[00:03:00] Michael Sonnenfeldt: And his parents moved out in the flurry of liberalism that came after World War II to serve the rural poor. But it was only in the thirties, when Hitler came to power, that this town of Gargan happened to have nine Jewish families. They didn’t even know each other because that wasn’t what their identity was.

[00:03:23] Michael Sonnenfeldt: When Hitler came to power, all of a sudden they did know who each other was. And eventually between the rising antisemitism and eventually the Nuremberg Laws, you couldn’t work, you couldn’t earn money. And my grandparents were smart enough to get their two sons out of Germany to a boarding school.

[00:03:43] Michael Sonnenfeldt: In England, there was a Quaker school that had been set up to accept German youth. It actually had been in Germany and moved to England. When my father was 16 and his brother was 14, they went to that school, but they weren’t there for long before the British interned all Germans aged 16 and above.

[00:04:06] Michael Sonnenfeldt: Just like we interned the Japanese here, it didn’t matter whether in the English case, whether you were a Nazi or Jewish, you were considered an enemy alien. And he was shipped off to an Australian prisoner of war camp at the age of 16. And by then he was speaking English because he had been in England for a year or two.

[00:04:24] Michael Sonnenfeldt: And he was able to convince the commandant of the camp that he wasn’t a Nazi. And in fact he wanted to fight Nazis. And somehow he was able to convince the commandant of that camp to send him back to England. A great mistake had been made and he did. When he’d come to Australia, it was on a famous boat called the Dunera.

[00:04:46] Michael Sonnenfeldt: There was a movie about that. And when he was shipped back, he was on the Dunera, but it was attacked. That’s the torpedo that you mentioned. And he was led off at age 17 in 1940 in Bombay by himself.  And believe it or not, he was able to get a job in a radio factory because he was a brilliant future engineer.

[00:05:07] Michael Sonnenfeldt: He actually became the manager of the factory, befriended Nairu, who would later lead India. I have letters at home. And eventually made his way back to the United States after a period of time in India where his parents had escaped from Germany through Sweden. And he eventually enlisted in the Army.

[00:05:26] Michael Sonnenfeldt: And at the end of World War II, he was asked to be a translator by general Bill Donovan, the founder of what was then the oss. That’s the precursor to the. Cia. But at the time, the OSS was charged with the Nuremberg trials, and he heard my father was a translator because he was bilingual. And it turned out he was more than a translator.

[00:05:50] Michael Sonnenfeldt: And before too long at the age of 23, he was named chief interpreter of the American prosecution of the Nuremberg Trials. And then, if you want to call it an honor, given the honor of working as the exclusive translator for Herman Gary and my father spent many days in the fall of 1945 with Gary, who admitted to my father certain crimes.

[00:06:14] Michael Sonnenfeldt: The most important was that the whole beginning of Hitler’s rise to power was when the restock was burned down and Hitler accused the communists of. And Gary admitted to my father that he had burned down the restock on Hitler’s orders, and that’s what allowed Hindenberg to give Hitler dictatorial powers and the rest is history.

[00:06:36] Michael Sonnenfeldt: Anyway, he came home. He hadn’t gone to high school, but Johns Hopkins let him in. Graduated in three years and then became an engineer at RCA and invented the final 17 patents that today brings us color tv. I could go on and on and on, but those two sets of facts of loan should give you a sense of what it meant to be growing  up with this giant intellect who still was sometimes an intolerant German, but an amazing figure from whom I’m eternally grateful that I was his son .

[00:07:12] Trey Lockerbie: Given that last point about him not finishing high school, but then obviously going to college and being very successful there, what impression did that give you as far as formal education goes and, and I’m curious how you look at formal education given you know what you’re doing today. You, I believe , dropped out of three schools.

[00:07:27] Trey Lockerbie: Yeah. And you got your bachelor’s in master’s finally from the most prestigious school probably ever. Write about MIT. That is a very unusual journey. I’m just kind of curious what you think about formal education and how it correlates to success, if at all. 

