267. Mornings With Scott – Live! – Financial Literacy for Business

h [Music] n hope that sound is working good morning everybody let's get rid of that let's pause this system's a little finicky today good morning August 27th 2024 morning mcot live live I tell you the best damn should I put my nose to the top so I know what I'm talking about the best D business show for medium and small businesses on the planet is anyone else offended by LinkedIn sort of these cold emails if you're a professional or in business on LinkedIn you get these I get 10 a day 10 a day of of people wanting to connect and I just I just accept everybody because I'm not trying to screen people out and uh it's usually for marketing it's usually for um you know we can get you more views on your content or what have you and that's all fine that's the business these people are in but then what it does is it immediately goes to so if you want to talk about it um you can click on this link which will take you to my calendar and you can book A Time on my calendar at your own initiative like I can go out of my way and use my time to book something with you so you can give me your cold call pitch drives me insane and it's just over and over and over again it's the the Gary Vin goes straight to the right hook straight to the right hook no no jab jab hook nothing like that there's no adding Value First maybe someday we'll talk about a strategy on how we ought to deal with that I don't mean the recipient but if you were in the business of trying to get people's attention in LinkedIn you should you should approach this differently anybody who sends me a jump on my my calendar I I don't want to talk to them anymore I'm done I'm done with that I'm out I'm out I'm out I'm out yesterday I had a discussion about David saaks remember his post on X and I told you if you don't know many of you know already David saaks is a quite a um famous these days um well followed high-profile techn uh uh technologist and venture capitalist he's part of that PayPal Mafia in Silicon Valley he put a post on ex that we talked about um showing that Republicans and Democrats and independents all view the mainstream media differently I don't have the their trust of the mainst Street Media I don't have the stats in front of me but but Democrats had sort of a 70 73% trust level with the mainstream media and Republicans were down to like 10% and independents were way more down with the Republicans uh than otherwise and so when I do my notes for this in the morning for for this show I have my stories I have a brief outline of what I think I want to do the night before otherwise I run out of time in the morning and then I do my notes and um I also write my title so you know episode 267 and you know uh the title on that and my bullet points that will go into the notes because on the streamyard streamyard platform that I use that's just kind of the way it works and I do my hashtags and so I look through in the morning so the last thing I do is normally around 8:5 15 when I'm doing that I will go live at 8:30 and and uh so I you know hasht I'm talking about this David sax who's got quite a following deservedly so and so I have a hashtag David saxs s a c k s I'm spelling it because it's relevant to the story and so and then what happens is this goes out live to the various platforms Facebook LinkedIn YouTube X and Instagram and then it's chopped up by the marketing team and and put out on you know there's many shorts that go out during the day from this content including on Tik Tok I would do live to Tik Tok but the streamyard doesn't seem to facilitate that yet and so and so I put this on Tik Tok and what uh what the marketing people do is they take those same hashtags and that's kind of their notes for the shorts just the hashtags part so so there's there's a Tik Tok that goes out of me speaking and it's got a hashtag in it David saxs and so I'm looking at the Tik Tok yesterday and they removed it it has a popup note it says you've violated Community guidelines and we removed the hashtag uh saxs and so I was like I don't understand and so I started thinking about it and then I have a little chuckle to myself anyways I peel and I won they they reverse that kind of right away but the point is the point is that if your name is Sack or saxs Tik Tok May behave like Bart Simpson and Banu they just may think it means something different entirely STS speaking of social media yesterday x uh post on X by Grant Cardone the relatively famous so uh social media real estate investor author coach personality love him or hate him he's the guy uh that does that sort of work probably the top of that food chain he did a post on x today says I've always I've always it's always been my dream to become a public company and share the profits of my efforts with the public including our employees customers fans supporters and those who just watch but never transact I'd like to share my profits with you if I were to go public should I do an IPO or do a direct public offering uh disclosure this is not an offering so that's a posst from Grant Cardone yesterday so again for context apart from his online coaching um aggressive sales tactics author of being 10x uh that's a business book that he put out 10 letter X Grant Cardone is a prominent uh real estate investment uh prent figure of the real estate investment World focuses on large scale multiple prop uh multif Family Properties as real estate portfolios valued at over4 billion doar I don't know if that's true but that's what the internet says expans multiple States across the US makes him one of the largest private multif family real estate owners in the country he he legit has a big business and seems to be doing very very well for him himself so congratulations on that he raises money from the public he raises money from you both accredited and non- accredited investors so accredited is a type of investor when you're selling a security that's qualified to buy that security because they're wealthy and so it's not a high-risk thing for them or because they're sophisticated and it's not a high-risk thing for them the the Securities Regulators assume that if you're if you have some money and you're trained in certain areas well then you know what you're doing and so you become accredited and then the issuer of that security in this case Grant Cardone doesn't have to disclose as much information it's a simpler process on the other hand there are non accredited investors and that's people that don't have that level of wealth or that level of sophistication whatever that may be in some jurisdictions it's like 10050 Grand it's probably more than that these days I'm not going to drop a number I haven't paid attention lately um but the the back in the day back in the day it was like 150 Grand I think in a lot of jurisdictions to become sophisticated or accredited and so he also sells to non- accredit investors which requires a much higher level of uh regulation and disclosure and so but anyways he sells to basically everybody even those who are not sophisticated and he charges a bunch of fees to those investors obviously so basically you're going to go buy a building you set up a a multif family building you set up a project and then you sell units in that project or whatever the security is I'm going to call it units for lack of having done the research on this uh and you charge a fee you charge an acquisition fee like hey we went off we found this deal we're going to charge you x% you charge a management fee I got to someone's got to do the reporting and the management and all that sort of stuff uh related to this property so there's a management fee there's a performance fee hey if I make a bunch of money uh on this for you investors I get a little bonus right that's typical administrative fees every kind of fee I don't know what the numbers are but I've I've read uh that they're pretty high I know that some of my listeners um are investors or at least follow uh Grant cardones so maybe you can tell us what the fees are so I do know this however there's all sorts of allegations that he front runs the Acquisitions and resell so what does that mean front run the acquisition so so there's a building over here it's got a bunch of units as I said and he wants to buy it and he wants to finance it with your money all right so that's fair that's sort of a legited business could be a gplp structure whatever it is but instead of doing that instead of setting up the structure getting the money going to buy the building which is what you think is happening what he does is he goes and buys the building himself sets up the structure gets the money from you sells the building from himself to the structure at a profit and then starts taking all the fees for the privilege so they call that front running or at least I call that front running I guess that comes from the Securities trade but I think that's relevant industry but I think that's relevant to this real estate trade as well so there's all sorts of allegations of that um he also I you know what I uh I was I was thinking about this yesterday and I don't follow this guy well enough to know what he does legit um so I thought I wonder what you would do if you were being super aggressive and a little bit scammy and you wanted to make a bunch of money on this oh I know what you do you'd have your own property management company on the side and that property management company would provide services to your own projects uh to you the investor are funding that and you'd make a pretty good margin at the property management company side well yep uh he has a Cardone property management or whatever the name of it is and he provides services to his own projects that you fund at let's assume a pretty good fee and I thought what else and I looked in the re uh looked in the research asked the chat the the uh the AI uh what about a construction company does he own a construction company because a lot of this stuff is you buy the building cheap you do some Renovations he's always on on Instagram walking around like hey I got to fix the Waterfront and so he's doing that and yep sure enough Cardone uh construction so he provides all the services um that are required you would normally go to third- Party CRA uh contractors you get the lowest bid do you think he's the lowest bid do you think he's the lowest bid on his own deals or do you think as his investor you're overpaying for this stuff and he's making a fortune on the back end that has nothing to do that has nothing to do with the real estate project itself it reminds me I used to own uh I was in the how do I phrase this I used to own a franchise or a franchise business not on purpose I didn't start it I bought it as a troubled uh business and this was one of my uh ult this was one of my failures a colossal failure I don't get those too often but this was definitely one of them I'm ashamed to say and the franchisor which is what I own had a number of franchisees and they were uh Bakery cafes like yeah coffee shops bagel shops uh baked goods that sort of stuff and walking into that business to turn it around naively um I thought well you make your money how franchise fees uh royalty fees marketing fees um transaction fees like when a new franchisee comes in or someone wants to sell their business there's there's money associated with that so there's a bunch of fees and there's a parallel to the Grant Cardone real estate syndication you think oh well this guy makes his money from management fees uh transaction fees uh success fees in a sense uh like fund management like a hedge fund person you would think that but that's not where the franchise makes its money I learned where it makes this money is it sells 100% of everything to to the franchisees at a ridiculous price that's what it does so as a franchisee you've paid for this privilege you're paying all your fees and then you go turn the key in the morning and everything you do is supplied by the franchise or and under the under the air quote premise of uh shall we say purchasing power because I can buy it cheaper than you and that's where the franchisor behind the scenes is making a ton of money this grant cargo thing seems like the same deal he's got all his fees but he's also got property managing construction company and that's just what I thought to to look up I mean I didn't see that anywhere it just occurred to me this might be the case and I found the company names and Etc in about two minutes what else does he provide does he provide Insurance maybe he couldn't pull that off does he provide his own financial leverage maybe he does I don't know it'll be interesting so um all of that is really aggressive aggressive on his part but I don't know I'm not a lawyer in the US I don't know the Securities laws inside out I I I think it's aggressive but probably fair game as long as there's full disclosure I think that if you're an investor and you want to invest in his deal and he says to you hey man I bought the property first and then I'm flipping it into a deal and I'm charging you on markup and and I had a good reason for doing that because I found the deal and I had to buy that day and I got the cash so I did and so there was a value to you as an investor okay I'm not an expert but I think that's probably all fair game although there's lots of lawsuits uh against him for sure and most of those lawsuits are because of um misrepresentations on returns say on your social media you said I could be a billionaire and um my return sucked right so that is what he does for a living there's the background so he puts out a post and he says it's always been his dream to go public well what would happen What would happen I think we should all understand this as business followers what would happen if he's went went public well I mean we don't have to guess we see this over and over and over again with his personality type in his industry at this level of aggression here's what's going to happen he going to go public it's going to be very successful because he has lots of retail followers so the institutions may not buy in they might find a little sketchy but there's lots of there's lots of UMES out there and we're going to go buy some stock and it's going to be successful IPO and then within about a week someone uh from New York probably uh is going to put a huge short on that stock in other words they're going to sell the stock in hopes that the stock goes down and then they are going going to cover it later cover their short so they're going to go buy the stock in the market sometime in the future at a lower price so they sold at a high price bought at a a low price and that's the way they short the stock and when you start selling the stock on the short what happens is you're driving the price down right supply and demand so it's driving down the next short comes in you're shorting shorting the price going down and down down and you would think well if this is such a good deal how could they drive the price down well what they do in conjunction with that these short people is they go to their buddy across the road who has a air quotes independent research firm and he does a short report that's my lingo not their weak lingo but uh a research report on the stock and they say oh my goodness he owns a property management company he owns a construction company he's front ending this stuff um this is a fraud this is a fraud or maybe it's a fraud that's what they will allege and then that report will go out to the investment Community World The Wall Street Journal will pick it up and all of a sudden Grant Cardone is in trouble on This research report and the stock will drop further because now you and me as retail investors were reading the Wall Street Journal and we say holy crap I'm in this stock this doesn't sound good at all I'm going to get out of this thing and so now we start selling as well nobody's buying I mean if we didn't own the stock we're not obviously selling it but if we if we don't own the stock we're not going to buy it so the supply demand demand balance goes out of whack stock goes down stock goes down and now the lenders start to get nervous they're like hey Grant uh what's going on uh your stock dropped from uh $100 