rates much beyond say 2% and before something breaks. And it’s because of this what Ben Benicky would call the financial accelerator.

Trey Lockerbie (22:32):

They lifted the interest rates 25 basis points and you saw the Nasdaq sell off 30%. And that’s the accelerator at work, meaning these little butterfly effects create much bigger implications around the world. And I think whether it’s the debt level or whether it’s just the currencies around the world, something will break and I think the fed is going to keep moving as is, and they’re very reactionary. So I think they’re probably going to overdo it before they correct. But the MUDS will probably get a lot worse before they get better.

Clay Finck (23:00):

You mentioned that you don’t expect the federal funds rate to go above 2%. I just pulled up a quick chart just to look at what that looks like. And I’ve heard people mention that the federal funds rate, when it goes up, it’s never gone up above where it previously kind of topped out. In 2000, I see it hit 6.5%, 2007, 5.2% and then early 2019, it was 2.4%. So like that 2% mark you mentioned. If that down trend sort of continues, that seems to be in line.

Clay Finck (23:29):

Let’s talk a little bit more about Bitcoin. When it comes to Bitcoin, it’s almost forced us to think about the world in an entirely different way. You mentioned earlier how Dalio really changed the way you think about the investment landscape and the investment world. Preston would tell you that Bitcoin is a value investment, it’s a value play, which most value investors, Buffett, Munger, those types of people would just completely roll their eyes at. With that, I’d like to ask you, do you see Bitcoin as something that’s risky or are people misperceiving what it actually is or is it more of a value play?

Trey Lockerbie (24:04):

So here’s where I am today, and it might be different than what people expect. But basically I’m of the opinion that Bitcoin today is an incredible store value asset. Now I do also believe that I’ve seen it. I mean, I’ve seen the infrastructure being built on top of it in layer two and three even now where it could be a very reliable medium of exchange over time, but that doesn’t take away the fact that it’s a very deflationary currency.

Trey Lockerbie (24:29):

And if you look back at history, that hasn’t worked so well, right? If it’s a gold standard or whatever have you, it’s never really worked. And so the reason why this is what I believe, and I would love to see this future unfold potentially if it goes hopefully smoothly, which is unlikely, but if you’re bullish on Bitcoin as a medium exchange long term, I think you’re really voting for a completely different looking future.

Trey Lockerbie (24:52):

It would be a future where people work less, things get cheaper over time, and there is more hopefully abundance of things. But I don’t know what that would do to consumption. The theory is that people won’t consume because the price will be cheaper tomorrow, but people consume what they want to consume. They’re not driven by needs only, they’re driven by once and they’re going to do that.

Trey Lockerbie (25:15):

And if I were running Better Booch in a deflationary environment, you can make the argument that I wouldn’t buy tea to make today because it’s going to be cheaper tomorrow. But over time, that just means my profits are getting stronger over time as well. So I would love to see that world unfold. I think that would eliminate a lot of our issues around the world.

Trey Lockerbie (25:31):

Our consumption is really what’s causing a ton of trouble in this world. And I think that the inflationary monetary system we have obviously just drives more and more consumption probably more than necessary. So I guess, what am I saying? I’d say that right now, I basically supplement Bitcoin as my savings account and I don’t necessarily look at it like a value investment.

Trey Lockerbie (25:51):

I do think I would argue that yes, you can generate yield off Bitcoin, a lot of people don’t think you can. I think you can, I’ve seen it. You can land it out and get a yield, but that’s not really how I look at it. I would actually rather not rehypothecate or have the risk of rehypothecation through somebody else just for a little bit of yield personally. So for me, it’s an asset like a piece of property that I’m going to hold forever and probably pass down to my kids and they’re going to pass it down to their kids, and that’s how I look at it.

Trey Lockerbie (26:16):

I actually see a world where Bitcoin and say the US dollar can coexist in a very friendly way where if they continue to debase the currency as they have over the last few years, great, you can opt out, you’ve got an exit ramp for your discretionary income or savings. You can park it in Bitcoin. Does that mean we’d have to buy our coffee with Bitcoin? I don’t know. I don’t know.