[00:07:40] Michael Sonnenfeldt: I was just at the annual Tiger 21 conference and organization I founded 23 and a half years ago, and it consists of 1,220 of the most successful entrepreneurs around the world.

[00:07:54] Michael Sonnenfeldt: You’d have to be one in 10,000 by accomplishment. And so I’ve sat at the table with some of the world’s leading entrepreneurs and wondered the very same question because many of our members have master’s degrees and many of our members never went to college. And the one thing that I’m sure of is that there are many incredibly intelligent people who never had a formal education.

[00:08:20] Michael Sonnenfeldt: And the absence of a formal education doesn’t prevent them from creating great success. Of course, you have the Steve Jobs and Build Gates models who both dropped out of college. So there’s plenty of evidence that college isn’t an absolute requirement for success. But on the other hand, that doesn’t mean that a college education is without value.

[00:08:43] Michael Sonnenfeldt: And having dropped out of Andover when I was in 10th grade and then going to college and starting at the University of Michigan and dropping out when I was, I just turned 17. I went a year early. It was too early. I ultimately went back to m i t and interestingly enough, what m i t did just as one example, I took a course in law in the Sloan School.

[00:09:08] Michael Sonnenfeldt: It’s just an introductory course to law. If you didn’t go to college, you wouldn’t have had a broad education. Well, that course in law sparked an interest for me, that was a lifelong interest. That gave me an edge in almost every negotiation in trying to understand not just the legal framework, but also how governments work, the role of the Fed.

[00:09:31] Michael Sonnenfeldt: Any one of these data points you can acquire on your own, and one of my closest friends never went to college, and he is the best red person on the brain that I know. But when you go to a good college and get a good education, it gives you a rounding that pays dividends for the rest of your life.

[00:09:51] Trey Lockerbie: Another interesting thing happened around the age 17, I believe, where you had this brilliant idea, and I don’t believe you were able to execute on it until your early twenties, but  talk to us about creating a 25 million real estate deal from scratch that ultimately turned into the most successful real estate deal of all time.

[00:10:08] Michael Sonnenfeldt: Well, I don’t know if it was all time, but it was, it was pretty good. And it was one of the most successful in New York metropolitan history. My wife’s family was in the real estate business, but they were not developers. They had a proven formula of buying buildings and managing them and making them as efficient as possible.

[00:10:29] Michael Sonnenfeldt: But they didn’t have construction teams and development teams to either redevelop buildings or build them from scratch. And one of the buildings that they had acquired in 1955 was a building that had been the largest building in the world when it was built in 1929, called the Harborside Terminal.

[00:10:50] Michael Sonnenfeldt: And this was an intermodal freight terminal that was the northeast distribution center for the Pennsylvania Railroad and Rail Cars of  goods and products would come from the west. To the Jersey shore and get loaded onto ships at this facility. The rail cars went right out to the piers and went from the rail car onto the ships.

[00:11:13] Michael Sonnenfeldt: There were 136 truck docks, and the building was eight stories high. But the elevators were so big that when we were renovating we could drive a small panel truck right onto the elevator and take it right up to the floor. And the building was forced to be divested from the Pennsylvania railroad by the antitrust laws that made the argument that the railroads were unfairly competing with local landlords by giving away space for free to generate rail traffic.

[00:11:46] Michael Sonnenfeldt: And that meant the local landlords couldn’t compete with the railroads to get tenants. And this was in the days of what was called the Sherman Antitrust Sherman Clayton Antitrust Law. So the Pennsylvania Railroad had to  divest of this. What by then had become a white elephant. And my father-in-law and his brother bought it for 5 million, which was an awful lot of money, but it was a two and a half million foot facility.

[00:12:14] Michael Sonnenfeldt: Kind of hard to imagine. You could buy a major building for two and a half dollars a foot, and they ran it as an industrial building because that was their business. They were not converters. They didn’t buy buildings that had one use and convert them to another. And when I came along at age 17, he gave me a job in the warehouse in the building and I was then into transcendental meditation and the pier, the building is right on the Jersey shore across from what was then the recently completed World Trade Centers.