to three and we want to call all our lines I could sell the Gulf Stream yeah it's it's a problem that we see over and over and over again so I responded to uh the tweet and I said the worst idea ever in your business one way ticket to death that's what I responded I got a like from Grant on that so that was kind of cool look at you got to know what you're getting into some businesses can be public some businesses can't some businesses should be invested in some should not know the difference um this this this money management um syndication business is not a good it's not a good public company business don't get into that we had an example of this by the way in Canada with a large lender similar personality type um was his dream to take this thing uh public it was just knocking out of the park this thing was spinning out cash like you wouldn't believe and then it goes public and then that's exactly what happened that short sale independent quote unquote research reports and then there was internal pressure to you know not take losses because quarterly reports coming up and it just became a beast in and of itself and ended up going out of business that's what happens that's what will happen to him remember last week I reviewed an opinion piece in the globe in mail Canada's Wall Street Journal by some from a Canadian University that I don't recall who was basically arguing that Canada can't match us tariffs on Chinese made EVS not that they can't but they should not match Canada's uh the US tariffs on Chinese uh EV so the US had put a 100% tariff on electric vehicles coming from China Canada was considering that and this guy wrote a whole essay saying we should not do that because we would turn into in Canada if you're part of the Wii we would turn into East Germany without competition and he went on at length about East German cars and then when the Berlin Wall came down when the Berlin Wall came down you know these Germans figured out their cars weren't all that awesome compared to the Mercedes and other German vehicles so I pointed out that this guy had a lot of political bias when you look at his background he's probably a paid Chinese stooge and a Canadian University and then more importantly he's wrong he's wrong that there was no way that Canada was going to break from the US on electric vehicle tariffs because there is no Canadian Auto industry that unless it's fully integrated with the US the US is the market which is why they're going to win on tariffs in the short term because the customers is always right they are the market that brings all the power and there's no way in hell that if anybody with any one brain cell in Canada thinks about this there's no way in hell that they're going to break from the US on this tariff idea we are too in the automotive sector it's too integrated of an industry throw in the comments if you think I'm wrong but I don't believe that I am wrong on that so Bloomberg reports that Canada announced Monday is launching a 100% tariff on Imports of Chinese made electric vehicles matching the US tariffs impos imposed over what Western Government say are China's subsidies that give its industry an unfair Advantage there you go you heard it here first the announcement came after encouragement by US National Security adviser Jake Sullivan during a meeting with Canadian Prime Minister Justin Trudeau and cabinet ministers on Sunday I think the really they're burying the lead here the breaking news is that Justin Trudeau worked on a Sunday I'm I'm skeptical are you skeptical I'm skeptical of this story trudo said Canada also will impose a 25% tariff on Chinese steel and aluminum actors like quote actors like Chada Canada uh actors like China excuse me have chosen to give themselves an unfair advantage in the global Marketplace Canada has maintained look at Canada has had anti-dumping duties duties against Chinese steel for quite some time they come up for Renewal every now and then last year was up for Renewal we had to one of my companies uh make a submission to support the reasoning behind that and so this is part of that a 25% terrorist uh tariff on Chinese steel all right there's that part of the story we've got perfect timing here for our segment that I haven't done in a while but I need to get back to it because these were very valuable to you I know that from the feedback that you give me uh largely privately and that segment is financial literacy for business what is financial leverage or just leverage financial leverage refers to the use of borrowed funds debt to finance the acquisition of assets or Investments so leverage people just call it leverage but there is such thing as operational leverage there's other types of Leverage so I'm saying financial leverage to distinguish but going forward in this little segment I'm just going to say leverage because that's what business and financi people Financial people think of when they use that term and so the idea is you're using other people's money debt to increase your purchasing capability and also to amplify your products so in other words I want to buy a machine I don't have enough equity money to do it myself I say oh I can use 10% Equity money and go borrow 90% from a bank or what have you that is Leverage The Debt piece of that is leverage because it's leveraging my capabilities and hopefully it's leveraging my rate of return the math on Leverage is pretty spectacular in both directions it increases the risk of losses if the investment does not perform as expected the Amplified uh return happens because the hope is that the return on the investment let's call it uh 15% on whatever the investment is that you're making if you borrowed the money at 10% well there's a 5% Profit just on that just on the on the debt trade itself and what nobody tells you about hey good morning ion thank you for joining what nobody tells you about uh from Leverage is that you're you're using the debt because you don't have enough equity or you don't want to use your equity and people think Equity is free but it's not the equity is way more expensive than the debt the equity in your business is probably if you were a business valuator myself like myself you would say it it cost 20% or 40% or some larger number depending on the risk profile and size of your business look at you think about it leverage simply think about you want house just your personal residence and you put 20% down and you have an 80% mortgage right well the mortgage part is debt it is leverage if you if you had to put 100% down out of your own pocket you could not afford to buy that house right so the number one advantage of Leverage is it gives you more access to Capital to go and buy that asset and then if the house goes up a little bit right over time as you live in it your Returns on your 20% become really significant right and the Returns on the uh because your mortgage is still fixed at that number say the 80% is $800,000 well you still ow the house goes up from a million to two million you still owe $800,000 the rest of that goes to goes to you and you only put the 20% down which in that example right off the top of my head was $200,000 so you get hundreds of % return on that Equity investment understand what I mean so the the benefits of Leverage U are greater access to Capital as I just said and secondly the increased potential return as I just said and remember that one thing to remember is that you don't have all the money that's why you go to borrow it and number two is your cost of equity in your business is super expensive and you think it costs nothing because you pay an interest rate on it because you do not pay an interest rate on it whereas you pay an interest rate on the debt but that's not true that's not true apples dapples your equities probably as I said 20 30 40% cost of capital and your debt is whatever the debt is 10 12% in my world I don't mean my borrowing but I mean with the companies that I often work with and so or cheaper cheaper for larger uh businesses so there is a comparison of that forget on Leverage if you have debt you have tax advantages this is a business example uh could be a personal example on your residence depending on your jurisdiction but in business often you go buy a piece of Machinery you buy real estate you know and you borrow money to do that well you can write off the interest on that so that actually juices up your returns a bit more the Returns on an after tax basis but there are huge financial risks that go along with leverage leverage can amplify your profits but it also equally amplifies your losses if that house went down it doesn't Wipe Out the debt first it wipes out the equity first if the investment in your business uh doesn't pay off same thing it wipes out the equity in that investment first and if there's no equity if it was just 100% debt well the the lender doesn't care they want all their money back so you are taking a significant loss high levels of debt if you have too much Leverage uh increase the risk of insolvency especially the company's income drops and you can't meet your debt obligations yeah you know here's something that people don't often think about I was doing a debate with Tom Clon I think on somebody else's podcast and you know debt versus equity and I I made the point and I stick to it over and over and over again is you literally literally technically you cannot go bankrupt unless you have debt if you don't have debt you can run out of money you cannot eat you cannot pay your rent not all that can happen but you need a lender to bankrupt you that's a fact you need to owe money to people to go bankrupt leverage creates that scenario and if you get into trouble you're at risk of insolvency that is leverage Leverage is the fastest way to wealth 100% it's also the fastest way to the poor house it's high risk it literally levers what was going to happen anyways that is leverage and the financial literacy for business segment uh I'm running out of notes Here I think and my timing is perfect hey go buy my course the pre-sale on my business course to help you earn more profit raise business Capital it's super cheap right now like the Yen carry trade says Mr Stevens yeah I I yes yes that's exactly what it's like I I can't talk about that in 10 seconds that's a more interesting topic I should probably cover that someday uh go by my course the pre-sale ends this week August 31 so if you want it at its cheapest level you can go do that now and this time I promise I promise I promise I put the link in the notes so you can go do that you could do it right now you could just you could just hang up from this call stop listening go get your credit card and go to the Scot Sinclair myshopify.com and you will be good to go get that done thank you we will talk to you tomorrow 8:30 mountains Monday Tuesday Wednesday Thursday Friday