Friday, September 11, 2015

Why Davis Aurini is Better Than Your 401k: AKA Micro-Equity Investments

I faced a problem I never had before in my life. 

After investing in

silver, guns, bullets, iodine pills, my house, even body armor,


after trying my best to blow the remainder on my version of “hookers and blow” (American west road trips),

for the first time in my life I actually had money left over to

invest in an IRA.

Now many of you know my personal opinions about IRA's, 401k's, RRSP's and other retirement plans.   Not only do I fear the risk they will be confiscated like they were in Argentina, Bulgaria, Poland, and more recently Cyprus, but I also plain just refuse to pay the current prices being demanded in today's stock market.

Today I am expected to fork over $23 for $1 in earnings, which in actuality only entitles me to a paltry 2% dividend yield (ie- the only REAL rate of return, not the magic paper “capital gains” everybody fawns over).  And forget bonds as they're offering rates of return as paltry as stocks. 

So where, precisely, is the Ole Captain supposed to park his money?

Why, Davis Aurini of course!

At first you may be scratching your head, wondering if Davis has started a new corporation you can invest in or if he's selling himself into slavery.  But there is a very good reason I invested in Davis Aurini instead of an IRA.  And if I go through some of the numbers you will most likely be guaranteed to agree with me.

First, I didn't invest in “Davis Aurini.”  I hired him to do a project for me.  Specifically, I paid him $1,000 to record the audio book version of “Bachelor Pad Economics” because not only does he have the voice for it, he is a pro and I know he will get the job done.  So it's not like I bought his servitude for the next couple of months and get a percentage of his future earnings.

Second, that investment will likely give me a rate of return that will beat out all the investment pros in Wall Street, Peter Schiff, Warren Buffett, and anybody else who has an impressive track record.  If my audio book sales of Worthless is any indication, I can expect to clear $120 a month in audio book sales of “Bachelor Pad Economics.”  50% of which I pay out to Aurini for his work.  This nets me $720 per year and thus a 72% annual rate of return.  Again, beating out the majority of Wall Street professionals by far. 

And, third, this is nearly 100% under my control.  Unlike stocks, bonds, REIT's or other securities, I'm not throwing my money into some large multi-billion dollar corporation with 100,000 employees and millions of moving parts, effectively casting my fate to the wind.

I pay Davis.
Davis records the book.
We upload the files.
I market the book.
Collect underpants.

In short, I am getting an infinitely higher rate of return for a microscopic fraction of the risk and it's all thanks to our Canuckian friend, Davis Aurini.

Now, naturally, while a 72% rate of return is phenomenal, on a meagerly principal investment of only $1,000 it's not going to bring about early retirement.  Additionally, I am well aware that I am in a unique position able to hock my wares leveraging Davis and the internet to realize this 72% rate of return.  But eccentric as my investment strategy is, there are lessons for your everyday Joe when it comes to investing.  Lessons you may want to heed.

First, the market is so overvalued for anybody looking into government sponsored retirement plans it's just not worth it.  For the past four decades trillions of dollars in retirement money has been flooding the stock market driving up prices WELL above what the earnings and dividends warrant.  You throw in the added 2-4 trillion dollars recently in QE money and ZIRP-financed corporate buybacks, and the stock markets no longer reflect an investment opportunity, but irrelevant numbers that speak more to inflation, government policy, and central banking policy than earnings, profits, dividends, and future growth.

Second, this then forces the SAVVY investor (ie-one who looks at rates of return and not just “super happy funny magic capital gains on paper”) to look at alternative investments.  Ones that provide higher rates of return and compel you to part with your money.  But since the public markets are horrendously overvalued, it is the private markets we must look at.

Peer to peer lending.
Lending money to friends.
Investing in a small business.
Taking a crack at entrepreneurship yourself.
Crowd funding.
Hiring out the Davis Aurini's of the world.
And other forms of “micro-equity investing.”

This isn't to say these investments are not without risk, or that you wouldn't risk straining and alienating friendships violating Shakespeare's “neither a lender nor a borrower be.”  But the public markets are so overvalued that the only real investments that are worth a damn are these private, micro-equity, entrepreneurial type investments. 

Third, these returns are typically so much higher than the rates of return you realize in public investments that they more than pay for the tax benefits you passed up on in 401k's, IRA's, etc.

You didn't get to write off your IRA contribution at the tax rate of 20%?
Good thing that small, private investment pays 30%.

That Roth IRA would have grown tax free at a whopping annual rate of 8%?
Good thing your private investment grows at 20% more than offsetting any capital gains tax you'd have to pay.

Admittedly, there is no guarantee that your private investments will more than compensate for the opportunity costs of tax benefits that come with government endorsed retirement plans, but the difference between returns can be that wide.

Fourth, as I mentioned before, control.

I can't go to Apple's corporate headquarters and talk to their limp-wristed CEO.
You can't go to Starbucks and chat with their American-hating, leftist CEO.
And neither of us have the connections nor the money to vote in even ONE member of the board of directors to reflect our interests.

However, if I lend money to my friend to purchase a rental property, I can put it in the contract that I have significant say and control over the management of that property.

If you invest in the horse farm down the road (though I'd advise against that), you can stop in and check in on the employees to ensure they're doing whatever it is that makes horse farms profitable (glue).

And if we pay Davis to record audio books for us, and instead find out he's blown it all on Weasel Whiskey, we can both go down there and bash his knee caps in.

Again, when you “invest” in a modern day, publicly traded corporation, you are merely casting your financial fates to the wind.  Micro-investments you can wield considerable control over.

Fifth, the risk of confiscation. 

All the government has to do is flip a switch and your 401k, IRA, Roth or not, is now part of Obama's or Trudeau's “Wealth Equalization Happy Bunnies Act.”  All those digital records of you having that hard-saved $540,000 in your RRSP is “poof!” gone, or (a la Cyprus) 50% of what it used to be.  And the reason why is because it's so easy since it's nothing but digital and electronic records.

But a duplex you've gone halvsies in with your buddy is NOT a digital record the government can just “take.”

Those silver coins are not the “Silver ETF” the government just took 25% of, but physical silver coins that are in your physical possession.

And that book deal Davis and I signed is not sitting on some broker's account where the SIPC can just come in and nationalize 75% of.  It's an accord between me and Davis.

Admittedly, these investments are not as liquid as say the easily-confiscatable stocks, bonds and other publicly traded securities, but you never invested in them for their liquidation.  You invested in them for their RATES OF RETURN.  Which leads us to the final point,

Sixth, you are actually INVESTING.

Understand that buying stocks, bonds, mutual funds, etc, in your IRA or 401k is NOT investing.  The “investment” happened long ago when those companies issued the original shares or stock or bonds, took the proceeds and then invested that in property, plant, or equipment.  After that it is nothing more than secondary “investors” trading very expensive baseball cards in the forms of stocks, bonds, and mutual funds.  You buying your “Vanguard Index Fund” from somebody else on the NYSE does NOTHING to increase the amount of investment in the country.  You merely traded cash for stocks and they, stocks for cash. 

In other words, the rate of return is going to remain the same.  The company will still be just as profitable and pay the exact same amount of dividends regardless of how many times you exchange your Pokemon cards stocks.  The only real difference is if you're paying an ever-increasing amount more for that same string of future dividend payments (which nearly 100% of everybody is).

Contrast that with investing personally in either entrepreneurial ventures, micro-equity investments, peer-to-peer lending, etc., where that transaction ACTUALLY IS INVESTING, not only providing you a rate of return, but creating something of value, not to mention, likely hiring people in the process.

Again, I admit that not everybody is going to have an entrepreneurial idea at their doorstep, waiting to be financed, that provides a 72% rate of return.  And I know it would take multiple of these micro-equity investments to compile an adequate portfolio that would support a retirement.  And I also am aware that managing all these investments will take time and labor, unlike the convenience of merely setting your monthly auto-pay to mindlessly invest in the S&P 500 Index fund in your 401k.  But here's a dirty little secret…

That's what investing has always been.  

Financing individuals who had great ideas or were reliable risks you would personally lend to.  Not this mindless zombie 401k clergy BS that the sheeple are sucking down whole, flooding the stock market with trillions in IRA monies because “retirement.”

So if you want to continue on, worrying about how you're “only getting 1.3% in your CD's” or “Oh nosies!  The Fed raised interest rates by .0000005% and the markets crashed!


But if you want to invest, may I suggest my good friend Davis Aurini?


Anonymous said...

Whats your opinion on the thunderfoot/aurini drama?

Glen Filthie said...

You capitalist swine!

Prime Minister Turdo La Do will show you evil American bastards how economies work! He's going to 'grow the economy from the heart outwards...'!!!

Stop that laughing, damn you lot!!!!

I quit the RRSP thing years ago. I park my money in a safe because I think its only a matter of time before the parasites come after my savings. My fear, Captain, and maybe it's something you might want to prognosticate the 'cashless society' where my money is taxed away right on payday...and quiet, discrete purchases of silver, lead, brass and supplies becomes do we get around that?

Paul, Dammit! said...

I was on a plane last month with a pawnbroker- he told me that he loans 25-33% of the value of a pawned object out, and charges 25% monthly interest. After 90 days, the pawned object is his to sell.

I'm in the wrong line of work.

Kristophr said...

Ha know ... If you want an actual IRA, There are a bunch of folks who can help you set up a trust based IRA. You put money in the trust, the the trust can buy stuff. Stuff like income real estate, and gold bars in overseas vaults ...

Anonymous said...

I have both made a lot of money and lost a lot of money in the stock market. It's like going to the casino and I still keep a small amount of money to invest in the stock market. It's like junk food, a little bit cannot hurt and sometimes you reap great rewards.

But for the most port, building your own business and applying a frugal lifestyle is the best way to build wealth. Google Genesio Morlacci for an extreme example.

Speaking of markets and how you don't have control over the many millions of moving parts that's involved. Speaking of profit margins and how you vaunt yourself of your %72 return.

Wal-Mart has an average return of about 1% to 2% spread across all of it's merchandise. This means that some articles bring in more profits but this also means that Wal-Mart is losing money and sometimes a lot of money on certain articles.

Given that I only shop for cheap eats and cheap clothes at Wal-Mart and mostly when they are in special, Wal-Mart is not making any money with me and they are in fact losing money with me.

They make their money with people that splurges and buy more stuff than what they intended in the first place and with people that buy more than they can afford.

This means that it's a good thing for both me and Wal-Mart that there are millions of moving parts involved because otherwise Wal-Mart couldn't afford unprofitable customers like me and I would have to pay more for my eats and clothes elsewhere.

This means that Wal-Mart is being generous to a lot of people like me and that it is the people who spend more than what they can afford that subsidize customers like me.

Running a store and a store chain must feel like the stock market, you never know if a product line will be profitable or not and if you will lose money or not.

So Wal-Mart is the hardware store equivalent of a highly diversified dividend portfolio. I suspect that Wal-Mart is more worried about preventing waste and hedging against losses than they are about opening new frontiers and making profit.

It's normal that you make high profit margins when you start, but as you grow you will see that the profit margins fall and that you have to manage risk in a more conservative manner.

Anonymous said...

It would be interesting to know what is your margins on your Cappy Crap stuff and what is your volume.

What is more profitable, audio books or coffee mugs ?

You don't need to ship the audio book, customers just pay to download. A money printing machine.
But you have to pack and ship the cofee mug.

LordSomber said...

McJobless in Seattle II: Rise of the Machines

grey enlightenment said...

Cappy, not so sure about your dismissal of stocks. When you buy stock, you are buying a small ownership of the company, which means if the company succeeds, so do you because the stock is worth more due to the EPS being higher.

mccleamore said...

That's not true about the stock market Aaron. You can buy individual stocks in your IRA based on earnings. I have Apple (11 P/E) and RAD (4 times P/E)

Anonymous said...

@Grey Enlightenment and McCleamore,

Captain Capitalism, Aaron Clarey, dismisses stocks on the basis that they are artificially overpriced if you analyze their fundamentals.

Low interest rates forces people to take risks they wouldn't have normally taken, such as parking their money in the stock market. Otherwise they will lose money due to inflation.

Second, Quantitative Easing (FED printing money) has found it's way massively into the stock market because the fundamentals of the US economy are so broke that companies cannot justify to invest in increasing production or hiring, so they have to take risks at the stock market to try and beat inflation. This is mostly true of banks and especially investment banks.

Finally, the baby boomers are about to retire massively and they will have to take their money out of the stock market because they have poorly saved and managed their money during their lifetimes.

And that last feature is especially why Captain Capitalism is distrustful of stocks in general, because he knows that it's just a matter of time before the baby boomers start deserting the markets.

If you look in most hot stocks, they have their Price to Equity ratio up to the roof, way above the common sense value of 10. Stocks that don't pay dividends are like gambling at the casino.

Captain Capitalism is not saying that a skilled trader cannot make money, he is precisely saying that if you are not a skilled or well connected trader that you have very little chances of beating the market and that the market as a whole faces an unpredictable systemic chance of collapsing under it's own weight and contradictions.

Personally, I will continue to invest in the stock market ... just a little bit of money and I will manage the rest very conservatively.

And finally, I will take the Captain's advice, I will start my own company. I will start a software and electronics business shortly. I know how hard it is to make a profit and how customers are very unforgiving and difficult, but I also know that you have more control over your destiny by running your own business than letting the stock market decide at your place.

There, I hope that this answers your questions about Captain Capitalism's bias against stocks.

Anonymous said...

About your proposition to your readers to start lending money, I need to make this clear to you and your readers.

Unless you are tall, "swole" and nasty then DON'T go into the business of making direct personal loans. If you are nice, borrowers will take advantage of you by simply taking your money and run. You have to intimidate them right from the start and make them feel small, you have to ask for as much collateral as you can get away with. Otherwise they will almost never pay back. You must make them feel guilty for asking you money so that they will want to pay you back to no longer feel the guilt and shame. It's a tough mind game. I know because of my experience with pawn shops. When customers borrow money you have to be tough with them and when they reimburse you have to be really nice with them and be grateful. You have to manipulate their brain chemicals.

Don't lend to friends nor family members, you will end up losing both money and relationship.
Personal lending is one of the toughest business you could ever get into. The Bakken Oil Field would be easier on your character.

Maybe Jack Donovan could lend money, because his borrowers would not dare to default on their loans. Aside of that I cannot think of anyone in your social circle that have the manhood to become a successful lender. Even Aurini and Roosh V are too "nice" for that.

Personal lending is not like nice bank lending. Personal lending is extremely nasty business.

Make your readers a favor, propose them anything but that.

As for your avoidance of confiscation:

Unless you are preparing to directly trade your silver coins for the stuff you want to buy and unless you
are preparing to have your customers pay you in silver coins, sooner or later you will have to involve government
fiat currency in your deal and that's where the government can screw you. Even if you avoid the banking system.

Inflation can steal your wealth even if you stuff your money deep underground.

There seems to be a fiat bottleneck that puts people into too much unintended risk. You can be as diversified as you want:
be it stocks, precious metals, audio books, rental properties, salsa dance clubs, food rations etc. You could be invested in all of those simultaneously.

But ultimately, your goal is to make profit, to maximize your return and that always ends up involving fiat currency.

Not getting screwed is almost impossible.

Anonymous said...


"McJobless in Seattle II: Rise of the Machines"

What will business do when most jobs are automated ? Who will earn enough money to purchase their goods and services ?

Capitalism, without employment to pay back into the system and keep it running, is doomed to fail.

I can see two possible outcomes, a point of bifurcation:

1) Domesticate the automation systems and sell to the masses so they can produce by themselves and for themselves the wealth they need. The whole 3D printing craze has just barely begun but the technology is far from mature.

2) Businesses will have to get together, create their own currency and produce by themselves and for themselves without needing to sell to the masses. It will resemble more like a private garrison than a market economy.

One way or the other, the market economy will cease to exist.

The unified and global economy risks becoming a fractured and divided economy in the future. Where the wealthy get together and live in their own microcosm and where the masses will have to survive by their own means.

Many McDonald's will eventually close due to lack of sales. Automation at one McDonald's restaurant will save this restaurant a lot of money in unpaid wages. But other businesses will follow suit and make mass layoffs. In the end McDonald's will lose due it's customers lacking purchasing power.

America risks becoming a three tier economy where you have the super rich living together in automated, high tech, self-sufficient and heavily fortified gated communities that no longer need to interact with the rest of the world. A kind of elitist autarky and isolationism.

Then you will have the rich who will get together but with much less self-sufficiency so they will start to struggle to keep their lifestyles. A lot of them will fall to the poor class and only a few of them will make it to the super rich class. Those medium rich are going to be the biggest losers of the coming paradigm shift as the super rich takes it all.

Then you will have the masses who will be left to fend on their own with little to no resources. Expect massive die offs.

Unless you start instituting a universal guaranteed income, automation will irremediably fracture the economy into incompatible systems that no longer talk to each other.

The super rich will grow to see the masses like insects. The laws will no longer apply equally to all people. In fact the poor will no longer be considered citizens. At that point, the super rich will no longer need to make sales in order to maintain their automated power. They will become the law. Defense and protection will become their sole obsession and they will have the means to make it happen.

So be careful what you wish for. News Flash, YOU are not amongst the super rich. Your resentment towards the McPoor is much more likely to come back and bite you.

Karl said...

Bravo! The stars will align when the brilliant work of BPE is in Davis audio! Good luck to both of you.

Mr.Cornbread said...

Nice! I'm glad I held out on buying BPE. Aurini was great on Worthless, so I'm looking forward to this one.

Anonymous said...

So you paid this guy a grand, and you expect to earn an extra $720 this year for it.

How is that a good rate of return? It's not like you can get you principal back. The 72% rate of return is misleading. Most people would assume a 72% rate of return would mean you invested $1,000 and ended up with $1,720.

You could have put the grand in a crappy CD and still ended up with $1,005.

The extra sales should go on for than a year though. So hopefully it does end up being a good investment.

Guy Tech said...

1. You don't have to sock money in retirement funds. Like you, I fear the gov't will change the rules. However you can still stock money away in a regular savings account. It make not earn anything, but good to have savings, when you need it.
2. As far as Market investing, You can try your hand at ultra-short period trading. At least one a quarter there are big moves in the market. In most cases the trend continues (especially when the market is tank). You can play the market for those days and net yourself $100-$300 per day. Thus removing risks associated with long duration trades. Your in-and-out with in a day and sometimes for just a hour. For instance if Asia and the EU are both down for the day, you can pretty much guarentee the US markets will also have a down day (same is true on the upside). Although you need to follow the market news and scheduled announcements (ie Fed annoucement, Gov't stastics, corp earning announcements). Don't bet on predictions of what the annoucment is going to be, just trade on the trend. if the market is going up, buy a bullish index. if it's going down, buy a bearish index, etc. It won't make your rich, but you can early extra income. It would be a good idea to follow the markets on a daily basis and do a lot of dry runs.
3. You need to get your books advertised. Have you tried getting on the Youtube interview train (stefan Molyneux, Greg hunter, and even semi-real radio, Alex Jones, Mike Savage)? You certainly have a nack for creating entertaining videos, but lack the traffic to capitalize on it. I think if more people knew about you, you would get more traffic to your youtube channel and also more book sales. I happened to stumble on your you tube channel, and been following it ever since. I also bought your "enjoy the decline". Your other books (bachelor pad econ. etc) don't fit with me I am long done with school (I am older than you)
4. Try creating a few "professional" videos on jobs/economy/banking, with slide inserts with graphs, pictures. Can you do a redo video of your public lectures you did years ago? the audio was terrible and its difficult to view the slides. I think they were good topics, just too difficult to hear/view. If you able to hit on a hot topic you may have an opportunity to get a permanent traffic increase (also leading to increased book sales). Find the Hot buttons and start pressing them to get more traffic. I notice this is what Stefan Molyneux does. Also try getting some interviews on your channel, or some entertaining guests (even if they are just friends of yours).