[00:12:44] Michael Sonnenfeldt: And if you walk out on the pier a thousand feet, it feels like you’re closer to lower Manhattan than you are to the Jersey shore behind you. It’s about 3000 feet across the Hudson. And you were a thousand feet out. Just by going to the end of the pier. And I had this idea that lower  Manhattan was expanding rapidly because of the growth of new computer centers.

[00:13:05] Michael Sonnenfeldt: And the big firms were going to suburbia and creating these campuses. But people who went to those campuses felt they were going to Siberia. It was too far from the mothership. And I had this idea that maybe lower Manhattan could move 3000 feet to the west to this building. That was ideal because the floor loads were enough to hold the computer centers and the ceiling heights were enough to accommodate all the air conditioning ducts and the raised floors.

[00:13:34] Michael Sonnenfeldt: And the particular location was such that I ultimately was able to engineer complete power redundancy from two different directions and microwave transmission from lower Manhattan. But I began just having this idea as I was meditating each day at the end of the pier. Looking backwards and seeing this building and looking forwards and seeing lower Manhattan.

[00:13:57] Michael Sonnenfeldt: I went off to college. Yeah, I had dropped out of the University of Michigan, but went off to MIT and then got a master’s degree at m I t and then I went to Goldman Sachs, where I worked in the real estate department and had a bit of a taste for institutional real estate. But after a year, it wasn’t for me.

[00:14:14] Michael Sonnenfeldt: And I left and went to work for my father-in-law for three years as I hatched the plans for this renovation. And it was my great fortune that he and his brother didn’t want to renovate. And as a result, I was able to acquire it with a partner who changed my life the day he walked into my office.

[00:14:35] Michael Sonnenfeldt: And in those days we did acquire it for $25,200,000, but for one reason or another, we were able to put up $200,000 and. Have loans of 25 million. And fortunately, my partner had the 200,000 and I didn’t, and that’s how it all began. 

[00:14:55] Trey Lockerbie: You mentioned meditation and it got me curious. Ray Dalio said that attributes most of his success to meditation.

[00:15:00] Trey Lockerbie: Are you still meditating? What are your thoughts on meditation just from that experience? 

[00:15:05] Michael Sonnenfeldt: Yeah, so I meditated using what was then called TM or transcendental meditation for a few years then, and then I largely abandoned the practice for a couple decades. And then a little over a decade ago, I began a much different or a little bit of a different practice.

[00:15:24] Michael Sonnenfeldt: Today I meditate for about 45 minutes a day. Generally at four or five in the morning, when I wake up in the middle of the night, I can’t go back to sleep. I’ve been on a couple silent retreats, one, a 10 day meditation silent retreat, and one a five day. Those are pretty unique experiences and there’s slight differences between TM where they give you what’s called a mantra and everybody supposedly has a private mantra and shavana breathing where you’re listening to your breath, the flow in and out to concentrate your mind.

[00:15:58] Michael Sonnenfeldt: And then there’s a concept of  an observing mind. Even as we’re having this conversation, if I’m on my game, I’m also observing what’s going on in the conversation. And sometimes when you feel an emotion and you can see it, you can dissipate it. If you go into a room and for some reason you’re feeling insecure because of something about you or something about the rest of the people, if you see yourself being insecure, The insecurity seems to fade away or become angry or jealous.

[00:16:31] Michael Sonnenfeldt: These are all common human emotions or just anxious or, you know, there’s lots of ways that one can observe themselves and moderate behavior that’s counterproductive. But I do believe that my life is immeasurably better for meditation. I also am a believer in analysis. Some people think of analysis through some terms.

[00:16:56] Michael Sonnenfeldt: It’s a gift that you give to yourself to explore  your inner mind. And because I’ve been doing both for over a decade, I guess now, probably 15 years, it’s very hard to figure out what part of my personal evolution came from the meditation or came from the analysis because they’re. Ways to access parts of your brain or your mind that are more difficult to access if you’re not mindful about it.