Trey Lockerbie (26:35):

You can switch back, you can convert back to US dollar to do other things. And generally speaking, the monetary network we have works pretty well. It’s not perfect, but it works pretty well. So I’m a big believer in Bitcoin long term, but it’s kind of for reasons that are less extreme probably than some of the folks we interview on the show.

Clay Finck (26:53):

My thinking definitely aligns with what you just described. I’ll tell someone about Bitcoin and they’ll be like, “Bitcoin is the dumbest thing. Like no one is buying anything with Bitcoin. Why would you want to own… Or no one uses it, what’s going on?” I’m like our current payment system, it works fine.

Clay Finck (27:10):

I can go to the coffee shop down the street and I can buy my coffee just fine. The problem is the dollar doesn’t hold its value over time. It’s lost over 99% of its value against gold over the last 100 years. And many people live in a country where the currency is just falling much faster than the US dollar. Like 1 or 2 billion people are living in very high inflation environments and they don’t have access to something like the stock market. So I like that. I’ve heard you use the analogy of thinking of it like Manhattan real estate that you hang onto, you have your digital stake of the network.

Trey Lockerbie (27:43):

Yeah. And imagine that in reality, right? Imagine there was a piece of New York real estate property that someone was like, “Hey, you can buy 50 bucks of this at a time if you want over a period of years,” or whatever it is and dollar cost average into a piece of real estate like that. I mean, I think everyone would jump on that.

Trey Lockerbie (27:57):

So that’s been an old analogy that I’ve heard it for years, but I still feel like it holds up. I feel like as an asset. And when I say about an asset, I do also see the fact that banks will probably look at it as pristine collateral. I think that nations, sovereign nations will look at it like pristine collateral.

Trey Lockerbie (28:14):

When you’re talking billions of dollars and things like that, it makes a lot of sense. It will make sense for less money and with the lightning network today, as it is, you can argue it does already. But I look at it like the best piece of collateral you could possibly have. And that’s what my kids will probably use to fund whatever they want to do in the future.

Clay Finck (28:29):

Yeah. That is a very exciting future. I like the idea of having the US dollar work alongside Bitcoin because I’ve read Saifedean’s pieces. He talks about time preference and with the US dollar, like you mentioned, people want to consume, consume, consume because their dollar’s losing value. They know it’s not going to be worth as much over time. Even if they might not know it, they’re almost incentivized to act in that way.

Clay Finck (28:52):

And I was at the Bitcoin Conference with you in Miami and I was at a couple events where Jordan Peterson was speaking and he was like, “Yeah, Bitcoin might bring all these great things to the world, but if we use that as our currency, we don’t really know what implications that’ll bring because we’ve never had anything like it.” Gold was similar, but it wasn’t near as deflationary as Bitcoin. So there’s the saying be careful what you wish for.

Trey Lockerbie (29:15):

That’s it. Like I said, the fact that the US has been as amenable to Bitcoin as they have to date is encouraging to me. I think that they probably see it. Either they’re not paying enough attention or maybe they see it as a means like I’m talking about where, hey, we could use this as really good collateral over time and make settlements in a different way or store value in a different way. And I think they can coexist.

Trey Lockerbie (29:35):

I mean, I should also mention that my opinion is very myopic and bias because I live in the US. And there are countries, as you mentioned, that their dollars are getting inflated away like Turkey and a number of others, Venezuela. And so is there a better use case there? Absolutely. I think so. When the inflation is just arguably more aggressive, maybe that changes things. I don’t know.

Trey Lockerbie (29:55):

I live in the US and we have the world reserve currency and I would like to see it stay that way because I’m biased and I generally like the US having that kind of power, I guess, over the world. But if I could snap my fingers and create a future, it would look like a Bitcoin future where things are abundant, consumption might be less because it doesn’t need to be as high and people get richer over time for working less. It just sounds like an ideal scenario, but I don’t think we get there in a very smooth fashion.

Clay Finck (30:21):

I’d like to chat about your role with We Study Billionaires and TIP, as well as what you got going on a Better Booch. But before we move on to that, I’d like to ask you if there’s anything you’re keeping your eye on over the next few months as far as the investment landscape.

Trey Lockerbie (30:37):

Well, yeah. I can tell you I’m keeping my eye on a new indicator that came up from our conversations with Dan Rasmussen, which is the high yield spread. Basically that’s the high yield debt interest rate over basically a treasury rate. And that has been this really interesting indicator for if we’re entering into a crisis or not. And I think right now, and for the foreseeable future, we’re kind of walking that razor’s edge of, are we back into a crisis or not?

Trey Lockerbie (31:00):

And so interestingly enough, today it’s at about 4.2, which in Dan’s opinion is kind of right at the threshold of entering into that crisis area, and 6 is we’re definitely in crisis mode. And every time it gets to 6, you kind of see it skyrocket higher before it comes back down. The trend line is going up so it does kind of seem like we’re entering into the crisis phase, but I’m watching it very closely because I really like that as a tool.

Trey Lockerbie (31:25):

It talks to how many companies can finance what they’re trying to do and how much liquidity they’ll have access to. So it’s a really good economy indicator and I think that ultimately will affect the stock market. But so for me, I’m watching that pretty closely. As far as asset classes, I’m watching oil very closely. I’m kind of strong opinions we could be held with it. I have a lot of reasons why I do think it’s going higher, but I’ll be quick to change my mind if that’s starting not to prove out.

Trey Lockerbie (31:50):

That being said, the fact that Buffett bought as much Chevron and Occidental as he did lately gives me a lot of conviction as it typically does, but at the same time, because I hold so much Berkshire, sometimes I don’t go as hard on things because I’m like, “I’ve already got it in that position.” So I have… I’m looking at my portfolio right now, I’m trying to see what else I’ve got. It’s pretty defensive right now if I’m being honest.

Trey Lockerbie (32:11):

And the last thing I’m kind of looking at is just really great companies getting cheaper and cheaper, really no matter what it is. There’s an argument right now to be made that Google’s in a fair price range. I’m no expert on Google, but I am keeping a close eye on things like that. I’m more driven to small caps at the moment though because I’m running a very concentrated portfolio. That’s typically where I’m going to find, I think the yield I’m looking for. And yeah, I think that over the next six months, there’s probably going to be some really good opportunities to find some really cheap stuff.

Clay Finck (32:37):

Yeah, I 100% agree. I actually had an episode talking all about Google. That was 173, it was just last week prior to this recording. Let’s talk a little bit more about what you’re working on, step outside of the investment world for a second. You’ve run very successful company, Better Booch and you are also the host of We Study Billionaires podcasts. I can’t help but think on top of running a business that does seven figures per year and you have your family, you have all these things going on, what led you to want to interview and learn from billionaires on the side?

Trey Lockerbie (33:14):

Well, to be completely honest, it wasn’t really a dream or a goal of mine. I will tell you this much though because it’s just kind of interesting. This is my California yogi spiritual framework in mind. But I was leaving my office at Better Booch one day and I just had this overwhelming amount of feeling of gratitude. So I was driving home, I was like, “Wow, how cool is this?

Trey Lockerbie (33:35):

I’m leaving this business that I started, I’m driving in the car that I’ve always wanted, I’m going to my house that I love to see my family, that it just couldn’t be more perfect for me.” So I just had this overwhelming sense of gratitude. And I was listening to the podcast, this is before obviously I was a host because I’ve been listening to it since its inception.

Trey Lockerbie (33:52):

And I was listening to it on the way home and I had this thought that was like, “What could possibly make my life even better?” And I was like, “I guess if I were like the host of the show.” But you got to understand at that time there was no prospect of that. It was like such a wild thought. First of all, I don’t come from a finance background, Preston and Stig were doing quite well on their own and there was just really no reason for that to happen.

Trey Lockerbie (34:13):

So I’m saying all that to say I don’t know if it was a manifestation of sorts or whatever, but within a couple of weeks or so, they announced that they were looking for a host and Preston was going to go full-time Bitcoin. And to me because I had had that thought so recently I think I was just like, “Oh, well maybe I’ll throw my hat in the ring.”

Trey Lockerbie (34:29):

So the reason for that is not so much because it’s like some egotistical thing, it’s more because I’m a constant learner and I just thought how cool would it be to do what these guys are doing, interviewing all these amazing people and who knows what conversations happened before and after the recording are behind the scenes, what relationships are being built?

Trey Lockerbie (34:49):

And that just seemed like such a amazing thing that would be a huge advantage to access and just learn from the best minds in the world. I mean, for me, it was kind of a no brainer. It was a really long shot that they’d take a chance on me like they did, but I’m sure glad they did because I’ve been really enjoying it.

Clay Finck (35:05):

That’s awesome. And you guys are bringing on just these incredible people. Many of them are billionaires, which is pretty incredible that these billionaires would want to give up their time to be so giving and just give out this information for free to all these podcast listeners. Are there any billionaires or people you’ve had on the show that have had a really big impact on you and how you think, whether that be people you’ve interviewed recently or maybe people you’ve listened to from Preston and Stig early on?

Trey Lockerbie (35:33):

Yeah, that’s a good question. I mean, I’m trying to give a honest answer. I did my top takeaways episode at the end of last year. So if I look at that, because that was kind of an indicator of who really had an impact on me, it was people like Howard Marks of course, Jeremy Grantham. But it had up and comers too like Brian Feroldi in there.

Trey Lockerbie (35:51):

And so it’s a wide range. It’s not just the billionaires. A lot of the takeaways I have come from more up and comer types. I mean, Dan Rasmusson recently had some really great insights and Brent Johnson, I really like. So yeah, it’s really hard to say. With all of that said, it can kind of become like alphabet soup in your brain because you’re hearing so many different opinions all the time or if you’re doing your job correctly, you are.

Clay Finck (36:16):

I can definitely relate to some of the things you’re saying. We were talking about earlier how we’re bringing in all these different types of guests onto TIP and getting all these different viewpoints. And when I was thinking about how some of the people at TIP invest, I think of Preston, he’s very into Bitcoin, then I think of Stig. I don’t want to speak for Stig, but it’s almost like he’s taken this Ray Dalio approach where he’s brought in these uncorrelated bets.

Clay Finck (36:42):

And I almost think of it like building a bulletproof portfolio. You have some Bitcoin, you have some say Berkshire Hathaway, you have some gold. And it’s like through any economic environment, there’s no way you’re not going to survive going through that. And that’s the benefit of bringing on all these different types of guests. But on the other hand, you mentioned the alphabet soup analogy where you have all these hundred different viewpoints, how can you put the pieces of the puzzle together to make it make more sense? So it’s a double edged sword, I would say.

Trey Lockerbie (37:14):

Yeah, basically after my conversation with Jeff Snider yesterday and we were going over this huge macro idea of why we’re in a dollar shortage and all, and we’re comparing that to Brent Johnson’s work and we’re comparing that to even what Preston has come up with. And at the end of the episode, I was like this almost has an adverse effect on me where I retreat to Buffettology again.

Trey Lockerbie (37:33):

And I’m just like, “You know what? This is over my head. I don’t want to pay attention to it. I’d rather just go buy a company like Dairy Queen.” I’ve just been kind of retreating more and more to that. The more that I learn, it’s like the more I don’t know and the more I kind of just retreat back to Buffettology. But I want to continue to learn because I just find it fascinating.

Clay Finck (37:51):

That’s so funny. Transitioning to talk about your company Better Booch, when I came into TIP, I had to try it. I like kombucha and now I like kombucha even more since I’ve had your tea. It’s just so much better. The name’s pretty fitting. I just love it. If you’re interested in kombucha, I highly recommend checking it out. If the kombucha you’ve had just tastes terrible, then you haven’t had real kombucha yet.

Clay Finck (38:15):

Talk to me about the experience of scaling this business. I’ve heard you mention that you started out at farmer’s markets just passing it out. I see videos of you on the street just handing out can by can, which is pretty cool coming from the founder. Talk to me about the experience of scaling from a farmer’s market to now being in Costco.

Trey Lockerbie (38:35):

Well, first of all, I really appreciate your comments there about the product. And yeah, it’s always hard to transition into something like kombucha from investing. On my Twitter, I have Buffett, Bitcoin and Better Booch, still figuring out how they go together. That’s how I feel. I don’t know how the three of them go together, but somehow that’s what makes up my mind. So yeah, I’ll do my best to transition here.

Trey Lockerbie (38:54):

But basically the experience of scaling it has been a wide spectrum because in the early days we were bootstrapping. So we bootstrapped the business for about six years. And when I say bootstrapping, I mean it in every sense of the word. So for example, we wanted to use purified water. Well, we literally couldn’t afford a purification system that could do tens of gallons at a time. So I would load up my car with those five gallon jugs, drive it to the Ralphs, there was a little like purified water dispenser you put a quarter in and it gives you a gallon.

Trey Lockerbie (39:23):

And I would fill up 10 of those, put in my car, take them back, brew some tea with it. I mean, I would go buy one case of bottles. Yeah, we started out with bottles just so you know, I go to the store and buy 36 bottles to take three cases to a farmer’s market. And then over time, as it built up, I ultimately was able to buy a pallet at one point which is like 300 cases let’s say.

Trey Lockerbie (39:42):

But I couldn’t afford the freight to get the pallet to our facility. So I took my minivan down and I unstacked the pallet into my van, got to the brewery and then put it all back onto a pallet. So when I say bootstrapping, that’s what I mean. I mean, those are like penny pinching things out of pure necessity.

Trey Lockerbie (39:58):

So when we got to these inflection points where Ash and I, we feel like we’ve had two or three of these inflection points where we get to this crossroads and we have to say, “Well, are we doing this or not? Are we really doing this or not? Because if we’re really doing this, then there’s a whole nother huge commitment ahead of us.” So the first one for example was signing a two year lease on our brewery, on our first brewery.

Trey Lockerbie (40:19):

Two years at the time that was like, whew, that’s a big commitment. As of late, it’s been more things like, should we take on outside capital? Because if we really need to do this, it requires a lot of money actually. And I don’t think a lot of people get this. This could tie back to the Bitcoin thing a little bit, we can talk about why. But basically I don’t think enough people appreciate this, but there is usually this chasm between startup mode and at scale.

Trey Lockerbie (40:43):

And that chasm, it’s like there’s a book called No Man’s Land, it’s kind of about this where there’s no bridge, it’s like you have to cross this chasm and make it to the other side at scale, because there’s just this awkward moment where you’re too big to be small and too small to be big and you either can’t get financing or you can’t get financing, but not enough. There’s a lot of interesting things we’ve experienced at that stage.

Trey Lockerbie (41:05):

But a lot of businesses, I think even software businesses and you name it, there’s that inflection point where they have to scale. And that usually requires a period of running a deficit in your business, and that’s really hard. And we’ve been doing it the last couple years of Better Booch taking on outside capital just so we could get the capacity we needed to go into Target, go into Costco, as you mentioned, going into Walmart, Sprouts and Whole Foods.

Trey Lockerbie (41:26):

And so in my opinion, it’s been the spectrum where we’ve experienced everything from the far end of bootstrapping to now we’ve to date raised about 10 million bucks and we’ve put that to work. So it’s been a very interesting journey. I’ve learned a ton, but it’s not without its anxiety and challenges. And my wife and I both have one too many sleepless nights trying to get through it all, but we love it.

Trey Lockerbie (41:47):

And I would say that if you are an entrepreneur starting out and you’re looking to do something, you have to make sure it’s a product that you actually love because you won’t get out of bed to just do it for the money. I know that all too well. There’s been too many days where I’m like I would’ve just given up, but I was like, “I really believe in this product and I really love this product and I love the brand,” so I get up and go to work. And that’s what it takes.

Clay Finck (42:06):

Really cool story. And this has reminded me of a tweet I’ve read the other day from Nick Huber. He’s a big fan of running these small physical businesses. And the tweet was about a lot of people say like you should do a business online, doing stuff online just makes things so much easier. You have the whole world to sell to, you have these powerful platforms like Amazon, you can put your product up there and put it in front of millions of people.

Clay Finck (42:31):

But Nick was saying in his tweet, no, you should do things in the physical world. There’s so much less competition in the physical world, you only have the guy across the street to really compete with. So it’s an interesting kind of perspective to think about how we have this physical and digital world where that relationship between the two and how there’s so many ways to go about running a business.

Trey Lockerbie (42:51):

So funny enough, I like to make this joke where I had this idea for the business because I was brewing the product at home. But it really wasn’t until I read The 4-Hour Workweek by Tim Ferriss. And I like to joke that I read that and I was like, “Oh, starting a business is so easy.” Kind of because you lay out what you just said.

Trey Lockerbie (43:05):

And then that kind of gave me the kick to go start the business but then I did the complete opposite of everything in that book. I was like, okay, locally sourced, handcrafted, everything that was completely the opposite of that book. So I kind of like to joke that it got my start, but in a totally different way. And to Nick’s point, I think too many people just have software type businesses in mind that they’re not giving enough appreciation to the real commodities like food and beverage and things like that.

Trey Lockerbie (43:31):

You know what’s so funny? I can go to the doctor’s office and when it says occupation, or usually if you’re filling something out, say there’s a dropdown menu for occupation or industry, food and beverage, never listed, never listed. Can you believe that? It’s like we do it three times a day, but that’s how overlooked it is as an industry. It’s mind boggling.

Clay Finck (43:48):

You’ve recently got stocked in Costco and Target. How in the world were you able to do this? Like I mentioned, Amazon, they allow anyone to put a listing up on Amazon, Costco and Target, there’s a limited amount of space and shelving space that people can put their products. So how’d you make that sale and what was that like?

Trey Lockerbie (44:06):

Well, it took years quite frankly, just to get the meeting. And as you would expect, no one’s probably surprised by that. But it takes a long time. You don’t usually just start out at Costco, you have to build a story, you start wherever you can. So interestingly enough, we’ve been in Whole Foods in a couple of regions for many years, but haven’t gotten the opportunity to go national.

Trey Lockerbie (44:25):

So while we’re waiting for that opportunity to come, companies like Walmart approached us and said, “Hey, we want to go national.” And so you say, “Well, all right.” I mean, that’s the bird in the hand, I got to take it and grow my business. And so we did that and that kind of proved at Costco that we could sell in mass type scenarios in stores. So I think that helped.

Trey Lockerbie (44:43):

And usually in my industry, even though in my opinion this is kind of archaic, it’s still very heavily broker driven. So there’s a lot of brokers that represent mini brands and they’re the ones who meet with the buyers. It’s rare that the founder or people like even the sales reps get an opportunity to meet with buyers. It’s a little bit like you can imagine in the ’80s or ’90s people go out golfing and it’s like this broker and the buyer.

Trey Lockerbie (45:05):

They’ve got the relationship and he says, “Hey, can you put Better Booch?” The guy goes, “All right, let’s do it.” But I mean, that’s the simplified version of it. But usually what I do, it’s actually a real estate business. So grocery stores, if you think about it, they’re focused on dollars per linear square foot. So that little shelf space that I take up with Better Booch, that is money in their eyes.

Trey Lockerbie (45:24):

And if your product isn’t selling fast enough and not generating enough dollars per linear square foot, they’re going to put in something else that does. So you have to build this story that shows not only can you sell, but you’re selling compared better than the competition or other products that are taking up that space. And so when you get the meetings, that’s always the argument that has to be made and you have to convince them of that. So with Costco and with Target, both of those, we went through brokers, but it took years just to get a meeting or two and finally get an opportunity

Clay Finck (45:53):

Time and time again I feel like you’ve mentioned this idea that Buffett says he’s a better businessman because he is an investor and he’s a better investor because he is a businessman. What are some ways in which this has applied to your own company? I’m super curious.

Trey Lockerbie (46:11):

So the reason I go back to that quote so often is it did have a profound effect on how I ran my business. And the profound effect was I realized earlier that maybe I would’ve otherwise that being, say the CEO of a company, you are the capital allocator for that company. That is your job, that is your main job. And even if that capital means hiring a person and it’s more of that qualitative side of the business, you’re allocating capital to that.

Trey Lockerbie (46:38):

So when I kind of go back to early when we were bootstrapping and allocating capital to pay for the freight or not if I could just drive my van down there and load it up, those are decisions you have to make as a CEO to save money, to make payroll, to cover cash flow gaps, to make investments on a plant. So say for example, our beverage company gets to capacity. Well, we have to figure out where the next plant’s going to be. How big is it going to be? What equipment are we going to put into it? What can we afford?

Trey Lockerbie (47:01):

So in every aspect of what I do, it’s capital allocation. And so Buffett being arguably the best capital alligator in the entire world, you can just easily imagine there’s a lot you can learn from him. And then beyond that, I would say that from reading his letters, what really stuck with me is how he treats his shareholders like partners. And I genuinely really think he does think this way.

Trey Lockerbie (47:20):

It just over decades, you just see it written and over and over, you see it at the meetings. And so when we took on investment, that kind of excited me in a similar way because I had done the bootstrapping thing and I was at a point where I was like, “I want this experience. I want to know what it’s like to have investors, to have shareholders that I have to be accountable to, that I can write letters for, that I can make proud, make a good return on.”

Trey Lockerbie (47:41):

So that philosophy of bringing on shareholders, treating them like partners really stuck with me and I think it’s a big, important piece if you’re going to raise outside capital. And then lastly, there’s a few other points from Buffett that I like. One is keeping things really simple, sometimes doing a deal on a handshake. I mean, that kind of simple. And I think it’s Buffett who said this, but you can’t make a good deal with a bad person. That is something I found to be very true in business.

Trey Lockerbie (48:05):

When I was in the music industry, your whole career was based on your reputation. I found that when it comes down to just dollars and cents type businesses, people don’t really care as much. They’ll burn you, they’ll move on and the reputation thing is not always in consideration. I think Buffett has been very mindful of his reputation, how he treats people and that’s something that stuck with me as well.

Clay Finck (48:24):

Yeah, that last point kind of reminds me of, I think it’s Guy Spier. He talks all the time about compounding goodwill, work with people who just give, give, give, and they expect nothing in return. Who doesn’t want to work with that type of person and having that type of attitude yourself when you’re working with your employees, your shareholders, your customers. That compounding of goodwill, I think can provide such good returns in ways that you might not even expect.

Clay Finck (48:50):

Trey, thank you. Thank you so much for joining me today. This was one of my favorite conversations to date, and I’m really glad you took the time to come onto the show. Before we close it out, you know the drill. I’d like to give you a hand off to Better Booch, We Study Billionaires. Anything else you’d like to share?

Trey Lockerbie (49:07):

I really appreciate it, Clay. And I got to say it’s a little bizarre to be on this side of the table. And I really appreciate you taking the time to talk with me. And if people want to follow me, you can go to Twitter at TreyLockerbie. I have a lot of episodes on We Study Billionaires so go ahead and follow that podcast. And if you want to check out Better Booch, just go to betterbooch.com. We’re on all the social media channels with the same handle. So I encourage people to check that out.

Clay Finck (49:29):

Thank you, Trey.

Trey Lockerbie (49:30):

Appreciate it.

Clay Finck (49:32):

All right. I hope you enjoyed today’s episode. Please go ahead and follow us on your favorite podcast app so you can get these episodes delivered automatically. If you’ve been enjoying the podcast, we would really appreciate it if you left us a rating or review on the podcast app you’re on.

Clay Finck (49:46):

This will really help us in the search algorithm so others can discover the show as well. And if you haven’t already done so, be sure to check out our website, theinvestorspodcast.com. There you’ll find all of our episodes, some educational resources, as well as our TIP finance tool that Robert and I use to manage our own stock portfolios. And with that, we’ll see you again next time.

Outro (50:08):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets. 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.