WEBVTT - Bonus: How do leveraged ETFs work? 

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<v Speaker 1>You mentioned leveraged ETFs before, I wonder if you want

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<v Speaker 1>to dig.

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<v Speaker 2>Into it a little bit. Yeah, So I'm a big

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<v Speaker 2>I'm a big fan of leverage, and I guess for

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<v Speaker 2>those that are unsure of what leverage is, just think

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<v Speaker 2>of it as like your home loan. You put in

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<v Speaker 2>a deposit and then you get a loan from the

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<v Speaker 2>bank to give you. You know, you put in one

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<v Speaker 2>hundred thousand, but you actually get to go out and

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<v Speaker 2>buy a million dollar property. And so what you're putting

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<v Speaker 2>in is amplified by the loan that the bank gives you,

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<v Speaker 2>and that applies to investing generally. But ETFs now give

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<v Speaker 2>you leveraged exposure. So what it means is for every

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<v Speaker 2>dollar that I invest in the ETF, the ETF provider

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<v Speaker 2>might go out and invest two dollars on your behalf

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<v Speaker 2>because of the way that it's structured, and what it

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<v Speaker 2>gives you is, as I said, an amplified exposure. They

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<v Speaker 2>do come with a lot of risk though, because some

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<v Speaker 2>of them are two times exposure three times exposure. And

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<v Speaker 2>what that means is, let's say you know, the ETF

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<v Speaker 2>goes up five percent in one day. If you have

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<v Speaker 2>two times it's going to go up ten percent. If

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<v Speaker 2>you have three times, it's going to go up fifteen percent.

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<v Speaker 2>Now that sounds awesome and you can make a lot

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<v Speaker 2>of money doing that, But with leverage, it goes the

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<v Speaker 2>other way as well. So if it goes down five

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<v Speaker 2>percent one day, it'll actually go down ten or twenty

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<v Speaker 2>percent or whatever the sort of gearing ratio is. So

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<v Speaker 2>it's something that you need to be very very clear

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<v Speaker 2>on why it is in your portfolio, and you need

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<v Speaker 2>to be very conscious of the impact that it can

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<v Speaker 2>have on your total returns. There are some products that

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<v Speaker 2>are available at the moment that have very moderate gearing,

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<v Speaker 2>and I think it reflects the demand from retail investors

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<v Speaker 2>at the moment to kind of get into these interesting,

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<v Speaker 2>sort of more sexy ETFs. So I would say, but

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<v Speaker 2>just be careful because now you're seeing crazy leveraged ETFs

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<v Speaker 2>out there. You've got leveraged bitcoin, Like, why would you

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<v Speaker 2>want to go leverage bitcoin three times? Leveraged bitcoin? Bitcoin

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<v Speaker 2>can rip thirty percent in one day, like you would

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<v Speaker 2>be up and down, you'd be a rollercoaster. Leverage, Tesla,

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<v Speaker 2>leveraged you name it. There There are plenty out there,

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<v Speaker 2>So buyer beware and really understand what.

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<v Speaker 1>You're buying and whose money is that at.

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<v Speaker 2>The end, like it's your money. But as I said,

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<v Speaker 2>whilst it can be incredibly fun on the way up,

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<v Speaker 2>you can lose it very quickly on the way down.

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<v Speaker 2>For example, I have two leveraged ETFs. One is leveraged

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<v Speaker 2>to the US, one is leveraged to this train market,

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<v Speaker 2>and over the liberation period I watched it creater. You know,

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<v Speaker 2>tens of thousands a day, thirty forty draw down. If

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<v Speaker 2>you're in a position where a you've invested money that

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<v Speaker 2>shouldn't be in the stock market altogether, or be you've

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<v Speaker 2>invested your deposit for a house for example, or you

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<v Speaker 2>didn't really understand the impact that that could have. Seeing

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<v Speaker 2>your portfolio drop forty percent in twenty four to forty

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<v Speaker 2>eight hours could be life changing, Like it could really

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<v Speaker 2>impact you.

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<v Speaker 1>How did it feel when it happened to you?

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<v Speaker 2>Well, luckily, yeah, I was like, oh God, so luckily.

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<v Speaker 2>I've been through it before with COVID and for me,

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<v Speaker 2>very long term time horizon here. And the thing that

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<v Speaker 2>I always remind myself is there is not a twenty

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<v Speaker 2>year period in the US market, particularly, there is no

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<v Speaker 2>twenty year period that you could find where from beginning

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<v Speaker 2>to end you would have lost money. And also we

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<v Speaker 2>would look back at any market crash and wish we'd

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<v Speaker 2>bought more. And so for me, like, sure, the market

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<v Speaker 2>ripped and my portfolio absolutely created, and I was like,

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<v Speaker 2>this sucks, this hurts, but like, I'm fortunate enough to

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<v Speaker 2>have been doing this podcast a while to know that

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<v Speaker 2>it's not the be all and end all, and if anything,

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<v Speaker 2>it's not only going to recover, but it's going to

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<v Speaker 2>continue to recover and go to all time highs at

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<v Speaker 2>some point in the future. So for me, I understood

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<v Speaker 2>what was happening in my portfolio. But if you've just

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<v Speaker 2>bought them blindly and seen the pullback, you could have

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<v Speaker 2>had a different I guess feeling of what investing is.

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<v Speaker 1>And by the sounds of it, it's like you run

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<v Speaker 1>a pretty diversified portfolio.

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<v Speaker 2>So my portfolio is I run a core satellite approach,

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<v Speaker 2>which is a very simple investment investment strategy. It's where

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<v Speaker 2>you think of it like that your house. You're building

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<v Speaker 2>the foundations, you're building the core, something that is going

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<v Speaker 2>to sustain and last for a very very long period

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<v Speaker 2>of time and that's done using index ETFs, and so

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<v Speaker 2>I split mine in four. I have an index ETF

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<v Speaker 2>that tracks the US, one that tracks Australia. Both of

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<v Speaker 2>those are leveraged. Then I have one that tracks all

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<v Speaker 2>of Europe, and then I have one that tracks Asia.

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<v Speaker 2>So really what I've got there is four ETFs that

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<v Speaker 2>have global exposure. It doesn't matter if I guess the

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<v Speaker 2>advantage of that is if US is doing really well

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<v Speaker 2>and Asia is not doing so well, they kind of

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<v Speaker 2>balance each other out and vice versa. At the moment,

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<v Speaker 2>we're seeing US pool back a bit, Europe's going really well,

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<v Speaker 2>and so as a whole, my portfolio kind of like

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<v Speaker 2>acts as like the bedrock of my investments, which then

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<v Speaker 2>gives me the enjoyment or the security in some way

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<v Speaker 2>to take the remaining twenty percent and invest it in

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<v Speaker 2>some of the thematic ETFs. So, for example, I've got

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<v Speaker 2>one that just tracks tech companies. Here in Australia, we've

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<v Speaker 2>got some great tech companies. But I don't want the banks,

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<v Speaker 2>I don't want the miners, I don't want retail, I

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<v Speaker 2>just want tech. So one that tracks tech. I've got

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<v Speaker 2>one that tracks semiconductors. As I've said, and then a

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<v Speaker 2>few individual stocks. So the idea with that part of

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<v Speaker 2>the portfolio is that you can a have a bit

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<v Speaker 2>of fun, hone your craft in investing in individual stocks,

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<v Speaker 2>but also try and beat what you're doing in the core.

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<v Speaker 2>But I know that because it's only twenty percent. If

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<v Speaker 2>I suck and that has does really poorly, I still

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<v Speaker 2>got eighty percent in what I know and believe is

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<v Speaker 2>going to be a very good long term investment.

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<v Speaker 1>Yeah. So I always think of it as like the

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<v Speaker 1>garnish or it's like that's just your taste, like that's

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<v Speaker 1>that's the stuff that makes your portfolio unique to you

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<v Speaker 1>and interesting to you. But that strong foundation is like

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<v Speaker 1>you know, I like a good to me as good

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<v Speaker 1>sleep at night, as priceless. So I just like never

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<v Speaker 1>and missed in a way that i'd be that would

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<v Speaker 1>ever like contribute to a sleepless night something that whatever.

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<v Speaker 2>It was happening, and that all comes. Yeah, it's a

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<v Speaker 2>good point. Like you can we see a lot of

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<v Speaker 2>portfolios come through the community and some people might have

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<v Speaker 2>crypto as their garnish, or they might have just stocks

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<v Speaker 2>from Europe as they're garnish, and yeah, it's a good

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<v Speaker 2>way to put.

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<v Speaker 1>It, Yeah, what makes it interesting?

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<v Speaker 2>Yeah?

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<v Speaker 1>Actually, and I.

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<v Speaker 2>Should say I should say as well though, if you're

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<v Speaker 2>just starting, you don't need to worry about the garnish

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<v Speaker 2>like you don't have to do that. You can just

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<v Speaker 2>have a core as your investment portfolio and that's it.

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<v Speaker 2>You can just choose index ETFs and away you go.

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<v Speaker 2>So don't feel like you need to have it at

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<v Speaker 2>a little bit of flavor and spice. But if you

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<v Speaker 2>I find what a lot of people do is they'll

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<v Speaker 2>start with the core. Get comfortable that haven't lost all

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<v Speaker 2>my money. I'm starting to get interested in this. You

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<v Speaker 2>know what I might experiment around.

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<v Speaker 1>The sides awesome And so we you know, last time

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<v Speaker 1>I caught up and we've already talked about like Warren Buffett.

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<v Speaker 1>He's come up in our chat today. It's hard to

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<v Speaker 1>talk about and visiting about bringing up Warren Buffett. So

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<v Speaker 1>he's stepped back from his role. What do you any

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<v Speaker 1>thoughts on them?

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<v Speaker 2>I mean it's it's sad. So he stepped down a

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<v Speaker 2>CEO of Berkshire Hathaway, which is his holding company or

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<v Speaker 2>his investment vehicle. We did a segment on it recently

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<v Speaker 2>and he has delivered five point five million percent since gosh, yeah,

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<v Speaker 2>five point five million percent since he started Berkshire back

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<v Speaker 2>when he was mid thirties or whatever it was, which

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<v Speaker 2>is just an incredible investing story. He's delivered almost twenty

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<v Speaker 2>percent year on year for fifty years, which is unprecedented.

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<v Speaker 2>I don't think anyone will ever do that again. So

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<v Speaker 2>for him to be stepping out of the investment ecosystem,

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<v Speaker 2>I think we're definitely going to miss him because he

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<v Speaker 2>has provided so much value to me, to Alec, the

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<v Speaker 2>other Hulf Equity mates, to a lot of people around

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<v Speaker 2>the world. Really his investment letters that he does every year,

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<v Speaker 2>the books that he's written like just full of full

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<v Speaker 2>of wisdom. So it will be sad to see him go,

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<v Speaker 2>But I think what he's built the company is enduring

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<v Speaker 2>beyond obviously himself. He's got someone his sidekick, stepping in

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<v Speaker 2>to continue running Berkshire, and I would be surprised if

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<v Speaker 2>that immediately changes over night. But I think the biggest

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<v Speaker 2>thing I've learned from him and Charlie, his co founder,

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<v Speaker 2>was it just goes to show what like staying mentally

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<v Speaker 2>active for as long as possible I think has serious

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<v Speaker 2>positive implications on your health and and your lifespan. Charlie

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<v Speaker 2>died at ninety nine, Warren's going to turn ninety five

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<v Speaker 2>this year, and they both Warren is still and Charlie

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<v Speaker 2>was until the day died so mentally active in investing.

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<v Speaker 2>And I'm not saying it has to be investing, but

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<v Speaker 2>I think one of the big things I reflect on

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<v Speaker 2>on both of those is just staying engaged and staying

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<v Speaker 2>mentally active, I think is something that I will remember

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<v Speaker 2>them both by for sure.

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<v Speaker 1>Yeah, awesome. And I think the other thing is like

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<v Speaker 1>it really breaks the mold around like, you know, I

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<v Speaker 1>think one of the world's most successful in visitors. But

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<v Speaker 1>yet the approach is so kind of simple and easy

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<v Speaker 1>to understand, you know, and it's often like this cool

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<v Speaker 1>calm voice which hints the wisdom, like everyone's got their

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<v Speaker 1>favorite quote. Yes, And I think it's that thing that goes, hey,

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<v Speaker 1>it's not just good beginner advice, it's just good investing,

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<v Speaker 1>you know. It's just it's just like like you know,

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<v Speaker 1>the courset, like all these different ways of approach, like

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<v Speaker 1>approaching investing, dollar cost averaging, you know, these things. It's

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<v Speaker 1>not just when you get started, it's actually you know,

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<v Speaker 1>these are really good tools that can lead to really

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<v Speaker 1>great successful I agree. I think he's been a really

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<v Speaker 1>good person that.

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<v Speaker 2>Positive like so like life lessons, business lessons, and I

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<v Speaker 2>think to tie it back to ETFs is he's realized

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<v Speaker 2>over his fifty years of investing that the best investment

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<v Speaker 2>really for long term is the index ETF, so much

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<v Speaker 2>so that he've said that ninety five percent of his

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<v Speaker 2>wealth when he dies, which is hundreds of billions of dollars,

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<v Speaker 2>is going to be put into a low cost global

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<v Speaker 2>index fund. And because he's so confident that that, over

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<v Speaker 2>a long period of time, is more than that needs.

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<v Speaker 2>And so for someone who's spent his whole life picking

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<v Speaker 2>stocks to come out and say that that that you

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<v Speaker 2>don't need anything more than that, I think, like, you know,

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<v Speaker 2>you've got to pay attention to