[00:17:26] Michael Sonnenfeldt: Analysis is an attempt to explore the unconscious. There’s a model of our mind. There’s the part of the mind that exists on the surface of every day, and there’s a part of the mind that’s hidden from us, except when things seep out and almost surprise us. Where did that reaction come from? Where did that idea come from?

[00:17:48] Michael Sonnenfeldt: You know, in the world of finance, you have a whole thing called behavioral finance and Danny Kahneman and Turkey, his partner who passed away, wrote a book called Thinking Fast and Slow. And although it’s not exactly the same, it really shows how your brain functions on multiple levels because it’s evolved that way.

[00:18:10] Michael Sonnenfeldt: To optimize the way we function in the world that exists or exists. We don’t live in nature anymore, but you know, if a tiger walks behind the trees and you just see a little brown spot walking, your brain is attuned to seeing that and reacting to protect yourself. Unfortunately, if you read the stats on climate change and it’s a slow moving disaster over a generation, our brains really don’t know how to deal with that.

[00:18:39] Michael Sonnenfeldt: It’s, it’s one of nature. But to go back to analysis, basically analysis is a different way to access what’s going on. I, you can do it, you need to do it generally three times a week with an analyst who’s the psychiatrist, who’s gone on to train as an analyst. There’s Freudian  analysis and other forms as well.

[00:19:01] Michael Sonnenfeldt: Freud was the father of it. But you know, a simple example is I was listening to my brain a few years ago, if you will, and what popped into it was an experience I had when I was 11 or 12 years old where my parents had a fight. And I hadn’t really remembered in 50 years that event. And I had to wonder why I had hidden that event?

[00:19:25] Michael Sonnenfeldt: Why was this sublimated? Why did it disappear and what did it mean that it came to the fore Now? And sometimes when you realize who you are, your childhood is like a record groove on the old records where you had a needle in those grooves and your childhood sort of imprints. And sometimes when you can see your behavior today as a product of your childhood, you can, it’s another form of attenuating or taking control of behavior that up until then you weren’t sure what was driving you.

[00:19:59] Trey Lockerbie: Well, another form of analysis I have to imagine is Tiger 21, which we should just discuss and cover for a minute here. First of all, tiger 21 is an acronym, so maybe walk us through the acronym and then why you founded this enterprise now. And I’d like to kind of talk about the dynamics that play out in these groups, because I’m sure it’s a form of analysis to some degree.

[00:20:19] Michael Sonnenfeldt: Sure. Tiger is an acronym for the investment group for enhanced results in the 21st century. Tiger is an organization of today 1,224 entrepreneurs who meet in groups of 12 to 15 people every month for a full day to focus primarily on the experience that a successful entrepreneur goes through when they sell their business that they might have owned for 20 or 30 years, and immediately go from a wealth creator at least temporarily to a wealth preserver.

[00:20:54] Michael Sonnenfeldt: And the amazing thing is most entrepreneurs don’t know so much about investing, and they further  are fooled by the fact that their successes, their success as an entrepreneur, they assume will assure their success as an investor. And as they say, it just ain’t so. And all of a sudden there’s often a rude wake up call.

[00:21:13] Michael Sonnenfeldt: How could I know so little about investing when I’ve been such a successful entrepreneur? And we create an environment where people learn about all of the things that that transition occurs. I mentioned this large development that I had done in my twenties. I sold it when I was 31. I was more successful pretty much than any peer of mine, and maybe successful beyond any dream that I had 

[00:21:38] Michael Sonnenfeldt: but then I had a second go at starting new businesses and I didn’t want to stay in real estate because I was being overshadowed by my father-in-law and I wanted my own identity. So I went into the real estate information business, and for those of your listeners who might have gone to Zillow to look up the price of a house, I essentially created an industrial form of Zillow before the internet was created.

[00:22:05] Michael Sonnenfeldt: So obviously very different functionality, but the idea was to find a way to track real estate prices across different property types, which had lots of uses among which was if you were buying a property, was this a good or a bad price? And potentially to trade commodity indexes against the prices of different real estate categories or to arbitrage what an industrial property in New York might be worth versus an industrial property in California.

[00:22:36] Michael Sonnenfeldt: Just to use an example. But in my entrepreneurial zeal, you said, I think you were touching before and what it was like to be 31 and. Have achieved that level of financial success. There’s nothing more dangerous than a 31 year old who thinks he can do no wrong. And when you’ve had that level of success, it’s hard not to think you can do no wrong.

[00:22:58] Michael Sonnenfeldt: And so,  fortunately I did a couple of things that didn’t imperil all that I had made, but set me back enough to realize that I wasn’t as infallible as I thought the day that I sold Harborside. And actually, you know, as a, as a rule for hiring people, unless they’ve had a bit of failure, I tend to be less interested in them because obviously you want success in somebody’s background, but without the failure, they don’t begin to test their own limits and they don’t begin to learn what their strengths and their weaknesses are.

[00:23:34] Michael Sonnenfeldt: And they never master how to make up for their weaknesses, either by associating with other people or staying away from the things that. They’re least good at and focusing on the things that they’re best at. So I had a tough couple years after this incredible success where it felt like I was going backwards.

[00:23:55] Michael Sonnenfeldt: And one day about five years after I sold Harborside, I was involved in  a business where I’d made an acquisition that turned out, I don’t know that there was fraud, but I certainly miscalculated what the potential of that acquired business was. And had a real legal hassle with the guy who I had bought the business from, who I thought had misrepresented the business.

[00:24:17] Michael Sonnenfeldt: And I realized, I woke up one night and said boy, if these 10 different things happen in the things I’m involved with, I could lose most of what I made. And it scared the bejesus outta me. I just couldn’t, I couldn’t believe how that could be. The chance of all 10 things happening was very small. But the fact that I could even construct a series of.

[00:24:40] Michael Sonnenfeldt: Improbable events that would set me back, told me I was doing something wrong, and I decided to crawl back, if you will, to the real estate space, which I guess I have some more natural expertise or instinct for notwithstanding. I also got a huge benefit from the fact that my wife’s family [00:25:00] was in real estate and I’d been in the real estate department at Goldman Sachs and so forth.

[00:25:04] Michael Sonnenfeldt: And I started a company to acquire distress portfolios. And over the next seven years, built that up to about a billion dollars in assets. My partners generated about 38% i r r, which even today is a good number. And we acquired about 200 properties distressed, some through the debt, some through ownership.

[00:25:27] Michael Sonnenfeldt: And I put together a team that could re rehab, remarket, reposition, resell, anything with the word R-E. In front of it to transform a property from what we took control of to turn it into something vastly more valuable. And that company, which was called M- S- E- M- M -E- S, was a play on my initials MS.

[00:25:51] Michael Sonnenfeldt: And it also means truth. In Hebrew, MS means truth in Hebrew. I was very sorry to see that name go. Most entrepreneurs get very attached to the names of their businesses and it breaks their heart when they have to let them go. But after seven years, I built that business up to, as I mentioned, about a billion dollars.

[00:26:09] Michael Sonnenfeldt: And an opportunity came where my junior partners wanted an institutional partner to buy half of the business. And I realized that really what was going on is that one of my partners thought that if we brought in an institutional partner, he would be closer to that institutional partner than I would be. And so his minority interest plus the institutional partner’s interest would control the business and I didn’t have any interest in being a minority partner in the business, but I said, look, if you want to bring in a partner to buy 50% of the business, why doesn’t he just buy my interest? I think at that point I owned more than 50% and I’ll go quietly into the night. I think I was about 43 at that point.

[00:26:53] Michael Sonnenfeldt: And what was interesting was if I hadn’t sold Harborside when I was 31  and it changed my life for the better, I might not have had the courage to do that second sale. Because the business had a lot of room to grow and the problems weren’t enough. But it just seemed like I had a second opportunity in my life to start all over again, and I’m somebody who likes to be part of the act of creation.

[00:27:20] Michael Sonnenfeldt: So I took that opportunity and sold it. And that’s when I started Tiger 21. 

[00:27:27] Trey Lockerbie: I want to touch on that piece of failure you brought up, because I find that so interesting. I was reading about how Sarah Blakely, as a kid, would sit at the dinner table and every Friday, I believe her father would say, what did you fail at this week?

[00:27:36] Trey Lockerbie: You know, and he’d be disappointed if she didn’t have something to bring up her and her brother. And, and similarly, you know, I watched this SpaceX launch recently, and it was a successful launch. It went up in the air, but it came down and blew up. But the team was celebrating, like, this is a successful launch.

[00:27:51] Trey Lockerbie: And you know, you hear this phrase, fail fast, fail off and fail cheaply, maybe. How have you adopted this lesson? I know you’re a parent as well. I’m curious, has that,  is this sense of failure in this lesson of leveraging learnings become a practice that you somehow, you know, instill in people around you, your employees and or your family?

[00:28:09] Trey Lockerbie: You know, 

[00:28:10] Michael Sonnenfeldt: I was just at a meeting of the Tiger 21 Family Office group. Some of our members who have higher amounts of wealth and have created family offices come together to talk about mostly issues of legacy and children. And one of the members was saying that his daughter didn’t make it onto the soccer team and is kind of shocked because she’s grown up in some privilege and she assumed she would get that and the father hates the fact that any of his kids would think that they were so privileged. And she said, dad, I didn’t get on the team. And he said, well, honey, I guess you weren’t qualified. And it was a real, real shocker. He said, if you want to get on that team, you just gotta work a little harder.

[00:28:55] Michael Sonnenfeldt: You know, they’ll let you on when you’re ready to get on. But not before it was really a  beautiful kind of statement because I can’t tell you how many other parents would say, oh, well, that coach doesn’t know what he’s doing and I’m going to take care of him. I’m going to call the principal. I’m going to do something to make it right for you, baby.

[00:29:12] Michael Sonnenfeldt: And that’s not the right way to do it. You know, you want to, you want kids to be on their own. They, you want them to fail. They want to understand that, not always, but sometimes their failure is a reflection of their own shortcomings. And if they want to, if they want to win, they need to correct or work harder or be smarter or not be so lazy or, you know, do something.

[00:29:35] Michael Sonnenfeldt: And if you don’t make that connection for them, they expect the world to come to them. And that’s just no way to live. But I feel that you know, this notion that everything is the best, the, the way the world works out as a wonderful way because we all try and make the best of whatever hand will deal.

[00:29:53] Michael Sonnenfeldt: And of course, I feel like I was dealt a very lucky hand. Many of us are. But that failure in those  five years, or at the end of the five years was the best thing that ever happened to me. And, you know, frankly a few years later in 2007, I was diagnosed with. Cancer, a form of non-Hodgkin’s lymphoma.

[00:30:14] Michael Sonnenfeldt: And oddly enough, it was a great experience. It sounds crazy to say that obviously if you die from it, it’s not a good experience, but for me it was another kind of wake up call to take a step back. And in, in my case, it gave me six months to step off the merry-go-round while I was in treatment and think about what I had been doing.

[00:30:36] Michael Sonnenfeldt: And I kind of decided that I wanted to marry philanthropy and business in a different way, particular to me. I wasn’t making a judgment about anybody else. And that’s when I sort of coined the phrase all climate all the time, which is what my passion is, and tried to think about ways to marry philanthropy and business.

[00:30:57] Michael Sonnenfeldt: I owned a solar lighting business at the time,  and we started installing lights, the earthquake in Haiti. Happened a little while later, and we installed lights at our own expense, sent our own team down and lit up the emergency feeding stations and the emergency medical stations. And we were the first people on the ground.

[00:31:17] Michael Sonnenfeldt: And I never realized that light could be so lifesaving. But the interesting thing is, you know, the road to hell is paved with good intention. I told our team, you can only go into Haiti if you bring somebody who’s from the military who’s killed somebody in action. And they thought that was crazy. And they said, why would you do that?

[00:31:36] Michael Sonnenfeldt: I said, well, in the nineties, I led peacekeeping inspection teams to 28 war zones around the world as part of my international activities, maybe following in my father’s footsteps. And I went to 28 war zones. We were shot at, held up, whatever, and we were in the killing fields of Cambodia. And one of our members almost lost their hand when they were given a grenade  that was supposed to have been deactivated, but there was still.

[00:32:02] Michael Sonnenfeldt: Gunpowder in the cap, and he was a pianist and I thought all hell was going to break loose. But my point is that life has these twists and turns and so that was an interesting period. 

[00:32:16] Trey Lockerbie: Sounds like a very interesting period. I know that you are a big proponent of learning from others’ experiences as much as possible. Certainly that’s a huge, I think, pinnacle of a Tiger in and of itself. Have you found any lessons from those groups or from your group specifically that helped you avoid a mistake of your own? For instance, I know that you’re not keen on using debt or leverage in your own personal finances and investing.

[00:32:39] Trey Lockerbie: I’m curious if that’s more of a mathematical choice or from a cautionary tale from you or others. 

[00:32:44] Michael Sonnenfeldt: So yesterday we had a young member in one of the groups describing his net worth and asking the group what they thought he could afford to pay for a house. That’s a common question. You create a fair amount of wealth  and you’re not quite sure, you know, we’ve been tracking these statistics so I can tell you what the asset allocation is of the hundred and 35 billion that aggregates all of the tiger. And I can also give you a sense of some issues about living expenses. But he was new to the game and he just had no reference point whether he could pay X or 10 X and be prudent about buying a house, particularly in California where the numbers are so crazy.

[00:33:29] Michael Sonnenfeldt: And one of the other members said, well, you know, if you b pay I’m just making a number up 10 million, and you lever it with 5 million bucks, all you have to do is worry about the 5 million you have to come up with. And I said, really, you would put debt on a, on a house? I’m pretty sure that I’m anecdotally accurate that a majority of tiger members have no debt.

[00:33:53] Michael Sonnenfeldt: The greatest luxury of. The wealth they have is never to have to worry about  the corrosive effect of debt. We could have a long debate whether because there’s a certain level of tax deductibility and you can get debt particularly in the last couple years, you could get such cheap debt that the arbitrage, if you had any kind of income producing assets was clear.

[00:34:16] Michael Sonnenfeldt: So it’s not a financial argument. I, I understand financially, if you borrow money at 4% and your average return is 11%, you do all the math, it makes a lot of sense. But we once had a member whose father not only had a hundred percent of his assets in one fund, but it was such a fantastic fund that he literally mortgaged his apartment, one of the top apartment buildings in new.

[00:34:41] Michael Sonnenfeldt: Because the cost of the mortgage was a lot less than he was earning on that Madoff investment. And when Madoff blew up, they lost everything. And that person had been in Tiger and done what is called his portfolio defense. And most of the people who never heard of Madoff said, we don’t know who Madoff is.

[00:34:59] Michael Sonnenfeldt: But  after you make your money when you’re investing it, you have to have some kind of prudent diversification. And while we would say 10% is the most you should put in any one investment, even if you had 20%, maybe that’s understandable, but 70% is crazy. And he quit the group and said, I really have nothing to learn from you.

[00:35:18] Michael Sonnenfeldt: And a month later, Madoff blew up. And I was very sorry for him, but it was just, you know, you have these disciplines, so of course you know, if you’re worth any number, you want to pick 10 million or a hundred million and you have a mortgage that’s 2% or 5% of your net worth. It’s obviously not.

[00:35:38] Michael Sonnenfeldt: Particularly stressful, but psychologically I have no debt. And I love the fact that I don’t, and I think most of our members feel that one of the luxuries and in some sense it is a luxury, is to avoid all of the problems that debt could possibly create. That’s a kind of learning from a group that we would have.

[00:35:58] Trey Lockerbie: It’s fascinating. You mentioned  earlier that just because you were a great entrepreneur doesn’t make you a great investor. And I’m reminded of that classic buffet quote, right? I’m a better investor because I’m a businessman, better business fan because I’m an investor. They seem to be self-reinforcing. At least for him.

[00:36:12] Trey Lockerbie: I’ve adopted that, you know, that philosophy for myself with my own business thinking, okay, I’m the capital allocator of this company. Every decision I’m making is an investment, whether it’s hiring, whether it’s marketing spend, what have you. I’m looking at everything like it’s an investment. So I’m kind of curious where that breaks down, right, because you’re building a business.

[00:36:29] Trey Lockerbie: Yeah. And when you go into actual investments, where is the disconnect? 

[00:36:34] Michael Sonnenfeldt: You know, there’s so many different ways to look at this, but I’m not sure that Warren Buffett is an investor when he’s negotiating specialized deals, he’s a kind of financial entrepreneur. It’s a distinction, maybe without a difference, but what I know is the following, none of our members are Warren Buffett and most of our members made their money building a single business and milking it for all it was worth for 10 or 20 or 30 years.

[00:37:03] Michael Sonnenfeldt: And while they had had their nose to the grindstone in that single business, most of their capital was tied up in the business as well. So that when they sell the business, they get a huge pile of capital. Doesn’t matter how many zeros are attached to it could be 10 million, could be a hundred million, could be a billion.

[00:37:24] Michael Sonnenfeldt: But when they sell their business, they lose the platform that the business provided them, and they lose the automatic earning capacity or the built-in earning capacity that that business had. And now they’re at the mercy of markets. When they were the owner of a business, they were the king of a little pond.

[00:37:43] Michael Sonnenfeldt: They were the masters of some small corner of the universe. But once you convert that into money and you become an investor, you have no natural advantage. Maybe you have some advantage in investing in assets. Like the asset that you worked on. So if you were a real estate developer, maybe that gives you an edge as a real estate investor.

[00:38:05] Michael Sonnenfeldt: But by and large, entrepreneurs make their money concentrating on a single opportunity, and investors have to diversify in that sense. Warren Buffet was never an entrepreneur, he was always an investor, maybe the best investor in history, but he was really an investor from day one. Entrepreneurs are action junkies.

[00:38:27] Michael Sonnenfeldt: Every day they come in and they say, what can I do to make my business better? And for them, investing is watching the paint dry. So they almost always move too quickly to do something instead of letting investments like a wine saver over time. And you know, there’s just a lot of other differences between an investor and an entrepreneur.

[00:38:49] Michael Sonnenfeldt: The most important thing is over-concentration and a lack of understanding of risk. What? What happens when you’re an entrepreneur is very often your success comes  in an area where you have some kind of innate or natural sweet spot. It just works for your personality and you don’t really know it. It’s like the classic example of the fish who doesn’t know what water is.

[00:39:13] Michael Sonnenfeldt: He’s been swimming it his whole life, but he doesn’t realize he’s actually in water. And for many entrepreneurs who are successful, they’re like the fish swimming in water and not realizing exactly why they’ve been successful. And then when they lose the platform and now have to go head to head with the world’s best investors, they don’t have a chance.

[00:39:33] Michael Sonnenfeldt: They’re like cannon fodder. So the real moniker for Tiger 21 should be, we take some of the world’s greatest entrepreneurs and turn them into mediocre investors. If we didn’t, they’d be some of the world’s worst investors just by their natural inclination. So, of course that’s not what we aspire to, but the point is that so many investors have a dramatic comeuppance about the world after being an  entrepreneur.

[00:40:00] Michael Sonnenfeldt: And if we’re helping them become a new entrepreneur or a better investor or to clean up their legacy or their personal relations or their family relation, this is a space where they can explore all of those things. So it’s both on the deal side and on the personal side. 

[00:40:19] