The Boardroom Buzz Podcast

Nick Bartolo: If there were people in the back of a limousine talking about a particular topic, the chauffeur could essentially parrot back but not necessarily understand it, that is a lot of the wealth advisory industry.

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Paul Giannamore: Fat Pat, we got another interview. 

Patrick Baldwin: Fat Pat with a cookie kick in hand. Paul, I’m ready. 

Paul Giannamore: I can see that. 

Patrick Baldwin: Speaking of Fat Pat, I got more comments in the event about how skinny you’re looking. 

Paul Giannamore: When I’m on screen next to you, that stark contrast juxtaposition benefits me. 

Patrick Baldwin: You’re welcome.

Paul Giannamore: Thank you. 

Patrick Baldwin: Thanks for doing that event. I know you’re heading out to Asia. 

Paul Giannamore: That’s correct. 

Patrick Baldwin: I caught you just in time to do this. Thanks, Paul. 

Paul Giannamore: Indeed. 

Patrick Baldwin: We’ve got Nick here. 

Paul Giannamore: We’ve done something a little bit different this time around, we brought a wealth advisor. We’ve had two dozen financial advisors, wealth advisors, or whatever you want to call them, ask us over the months to come on The Buzz. We’ve had a lot of these guys. With Nick, it was the first time I decided it would make sense. 

I didn’t know Nick, he reached out to us. He is an avid listener of The Buzz. He watched Bubble Trouble and a lot of the stuff we’ve done on Potomac TV. He’s starting to focus on the pest control industry. Why I thought Nick was interesting is that he’s not a sales guy. He understands valuation and he understands markets. He’s a sharp guy and he is an interesting character to talk to. I thought, “Maybe it’s time to have a wealth advisor on the show,” so here we have it. 

Patrick Baldwin: What do you say we step into The Boardroom with Nick Bartolo from Essential Partners? 

Paul Giannamore: Let’s do this, Patrick.

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Patrick Baldwin: Nick Bartolo, welcome to The Boardroom. 

Nick Bartolo: Thank you for having me. I appreciate being here. 

Patrick Baldwin: This is the first we have a wealth advisor here. To get us started, Nick, you’ve got a little bit of that alphabet soup hanging after your last name. Let’s get this all out to make sure I get them all. CFA, CPA, and MBA in no particular order. 

Nick Bartolo: They came in a particular order but the importance of them is in no particular order I would say. I started off as a CPA early in my career doing financial statement auditing. 

Patrick Baldwin: That sounds so exciting. 

Nick Bartolo: I couldn’t wait to get out of it. 

Paul Giannamore: CFA can’t mean much because the Mexican’s got a CFA charter hanging on his wall, so that’s somewhat devalued in my mind, Nick. 

Patrick Baldwin: You get on eBay. 

Paul Giannamore: Although it is probably out of the things that you have. The CFA, from what I understand, is rather difficult to get. I did the CFA Level 1 way back in the day and then I realized that, for me, it was worth this endeavor so I gave up. 

Nick Bartolo: My CFA is still in the tube that it was shipped in underneath my desk. It can be a good program depending on your situation and your field. 

Patrick Baldwin: Charter Financial Analyst, is this right? 

Nick Bartolo: That’s right, Chartered Financial Analyst. 

Paul Giannamore: Patrick looked it up, the old Google search worked. 

Patrick Baldwin: Do we have any ways of testing the Mexican’s CFA to make sure it’s legit and not something he bought or photoshopped? 

Paul Giannamore: I see mail coming in from the CFA Institute of Miami or something here into the office so I’m pretty sure it’s not counterfeit. 

Patrick Baldwin: Let’s maybe have Nick put him to the test. 

Paul Giannamore: We’ll find out. I’m sure Nick can probably search the Charter Holder’s directory somewhere and confirm this for us. 

Nick Bartolo: I looked up the Mexican and nothing came up.

Paul Giannamore: There you have it. but definitely 

Patrick Baldwin: It’s not the typical wealth advisor. When I think of Wealth Advisor, I’m thinking, “I just want to get all the money I can outta you, be a good salesperson, and do your thing.” With all your credentials, we’ve got ourselves a treat here.

Nick Bartolo: Looking forward to it. Thank you. 

Patrick Baldwin: Any disclaimers to get us started? 

Nick Bartolo: I do think that is a good idea. None of this can be construed as investment advice. Does that sound like an attorney? If I quote any particular returns or statistics best efforts for those to be accurate, please don’t rely on anything for investment decisions. 

Patrick Baldwin: I threw that at you. I wasn’t expecting you to take me up on it. Paul, do you have any disclaimers? 

Paul Giannamore: My disclaimer is if you want to sue me, come down to Puerto Rico and do that. Patrick, what has been my historical disclaimer here on The Buzz? 

Patrick Baldwin: If you want to sue me, you have to go before the judge and say you have a tiny penis.

Paul Giannamore: Yes. I used the term microphallus to be a little bit more legalistic. That’ll work. 

Patrick Baldwin: Was that it? 

Paul Giannamore: Yes, that was it. 

Patrick Baldwin: I pay attention. 

Paul Giannamore: Nick and I had a chat a few months ago. Nick, you tracked us down because you had stumbled upon a video or two that we did, right?

Nick Bartolo: That’s right. 

Paul Giannamore: You were doing research on the industry. 

Nick Bartolo: Yeah. I have a number of pest control founders as my client partners. I grew up in Las Vegas so very far from Wall Street but I have a number of friends who are in route-based businesses, one pest control friend in Las Vegas who has a business there, and then others that do landscaping, etc. I liked the industry and thought it could be an interesting niche to specialize in. Looking more into the private aspects of pest control, I found The Boardroom Buzz as the go-to podcast in the industry. 

Patrick Baldwin: My disclaimer says we did not pay you to say that. That’s my disclaimer. How did you stumble on The Boardroom Buzz outside of having some client partners in the industry?

Paul Giannamore: Online research, it sounds like. 

Nick Bartolo: Yeah, just doing research. I spent 17 or 18 years as an institutional equity and credit research analyst so I tried to deploy some of those skills with Google and I found out who were some of the thought leaders in the business and I came across you all. 

Paul Giannamore: Did it say thoughtless leaders when you saw us?

Nick Bartolo: It did not. 

Paul Giannamore: Why I’m interested in a discussion like this is folks out there reading this are broadly in two camps. I would say the majority of them are in the building phase, they’re building a business. As you’re building a pest control company, it takes a lot of cash. These things grow inch by inch. You tend to not kick off a lot of money while you’re in that growing phase. That’s a good time to think about not only your business but also the entities involved and as well as your personal balance sheet while you have a lot of runway to plan. 

The other bucket of folks are the ones that are much closer to liquidating or otherwise disposing of their business and coming into a windfall as multiples in the industry remain elevated. Nick, what I want to talk to you about is if we start with the broader base of folks who might not be getting a massive check for another ten years or so, what are some things that they can think about right now from a planning perspective? Why would they even consider working with a guy like you? I am pulling down a couple hundred grand a year. I don’t have tens of millions of dollars, I will in the future. What’s the point of talking to a wealth advisor at present? 

Nick Bartolo: That’s a good question and a lot of important points in there. What I do at Essential Partners is help both types of folks, those that are mid-career, early in building their business, and also those that are prepping for a sale, and also post-sale. To address the earlier or possibly younger business owners in pest control, there are a number of things that you can do early on in order to prepare yourself for retirement outside of a sale. 

Many of you, I’m sure, are aware of just the basic ones like a 401(k), deferring taxes by allocating cash to your 401(k), and allowing those to grow tax-free. There are also lower-cost ones for some of the smaller business owners with less than 100 employees such as a simple IRA. Those can be powerful strategies over time to let the money compound while you’re still young since it has such a long runway to grow in the future. 

Some other strategies for those folks though are names that you’ve heard of such as a Roth IRA although you might not be contributing. Roth IRA is a nice tax avoidance tool and you’re contributing after-tax dollars up to $6,500 a year per spouse, for instance. Over 25 years, let’s say that grows at 7%. It’s not a prediction but a fairly reasonable return. If that grows over 25 years at 7%, you have $400,000 per spouse that’s tax-free forever. 

The power of compounding over a long period of time you can see between two spouses $800,000 with nearly $500,000 of tax-free gains. Implementing those programs early regardless of your income can be beneficial. One piece of advice that I always provide to business owners is to get a good CPA, somebody that’s focused on value, and not necessarily the cheapest CPA. Business owners have substantial opportunities to mitigate taxes through smart planning within the IRS code. 

One of them might be putting your children on payroll and having them do various office tasks perfectly within the code. You can deduct, it’s around up to $14,000 per year per child, which then you can use that money that they’re earning to fund their own Roth IRA. A custodial account for your child, you do that for ten years at $6,500 per year, and it grows at 7%, that’s $90,000 for your child to get them off on a nice start to fund their retirement in the future. 

Everybody has different philosophies about that, which is great. There are some mechanisms where the numbers start to add up pretty quickly if you plan early. Those are some of the core strategies that you can implement earlier in your career. When it comes to someone who is preparing for a sale, that’s a different calculus and certainly a service that we provide. Obviously, within that, you’re going to have someone like Phil who you’ve had on the show or Corey working on the tax mitigation on the transaction. 

From a wealth advisor and wealth planning standpoint, there are four areas where I help families prepare for a sale. The first is cashflow planning. How do you know if you can sell your business or what you should be selling it for if you don’t understand what your life and cashflow are going to look like after you sell the business? The concept is if I sell the business for X, my return is Y. What does that mean for my cashflow and my lifestyle? Is it going to be an upgrade or a downgrade? What does it mean for my legacy and my children, my grandchildren, etc.? 

Oftentimes, business owners don’t necessarily have a good representation of what is a good long-term return, “Should I earn 15% a year? Should it be 3%?” I help work through those sensitivities, which can also lead to more confidence in what the business owners are selling their business for. Investment management is another huge aspect of preparing for a business sale and not only designing a long-term investment program, which we can talk about the philosophy around that but the transition as well. You get a check, you’ve been generating income from your business, and then all of a sudden, you get this big check. 

We don’t turn around with any of our client partners and just plop that into a globally diversified asset allocation. We start slow. Money can be emotional and is emotional. Starting conservatively in treasury bills and then working that into a more broadly diversified global asset allocation on a systematic and opportunistic basis is how we treat it. In order to keep emotions in check and also to responsibly in a risk-controlled fashion, deploy and invest that capital. 

The last two areas are mitigating taxes on the transaction through investments. There are a few ways that we can do that outside of what the transaction tax folks would do. One is a donor-advised fund in which you can contribute a private interest in a business into a donor-advised fund to lower or eliminate the capital gains on that. This is for folks who are charitably inclined. Once the money’s in the donor-advised fund, you don’t have to donate it right away. It can grow, we can invest it, and then donate it at your discretion whenever you want as long as it’s to a charity. 

One of the others that we utilize would be qualified opportunity zones and these are investment strategies where you defer your capital gains and then the money that you invest in the qualified opportunity zone as long as you hold it for ten years, you never pay tax on those capital gains. Those are a few of some of the tax mitigation strategies. The last one on preparing for a sale is trusting estate. This has to be executed pre-LOI to mitigate potential estate taxes if the family is over that estate tax threshold. All of the readers should know that the threshold is going to get cut in half on January 1st, 2026. The earlier these plans can be put in place, the better, and it needs to happen pre-LOI. 

Paul Giannamore: Hearing all this tax stuff makes me think of everyone who lives in the most complicated tax jurisdiction on the planet, the United States. 

Nick Bartolo: That’s one thing that’s not going to change. Oftentimes, successful executives design businesses around concepts that won’t change, and the complexity of the tax law is not getting any easier. 

Paul Giannamore: Unfortunately. I don’t know how you do that, Nick. 

Patrick Baldwin: As an investor, you have this windfall event. “In the business, I can pull the levers and make my business worth more. I want to grow and achieve more.” At some point when I want to, I think about maybe even de-risking myself. How active of a role would you say is like, “What’s the right balance of that?” Calling you every day and bugging the tar out of you for my returns. Is this once a year, we’re sitting down, and talking about, “How’s my money working for me? What do we need to do differently?” 

Nick Bartolo: You touch on a good point because the relationship between myself and my client partners is critical to having a successful partnership long-term. Early on, to me, that warrants closer communication, more frequent meetings, and processes and systems. I consider it to be an institutional discipline around setting up the investment program and communicating and having everyone sign off clearly on expectations, and not just around investments but around strategic tax planning and around trust in the estate. These common themes that I help and advise with the collaboration of the CPAs and the attorneys clearly. 

For clients that are past that 1 or 2-year mark or whatnot, I don’t mandate quarterly meetings. Some advisors do and it’s not my style. My style is more, “If something comes up that’s material, call me, and let’s talk about it.” I will require an annual meeting because I do think it’s important to check in at least annually to make sure nothing material has changed with the family and to make sure that I’m communicating what results have been, what the environment looks like, and how we’re positioned for that. Annually is a must in my book. I don’t want to force meetings on folks quarterly. Sometimes, when there’s a quarterly meeting cadence, it can feel like that to client partners. 

Paul Giannamore: Nick, let me ask you something. I have long managed my own portfolio for better and many times worse but I have done that and I have decades of experience doing it now. Many of the financial advisors, wealth advisors, or whatever you want to call them that I’ve come across over the years are entirely worthless at best and, quite frankly, potentially disastrous at worst. A lot of these guys will give you the standard fare, like, “You should always be invested. The stock market always goes up and long term and perpetuity.” You hear all this nonsense. 

I’ve seen some portfolios get decimated here in recent years from some horrible advice from financial advisors out there. One of my first jobs out of school, I worked for Solomon Brothers, which no longer exists, but at the Mercantile Exchange in Chicago. Right above us, there was a floor that was the home of the financial advisors, and all of these guys were effectively sales guys. They were talking to business owners and executives and trying to get them to invest money with Solomon Brothers. They were not investment professionals whatsoever. 

Oftentimes, I think of financial advisors as sales guys. We had the PCT Webinar and M&A webinar a couple of years ago and they’re talking about the 60/40 portfolio. Everyone should put some cash into that and that was immediately before that thing took a shit. I want to understand the difference between you, Nick, and your standard sales guy out there running around spewing bullshit. 

Nick Bartolo: I apologize to the industry in advance. 

Paul Giannamore: Here on The Buzz, we say it like it is. Here’s what I want to talk about. 

Nick Bartolo: I love it. I didn’t enter this industry at a young age for a reason. I took a different route. What you are describing is the vast majority of the industry where folks come out of undergrad and they get a job at Merrill Lynch or Morgan Stanley and they get a phone book back when they had phone books in our day and they start calling and trying to sell and raise money. That wasn’t something I ever considered. 

After I did my CPA, what I ended up doing was I rotated. I went to a management development program at a big money management firm, the Capital Group. After that, I went and got my M B A and studied investments in financial markets, something that you might think that most folks in this industry should or would do. 

From there though, what I did is I spent the next seventeen years helping to manage money for institutions, pension funds, endowments, mutual funds, etc. During that time, what I was doing was Investing in stocks and credit, and understanding companies down to the core level, modeling the financial statements, traveling around the world, and meeting with CEOs and CFOs to understand those businesses in order to decide whether or not those warranted a good investment on behalf of our clients. 

While doing that, I was fortunate that I did it on a global level, which forces you to understand economies, country dynamics, and markets globally, which helps, in thinking about asset allocation, how capital flows, and how cycles work. After doing that for about seventeen years, I felt like I had that deep understanding in order to go off on my own and begin to do that directly for families and some institutions currently.

That was my path to this business, which is different than a sales path, and quite frankly, a big point of differentiation for my firm. It also allows me to design portfolios, understand, and invest in those regions, those companies, etc. at a core level as opposed to what I like to call or what Charlie Munger coined the term Chauffeur Knowledge. Are you guys familiar with that one? 

Paul Giannamore: I’m not. 

Nick Bartolo: Charlie Munger, Warren Buffett’s partner as many know, is famous for the term Chauffeur Knowledge, which applies to this industry in large part. If there were people in the back of a limousine talking about a particular topic, that chauffeur could essentially parrot back what that topic was and some of the key points but not necessarily understand it. That is a lot of the wealth advisory industry. 

Paul Giannamore: That, I’ll agree with, 100%. 

Patrick Baldwin: Paul, would you ever consider letting someone else manage your portfolio? 

Paul Giannamore: I do that. I do have a portion of my money allocated to a couple of hedge funds. There are certain things that are difficult for an individual investor to do. For example, if you want to get it into long-vol type strategies, meaning if you want to get involved in tail risk hedging, Patrick. I don’t know that we’re going to get too detailed here on The Buzz as to what that sort of stuff is. It’s difficult for an individual investor to buy certain products in the complexity surrounding long-vol and tail risk hedging type activities. It’s too complicated for individual investors. I do that. 

I do use a wealth advisor but not to manage my portfolio when I have cash. I used to go on TreasuryDirect, for example, or I used to buy German Bunds directly. I used to do government paper, I used to buy that stuff directly from the governments or the prime dealers. Now I just have a wealth manager charge me a few basis points to buy that stuff and put together ladders. Even for a guy like me who manages my own portfolio, having a wealth manager could potentially allow me to get into things that I otherwise couldn’t get into on my own because I can’t write a big enough check. 

Let’s say a minimum investment is $500 million, I don’t have that. A wealth manager who has other clients can get me into certain things that I can’t get into myself. Here in Puerto Rico, the wealth management industry is a little bit different than in the US in that there are a lot of things that are relationship-based here in Puerto Rico as well as in Latin America. That’s difficult to not public market stuff. That’s helpful for me down here as well as the folks that I use in Europe. 

I don’t know that I’ll ever have somebody actively manage my portfolio because I consider that almost my full-time job. I’m managing my portfolio and I’m running an M&A advisory firm and that was a real long answer to your short question. I would say, based on my experience, the extreme majority of individuals who run businesses, their expertise is running and growing a business. Unless you have decades of experience running your own portfolio, it can be extremely stressful and there is a tremendous room for error. 

As you build up your net wealth, it’s important to get out there and talk to folks who are managing money, interview folks, and get involved with somebody that you’re comfortable in their competence and expertise, as well as have a high degree of trust in them. At the end of the day, for most people it’s hard to do both. It’s hard for me to do both and I shouldn’t do both, by the way, but I do. 

Nick Bartolo: You make some good points there, Paul. That behavioral aspect or having some emotional distance from your investment decisions is a key factor to having a greater likelihood of success. Selling at the bottom and letting greed and fear not only make you sell at the bottom but then want to buy more of an asset that is appreciating are some of the many cognitive misjudgment errors that can occur when someone’s managing money, particularly their own money. They’ve worked 25 years to build this big pest control business, they sell it, and then the market immediately goes down and they want to sell everything. 

The other point you made on private funds is an interesting one. We do invest in private funds on our client partner’s behalf. A lot of times, it’s opportunistic and based on foundational knowledge of certain situations. You guys deal a lot with the private equity industry. As you know, multiples in the private equity industry, even sometimes for more cyclical businesses, have tended to be rising over time, possibly peaking over a year ago, maybe not in pest but in others. Those businesses were financed with a lot of debt, 6 or 7 times turns of leverage, at interest rates that were substantially lower yet variable. 

You have deals that were structured at 6.5% interest rates and now that interest rate has gone up to 11%. We invested in a strategy that seeks to take advantage of those unsustainable capital structures by buying distressed assets to generate returns. That’s one example of something that you can’t get in the public markets that we invest in given the right set of circumstances.

Patrick Baldwin: What happens if I have a wealth advisor and I get some crazy brand idea or someone hits me up, “I’m building a self-storage unit. Do you want in on this?” Do I go to you and you say, “That’s outside of your parameters, Patrick. Tell them no.” Do you consider it and help walk me through an investment?

Nick Bartolo: I can tell you what I do is different than what the industry does and that’s one of the benefits of being independent. Essential Partners is an SEC-regulated yet independent investment firm. We determine, with the help of our compliance experts, what we’re allowed to do within the confines of those rules. In that situation, I would say to Patrick, “Let’s look at it.” I happen to have a twenty-year finance background in analyzing assets and pricing assets. We can go through that and we can help with that analysis. 

If you were to take that to one of the big investment banks, you all know the names, Goldman, Morgan Stanley, Merrill Lynch, etc., the first thing they would probably do is hide behind compliance and say they weren’t capable of doing that. It’s probably for the best because they’re most likely not qualified to do it. The other reason they would discourage you or not look at it is that once those assets or once that cash comes out of their purview and you end up doing the self-storage facility, they’re not making any money off of it anymore. That’s one of the many conflicts of interest that could be present in this industry. 

Sadly, for clients, the industry has made a science out of hiding what they get paid and how they get paid. That treasury, laddered portfolio, or muni bond portfolio is oftentimes advisors say they do that for free. Meanwhile, they’re making a few basis points or significantly more of those trades just by the bid-ask spread if you will. To your question, Patrick, we look at that and we help our client partners with that, but most other firms won’t. 

Patrick Baldwin: In terms of incentives though, if that money comes out of your portfolio, you’re saying it reduces the fee you get from me. I don’t know how you get paid compared to other wealth advisors or what models are out there. I’m familiar with the one wealth advisor I have right now. 

Nick Bartolo: The way that my firm gets paid is a percentage of assets under management, which varies based on how much money we’re managing. In that situation, clearly, we’re not going to be managing that money because you’re going to hit it out of the park on the self-storage facility. We know when you go to sell that you’re going to be back and you’re going to need help deploying that capital. We’re not going to be pigs about trying to keep all of that money under our purview if it’s a great investment. Other firms though, I’ve seen it all. Oftentimes, it takes going to the SEC, Security and Exchange Commission source documents to figure out how some of these folks get paid. 

I’ll give you an example. I brought on a client a few years ago and she was with one of these sales-oriented brokers. First, the wealth advisor was charging a 1% management fee and then they were paying someone else, an outside money management firm, 1% to conduct the asset allocation. You’re going to have this many stocks, this many bonds, this much international, etc. That money manager was putting her into funds that were then another, let’s say, 0.5% to 0.75%. At the end of the day, instead of just paying the 1%, she was paying 2.5% or 2.75% before she did anything. To me, that’s despicable, that’s not a reasonable fee. Sadly, she had no idea. 

Patrick Baldwin: That’s what I was going to say because we’re not doing this every day, shopping wealth advisors. Maybe it’s a good sales pitch or it’s a good relationship. I’ve known mine for fifteen years. I’ve not considered going elsewhere. 

Paul Giannamore: Is your wealth advisor making you wealthier, Fat Pat? Not so much? 

Patrick Baldwin: No. 

Paul Giannamore: Is he making you poorer? 

Patrick Baldwin: No. It feels flat. 

Nick Bartolo: I’ll jump in here in that I don’t want to criticize the entire industry. 

Paul Giannamore: That’s my job.

Nick Bartolo: There you go. As long as I’m not in that bucket. There are a lot of great wealth advisors that have their client’s best interests at heart and do a great job for them. It is the exception, I would say. 

Patrick Baldwin: Paul, you touched on 60/40 and a moron, with all due respect, you called them. 

Paul Giannamore: Except I didn’t say due respect but yes. 

Patrick Baldwin: It’s like, “No offense, but you’re a moron.” None taken. You talked about the 60/40 principle. That philosophy got busted in the last few years. I don’t know, in terms of investment philosophy, thesis, or whatever it is, that’s broken. Now, are we in a different era, and 60/40 doesn’t exist and never will again? How should we think about diversifying our portfolio?

Paul Giannamore: I never think about things in terms of never working again so to speak. I’ll say a quick thing on the 60/40 and then I’ll let Nick address this question. When I talk about the 60/40 portfolio, that’s putting 60% of your portfolio into equities and 40% of your portfolio in typically government debt securities, so a variety of durations of government bonds. 

This came into vogue because, over the last 40 years, we’ve been effectively living in a declining yield environment where interest rates, since they peaked in the early ‘80s, have gone down. There are people who have made billions of dollars by levering up bond portfolios and nothing else, just buying a shit ton of bonds with a tremendous amount of leverage and not to collect the interest rate, Patrick, but to get appreciation in the bonds themselves. 

Longer duration bonds, back in the day, if you buy a 30-year, in an ever-decreasing interest rate environment, the value of that bond goes up. As equities roll over and you have a down equity market, there’s oftentimes a bid to safety. People rotate out of equities into fixed income, which causes bonds to spike. In recessionary environments, when equities roll over due to recessions, typically you would have decreasing yields. 

Of course, bonds are buffeted. It tended to balance things out. When equities go down, bonds go up. When bonds go down, equities go up. There are a lot of things in recent years that have caused that to change. As that 60/40 portfolio was breaking down, that financial advisor got on and talked for twenty minutes about, “Everyone should use 60/40 and here’s why.” This was in 2020. We already saw equities and bonds roll over simultaneously as the US continues to have a worsening balance of payment problem. That’ll continue. 

Furthermore, we’re in a rising yield environment. I don’t know that 60/40 will never work. It’s just been a very bad place to be in recent years. Particularly if you look at 2022, bonds got clobbered. Nick, you know this better than me. We talked about this on Bubble Trouble, 2022 might have been the 2nd or 3rd worst year for bonds in the last century, maybe. 

Nick Bartolo: Possibly ever. 60/40 was down close to 18%. It makes me think why did 60/40 become so popular? It became popular because you did have this 40-year persistent decline in inflation and the then-related decline in interest rates from a Fed funds rate of 20% in 1981 all the way down to 0 and quantitative easing throughout the last decade. If you think about the factors that led to that decline in inflation, globalization was a huge factor, adoption, and technological change. 

You also had less regulation, lessening the power of labor, and lower taxes, all powerful disinflationary forces. The question I ask myself and where I differ from conventional wisdom since the vast majority of wealth advisors are still in 60/40 or some derivation of that, are those factors in place now on a structural basis going forward? If not, why? If we look at those same factors and think about it, is the world continuing to globalize or is it potentially de-globalization with reshoring and friend-shoring as the US and and other nations move productive capacity out of China back to the US? 

We’ve seen some fiscal stimulus programs geared toward that. Demographics is another topic. The demographics are far worse and the growth of the population is far worse, which tends to be more inflationary. You also have taxes. Taxes have got a lot of airtime already but, to me, taxes are most likely to be higher ten years from now versus lower. That seems to be a headwind to structural inflation as well or something that would promote structural inflation. 

Also, regulation. We are in a deregulating environment from the time Reagan was president and now I would say the trend is more towards regulation and greater regulation, all of which again, is inflationary, not to mention war, whether that’s a hot war or a cold war, those are both inflationary environments. The counterbalancing force though is will AI bail us out and technological change bail us out and not cause structural inflation, time will tell. 

We’re not going to know until we go through a cycle or two to understand. Inflation is going to come down as the economy slows. It’s a cyclical phenomenon in that regard. How low will it be at the bottom? As we go to the next upcycle, how high will it go? That’s when we’ll find out if some of these changing forces will create more structural inflation. If that’s true, I have a framework to deal with that, but 60/40 is not it. 

Patrick Baldwin: Did you say AI could be a big shift in the economy? 

Nick Bartolo: Have you heard that before, AI? 

Patrick Baldwin: I heard about AI. Is that enough to change what’s going on in the direction things are headed right now? 

Nick Bartolo: Technology has obviously made dramatic gains over hundreds and hundreds of years going back to electricity. Some would argue that AI is potentially the biggest change since electricity, which caused industries to be reoriented. I’ll give you an example. Before you had a big steam-generated power source in the middle of a factory and then everything was oriented around that and when electricity came on, the whole factory had to be redesigned. 

The companies that could adapt to that the quickest and redesign their production capacity to lower their costs became the new winners. AI could be analogous to a change that dramatic. The question then becomes, what will that do to productivity growth of the economy? If you don’t have substantial productivity growth, that leads to more inflationary conditions. 

Paul Giannamore: I wholeheartedly agree with everything you said, Nick, all of the underlying structural issues, everything from globalization to potential commodity shortage issues, petroleum, and the move from high-octane, so to speak, form of energy to the new green energy phenomena that we see. Clearly, you’ve got all of these large global trends and then on top of that, you’ve got an extremely overindebted world and the monetary and fiscal impact of what the governments are going to have to do in order to liquidate this debt. I would be putting my money heavily on secular inflation for the foreseeable future.

Nick Bartolo:  Sadly, most frameworks don’t have any holdings that address that. We could talk about the 1970s and what I’ve studied around The Money Illusion, it’s a helpful analogy although while analogies can be a lazy, analytical tool, they are helpful in contextualizing environments and concepts. The Money Illusion was a concept developed by Irving Fisher in the 1920s that suggested consumers, business people, and I apply it to investing as well, should look at prices and changes in prices in real terms as opposed to nominal terms after adjusting for inflation. 

If we think a business is growing or you’re taking up pricing 5%, what is that in real terms? If inflation is 7%, it’s negative 2% in real terms. If inflation is 3%, it’s positive 2% in real terms. That can be applied to the economy. To this point, do people own anything? I’m not saying their whole portfolio but do they own anything that does well in an inflationary environment? I would argue in most cases no. The ‘70s do provide this useful example in that folks typically think that stocks did awful in the 1970s. 

When you look at the data, you can see from point to point in the 1970s that stocks compounded at 6%, US stocks, which 6% is not bad, it’s not great, but it doesn’t sound awful on the surface or in nominal terms. When you look at the inflation statistics and growth over that decade as well as the return that you could have earned on cash, both being about 7% compounded for the entire decade, 6% looks much worse, or negative 1% real for the entire decade. 

Taken a step further, to this concept of what else even in a small amount could you own to protect yourself? Commodities compounded 21% per year for the entire decade. Gold, after Nixon ended convertibility in 1971, compounded at 31%. You can see in light of not only cash and inflation but other real assets that you could have owned even in small amounts that stocks, in fact, were awful in the 1970s. 

I do think that’s an interesting illustration of The Money Illusion. I don’t want to belabor the point. To put some numbers around that, if you would’ve invested $100 at the beginning of 1970 in the S&P 500, you’d have $180 at the end of the decade. However, if you would’ve put that same $100 in commodities, you would’ve had $672. If you would’ve put it in gold, you’d have had almost $1,500. It paints a stark contrast in the actual results. 

To take it one step further again, if you apply this Money Illusion concept and comparisons of returns to asset classes since 2022 despite the recovery in stocks, they’re still down about 5% since the beginning of 2022. 60/40, as we’ve talked about being our least favorite portfolio, is down about 8%. Cash is up 4% since the beginning of 2022. Somewhat surprisingly probably to most people, commodities are up about 18% or 19% and gold is up 7%. 

Having some exposure to these real assets has been beneficial to portfolios. I’m not suggesting somebody should not own US stocks or stocks in general. In fact, my client partners have substantial holdings to US stocks, the category being, in general, the largest holding that they have. I am suggesting that you should have a framework to understand how to create returns if US stocks do poorly, particularly in real terms. 

Paul Giannamore: When you talk about The Money Illusion in the delta between real nominal rates, so on and so forth, you also have to think about one of the things that I’ve talked about extensively over the years is that when we look at valuation, in general, when you have an environment where yields are extremely suppressed, specifically in negative territory. 

What we’ve seen with the advent of quantitative easing over the years is that it has hold future returns into the present. Yield suppression extends the duration of security, meaning it pulls a lot of that value, which is nothing from the future into the present. At some point, as the market continues to adjust, it’ll again push those future returns back out into the future. Would you agree with my thesis, Nick? 

Nick Bartolo: I absolutely would agree with that thesis. The way I think about it is that higher interest rates make current cashflows much more valuable instead of the promise of growth into the future. To me, low interest rates are so deflationary because it distorts the allocation of capital on bets that have a highly uncertain return and on capacity that can be funded cheaply, which is deflationary, inevitably, creating excess capacity in whatever industry. 

Patrick Baldwin: Nick, you’ve danced around this a couple of times. You mentioned a framework other than 60/40. In the different cycles that we go through, how do we think about this? 

Nick Bartolo: I would say the first thing that I focus on is a family and a person’s situation and their personal financial situation that is unique to them. Without understanding that, you truly can’t design an investment strategy that’s going to help them meet their goals and objectives. That sounds like the industry but it’s true. For instance, why take more risks than you need to if you’re relatively frugal and you have a pile of money and all your financial needs are being met for you and three generations? You still want to grow and protect that capital be it inflation and then some over time. Clearly, that’s a different paradigm. 

My foundational framework though when it comes to investing, and it starts with this and then builds from there based on personal and tactical factors given the environment and I can talk through some of those but it’s this Core 4 environment or this Core 4 framework as I call it. It characterizes the economic environment that is going to price asset prices based on the rate of change in expectations for economic growth and inflation. 

I’ll give you a quick example if you don’t mind. In 2022, we had an economy that was growing slower relative to expectations going in and we had inflation that was rising faster than expectations, either absolute rate of change, etc. That’s called stagflation as everybody’s familiar with that term. Clearly, that was a big term from the 1970s. In a stagflationary environment, think of a pest control business, your revenue is not growing as fast as you thought it was growing but your costs are growing more than you thought. 

Cashflows are compressing and when cashflows compress, likely the value of that business goes down as well. It should be no surprise in thinking about it at that first principles basis that stocks perform poorly in a stagflationary environment and the S&O 500 was down around 20% in 2022. In those types of environments, you have to also understand what does do well because you can generate returns and also you can create powerful diversification benefits by owning those assets. You want to buy the things or own the things in some fashion, it doesn’t have to be large, that are inflating. What was inflating in 2022? Commodities. 

Paul Giannamore: Gold, commodities, and certain fixed income. 

Nick Bartolo Inflation indexed fixed income. Commodities were up 20% and gold was about flat in 2022. That’s 1 of the 4 different environments. It’s not to say you put 100% of your portfolio in commodities or even 30% or 20% but you do have some exposure to that which allows you to then rebalance out of something that’s performing well, commodities into something that was struggling such as stocks. 

Paul Giannamore: That’s true. Some people like to be long and in stagflationary quad, “I like to be short small caps, I like to be short financials, I like to be short REITs, and all those sorts of things.” Balance it out with my gold long and USD long. 

Nick Bartolo: That’s right. What we also do to add on to that framework is invest in some of these more private funds. We talked about that distressed private equity example in both equity and credit but Japan is a market that I directly invested for well over a decade on the institutional side and has been outside of the US the largest allocation for my client partners. In that, you have this unique opportunity in Japan. 

I’ve been guest lecturing about this for the past four years at my alma mater, USC. You have this unique environment where there are over 700 companies under $1 billion in market cap that trades for less than six times enterprise value to EBITDA. A very cheap valuation. In fact, banks would finance management buyouts at up to six times EV to EBITDA if these companies want to take themselves private, which is a unique situation. Paul, I could tell you all about that and how there’s a dearth of anything remotely similar to that in the US. 

Once this fund buys a large stake in these Japanese companies, they then get management to distribute the large cash balances that these businesses tend to own. You might have a situation where a company is worth $500 million, their market cap, but yet they have $250 million of cash on their balance sheet. Once that money can be dispersed out, they can take up their dividend yield, and buy back stock. It tends to provide this idiosyncratic return stream due to shareholder activism. That’s another example of something else that we do to augment the core public markets investments. 

Patrick Baldwin: In the different cycles that we go through, is it a matter of moving all your money into 1 quadrant or 2 quadrants, or do you spread out money across this Core 4?

Nick Bartolo: That’s a great question because I could see how it could be interpreted that way but absolutely not. It’s understanding how much investments a particular client partner has in each given quadrant in order to ensure some semblance of balance to those environments, particularly if we did have a persistent environment for a long period of time. For instance, in the last ten years prior to COVID, you had this Goldilocks environment where Goldilocks being old fable, not too hot, and not too cold. You have growth that’s pretty good but yet inflation is not a problem and that tends to be great for stocks. In that environment, it’s nice to hold a lot of US equities in general, and everybody looks like a genius in that environment. 

Paul Giannamore: Fat Pat, the reason why I wanted to have Nick on here is he and I tend to view the world through similar lenses. When he talks about the Core 4 or the way he manages this, that is a descriptor of the regime that we’re currently facing. Are we in a stagflationary period? Are we in deflation? We’ve got decelerating growth and we’ve got decelerating inflation. We’re in a deflationary period and certain asset classes work better in this environment than they would, for example, what Nick said, the Goldilocks period. 

Historically, USD has tended to outperform in this environment. That, of course, has reached nosebleeds last year, and there have been specific adjustments. There are certain equity style factors that are great and there are certain high beta stuff that’s horrible. Momentum stuff and high-leverage stuff are not great. Things like consumer staples and utilities tend to outperform in a deflationary environment. 

Another regime would be one that’s more reflationary as opposed to deflationary. There are a lot of different ways to look at it. Those things can change month to month, quarter to quarter, or year to year. It’s understanding what economic regime rules the day. Where’s economic growth? Where’s interest rates and where’s inflation? You can get a sense of where you can allocate resources at present. It’s how I manage my portfolio personally. 

I am not a day trader. I don’t sit at the screen and trade stocks all day but I’m a guy who’s, every single day, I’m up with the roosters doing my research to determine if I’m going to make any changes to my allocations. Where are we today? I tend to think about things on a weekly, monthly, and quarterly basis. There are months, Patrick, where I’ll short my longs and go long with my shorts and tie roll. 

Nick Bartolo: We are standing on the shoulders of giants here. This isn’t a framework that I magically came up with. This was popularized by Ray Dalio of Bridgewater and others. It is time tested though over a long period to prove its analytical rigor. 

Paul Giannamore: There are a lot of wealth managers out there who dump you in an index and stocks for the long run. Buy and hold in perpetuity and that’s worked for a long time. I personally believe that we are now, and for probably the foreseeable future, going to be in an environment where active participation in the market is going to far outperform passive investing. 

Patrick Baldwin: Y’all tend to agree a lot from what I can tell. Paul, you’ve called yourself a contrarian at times. Do you all agree on where the economy is headed and even what it would take to put it in the right direction?

Nick Bartolo: When I think about this economy, it’s been a paradox since post-COVID. Paul, have you ever heard of the two-handed economist? 

Paul Giannamore: I have not. 

Nick Bartolo: On one hand, the leading economic indicators are down yet trailing GDP has been growing more than people thought. On one hand, average hours worked and temp labor are down, which are classic recession indicators yet jobs are up. Monetary tightening with the Fed increasing interest rates is up yet fiscal stimulus as generated by the government infrastructure chips and “inflation reduction act” that’s propping the economy up. 

There are a number of these countervailing forces right now that have made it a perplexing environment, which brings out the two-handed economists. All that being said, at this stage, you’re still fighting the Fed, the three-month treasury yield has been higher than the ten-year treasury yield interest rate, and typically that is an 8 out of 8 recession indicator with no false signals. It’s predicted a recession typically around twelve months after. 

Clearly, there are a lot of indicators that are flashing red. I’m not predicting an imminent recession by any means. From some historical perspective, In July of 2008, the US was in a recession, and this was sandwiched between Bear Stearns failing and Lehman about to fail in September, yet no one thought we were in a recession but had been in a recession for about 7 or 8 months. 

Recessions that are called by everybody don’t exist but I will say that in the history of the US economy soft landings, which it appears that the market is pricing in, are virtually non-existent. I don’t know if Paul disagrees with any of that but it’s a time when risk needs to be managed carefully. Not to go out and sell all your US stocks but have a framework to manage the risk. 

Paul Giannamore: We were chatting, Nick, and you pointed out the fact that although there’s the fiscal side, which is stoked demand here. If we’re all honest with ourselves, the Fed funds rate is a blunt instrument. What you have to pay attention to is the actual Fed’s balance sheet. There has not been substantial progress and runoff on that balance sheet if you look at it. 

Nick Bartolo: The mini-banking crisis, if you will, stopped it. 

Paul Giannamore: Correct. The financial conditions, I don’t think nearly as tight as the Fed would’ve hoped. You’re right, the mini-banking crisis kind of put a stop to a lot of that. I never believe in these soft landings. I feel like, as you said, there’s not a whole lot of historical basis for these things. The fed tightens and things begin to contract. It boggles my mind how there’ll be a soft landing. There has been a tremendous amount of fiscal stimulus around the world, and not just in the United States but globally. China’s still firing off bazookas over there. Governments are spending money and racking up more debt. As that slows down, which it will in the interim, that’s when we might start to feel the pain. 

Nick Bartolo: The interesting test is, in the next downturn, whenever it comes, what does happen to US interest rates? Do they behave how they have historically and go down as Paul described earlier? Do US interest rates act more like emerging markets have over time in that the fiscal position becomes worse and so interest rates increase, which would surprise nearly all market participants? 

Paul Giannamore: If we end up in a situation where the US continues to act like a merging market economy, that’s when you start to see things like gold run as market participants start to catch on and say, “Hold on a second here.” Nick, when I think about what Western economies will have to do, Europe and the United States, they’re going to have to liquidate the debt. We might see 1940-style financial repression. I don’t know. Is it possible that we’ll see the remonetization of gold? 

Nick Bartolo: Incredibly difficult to predict. The governments have proven that taking pain and medicine or taking deflationary conditions is not tolerable for their societies and so they don’t. What we have seen in Japan is yield curve control, which effectively means that the government is buying an unlimited supply of government bonds in order to suppress interest rates to the desired target. If the US were to face a situation where rates were to not go down or go up in a recessionary condition, that’s certainly possible that they could implement yield curve control. 

In those situations, if you don’t allow interest rates to rise, that means the currency has to go down, which is inflationary. In that situation where you have a high level of debt that is untenable for the continued sustainability and growth of the economy, you would have a currency debasement. I’m not calling for hyperinflation by any means, I don’t expect that. What that means is that everything that’s priced in dollars or real assets tends to go up. 

You could include businesses with pricing power though in that businesses that are able to take up their prices commensurate with inflation or beyond those companies and those stocks can still do quite well in that environment. When Nixon ended convertibility in 1971, stocks rallied hard. That was effectively a debasement of the dollar. Yield curve control in Japan has essentially led to the Japanese government buying unlimited quantities of JGBs in order to peg the interest rate at their desired level, which they have been increasing that desired level over the past several months. 

What you have had is an ensuing decline in the Yen consistent with this framework that we talked about. If you don’t let the interest rate rise, the currency is the only release valve that is likely to decline. One way we deal with that at Essential Partners is that we do invest in Japan but we have a portion of that hedged even through a simple F hedge Japan since the beginning of 2022 is up 40%. Unhedged is down seven. 

There’s been a substantial benefit to hedging the end. It’s not only your overall asset allocation, how much you have in stocks, bonds, etc. Where do you own those stocks and how do you deal with the actual markets in which you invest? The same can be applied to emerging markets. The emerging market indices have about 30% or 35% of China’s exposure. 

Depending on one’s view of the geopolitical tension between the US and China, whether or not China is in fact going to invade Taiwan, and also the demographics in China, which are awful, the ability to continue to stimulate the economy in light of ultra-high debt levels, you have to make those decisions at the portfolio level. One thing we do is also buy ETFs that are emerging markets, X China, and then augment that with other emerging market countries that we think are structural beneficiaries from China’s pivot or from the world’s pivot away from manufacturing in China such as India or Mexico, for instance. 

Patrick Baldwin: No disagreement yet. Nick, is there going to be a recession? We know Paul’s take. 

Nick Bartolo: There is going to be a recession at some point, I just can’t predict when. Given the amount of stimulus and consumer excess savings, it seems like it’s going to continue to be pushed out possibly to mid-2024. The first two quarters have been inflation coming down and GDP surprising to the upside on a rate of change basis due to government spending. That’s been this Goldilocks environment. It should be no surprise that stocks have rallied 17% or 18%. Not that I was predicting that but the environment suggests that stocks do well in that environment.

Paul Giannamore: From an equity markets perspective, we’ve lived this 13 or 14 years now, this environment where a lot of these young guys are Fed-focused from their investment perspective. Everyone’s waiting for this Fed pivot. What is higher for longer and at what point is the Fed gonna roll over? We constantly have this anticipation prior to every FOMC release. The presser is always a nailbiter as everyone waits and breathless anticipation to see what the Fed’s gonna do. 

As Nick said, the question is when? It appears like many things in life, when always takes longer than we expect it to. Of course, the big question is the when on a lot of things, and everything, investing. It’s pretty easy to get things directionally correct. It’s often difficult to get the timing right. My Tesla short has been fantastic. The timing is always complicated. 

Patrick Baldwin: During our conversation, I’ve picked up on some of the Dunning-Kruger with, “You’re a business owner and now you think you can manage your finances with some expert level.” That’s debunked. I think about the emotional response. I’m having the buffer with a wealth advisor to help manage that and detach yourself from the emotional. I do remember being short on Tesla and buying myself back in on July 3rd and checking the stock while we’re sitting here today. If the emotions were not in it, I’d still be in it and it’d be in a better position. 

Nick Bartolo: Those are some important points and managing one’s emotions and managing a client partner’s emotions are critical to this job. The Core 4 framework and having some diversification to assets that perform differently, whether that’s country, fixed income versus equities, real assets, etc., does dampen the volatility of the portfolio. In COVID, for instance, US stocks were down over 30% in a deflationary environment in Q1 of 2020 yet long-term government bonds were up over 25%. T-bills were up 15% and gold was up 10%. Even if you have modest positions in some of those diversifying assets, you’re having a different experience in March of 2020, which then can allow you to be on your front foot and look at that as an opportunity as opposed to the fear induced. 

Paul Giannamore: I lost half my portfolio. 

Patrick Baldwin: Is cash a bad place to be right now? 

Nick Bartolo: I don’t think so. You’re not getting any risk premium for owning equities versus cash. Cash on a 1-month to 10-month or 11-month basis is yielding about 5.4% or 5.5% in government T-bills. The PE multiples are close to 20%, which if you invert that, that’s a 5% yield. You do have an equity risk premium for owning stocks but that doesn’t exist today, at least on the short end of the curve. You don’t have an equity risk premium relative to US corporate bonds, which are currently yielding about 5.3%. That’s an odd environment. 

Paul Giannamore: My perspective on that, Patrick, is I’m heavily in short-term paper because from a risk perspective, as Nick said, if you’ve got the S&P trade net twenty times, I’m getting the same yield and I don’t have any of the same risk. As a matter of fact, I’ve got a lot of optionality because I can liquidate that paper immediately and go into something. 

A lot of folks who have been relatively cash-heavy in the recent year or two have bemoaned the fact that inflation’s run super hot, “My cash is evaporating,” but the portfolio’s not down 70%. There are a lot of folks that have faced that, quite frankly. Frantically buying on the wrong side and frantically selling on the wrong side, the next thing you know, you’re down big money. 

Patrick Baldwin: Is there any risk in a T-Bill? 

Paul Giannamore: I don’t know. Ask Moody’s, they downgraded the US once again. 

Nick Bartolo: I would argue no other than inflation. Long-term cash is a bad investment but in the short term, it’s perfectly safe. As long as we have the strongest military in the world and the ability to print our own currency, short-term T-bills are the safest instrument on a short-term basis, and that’s why Warren Buffet keeps his $180 billion cash at Berkshire Hathaway in T-Bills typically three months or less. 

Paul Giannamore: One could easily argue that physical gold with zero counterparty risk is a safer security than cash. 

Nick Bartolo: The way I think about it is that cash has no volatility short term but a massive loss of purchasing power in the long term whereas gold is the opposite, It’s volatile in the short term, typically, although right now the volatility of gold is relatively low. Long term, you maintain your purchasing power with gold. While cash makes people feel safe in the short term because of the lack of volatility, long term, you’re getting destroyed. 

Patrick Baldwin: Still no disagreement. This is terrible. 

Paul Giannamore: We couldn’t flush one out, Patrick. 

Patrick Baldwin: Nick, appreciate you joining us in The Boardroom. I learned a lot. Thank you so much. 

Paul Giannamore: Thanks, Nick. Thanks for coming in. 

Nick Bartolo: I had a good time talking to you all and thank you so much for having me.

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Patrick Baldwin: Speaking of wealth advisors, Paul, and the typical wealth advisor, I’d like to read this from the Mexican if I may. 

Paul Giannamore: You may. 

Patrick Baldwin: The Mexican knew that we spoke with a wealth advisor. He didn’t know that Nick was different than the majority of them out there. He said, “Nick wants to meet you too and Paul’s dead mom. That’s what wealth advisors do, they suck on you and then ask you for money. You should know better by now.” Thank you, Mexican. 

Paul Giannamore: Nick offered to fly down here and get on Potomac TV and, at some point, we will have him do that. Due to my travel schedule, it was easier to get him on the old audio Buzz. He’s an interesting character. What did you think about the discussion? 

Patrick Baldwin: I thought it was great. I imagine Nick and the Mexican going toe to toe with their CFA credentials and see who can outwit the other. 

Paul Giannamore: The battle of the nerds. 

Patrick Baldwin: Nick’s CFA is actually legit. 

Paul Giannamore: I haven’t been able to disprove or prove the legitimacy of the Mexican charter hanging on his wall. 

Patrick Baldwin: Nick, a different experience, not what I’m used to, or thinking about in which it’s, “Here’s our thesis and everyone falls in this basket.” Maybe you’ve got higher risk, middle risk, or low risk in their portfolio but they already have a predetermined placement for you when you come in with a wealth advisor. That’s been my experience. I don’t feel that way with Nick. I know this is not an endorsement for Nick and I don’t know if you plan on connecting clients or putting your own money in Nick’s hands, if you will, but a sharp guide, someone I’d at least have another conversation with. 

Paul Giannamore: Indeed. I have no experience with Nick professionally other than the conversations I’ve had with him in recent months but he does seem to have his head screwed on, that’s for sure. 

Patrick Baldwin: Nick seems rather educated on not just current economic times but also even picked up on some history where he talked about some historical events that you’ve referenced. I see a lot of similarities. 

Paul Giannamore: There’s a lot for Nick and I to chat about. I hope our readers who don’t have much exposure to wealth advisors have learned something from Nick. It’s probably good to start relatively early with that, even if you have a small amount of money to start interviewing wealth advisors, especially if you plan on having an exit. It’s good to do that stuff in advance. 

What some of these wealth advisors can do is they can help you think about trusts, set up estate planning, and those things, and point you in the right direction. One of my wealth managers down here in Puerto Rico has been extremely helpful to me, literally from a connection perspective because these guys that manage large portfolios are extremely connected. 

Patrick Baldwin: Can you give a little more color there when it comes to like the short-term and long-term volatility of gold and cash, USD? 

Paul Giannamore: What Nick was trying to say is that in the relative short term, let’s call it a year or two, in terms of dollar value, gold can swing wildly. It might be $1,500 an ounce or it might go up to $2,000 an ounce. It’s volatile in the relative short term whereas the dollar is typically not, it’s usually in long-term trends, multi-year trends against a basket of other currencies. 

Over the long term, though, gold retains its purchasing power in terms of whatever currency it’s being stacked up against. If you think about gold over a 1000-year period or 500-year period whereas all other paper fiat currencies have completely disappeared, at some point, the dollar will be non-existent. Probably not in our lifetime, but at some point, the US dollar will be gone. Name any other currency that you can think of that’s been around for more than 300 years or 200 years. 

Patrick Baldwin: Don’t test my economic history here in front of everyone. 

Paul Giannamore: Over time, as empires rise and fall, the Fiat currencies end up blowing up. Ultimately, with history as our guide, we can assume that the US dollar disappears at some point. Gold has not. 

Patrick Baldwin: Is that what’s gonna get us out of debt eventually? We spend all this Fiat currency and pay ourselves out of debt. I don’t even know how money works like that. There goes Fat Pat and Fiat currency as we know it. 

Paul Giannamore: Sounds good, Patrick. I’ll be out in the Far East but I’ll be back soon. 

Patrick Baldwin: Awesome.

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Dylan Seals: Thank you so much as always for supporting us at The Boardroom Buzz. We know your time is valuable and the fact that you spend 45 minutes or an hour with us means the world. All the media that we put out from Potomac is meant to honor and celebrate you, the service industry owner. As Paul would say, “Yee who toil in the pest control vineyards.”

As part of giving back, we have this podcast, but more than that, Paul and I have been working our tails off over at POTOMAC TV. We’ve spent a tremendous amount of time, energy, and resources to build out that platform to bring you market updates, to bring you visual breakdowns of the merger acquisition process, and to tell stories and present information in ways that, frankly, it’s not possible for us to do on The Boardroom Buzz.

Adding the visual element takes it to the next level. I want to invite you to go to YouTube and find us, it’s POTOMAC TV. Potomac.tv will get you there. Go there and subscribe. Check out some videos and leave some comments. Let us know what you like and let us know what you don’t like. Let us know what you want to see more of and we’ll see you over there.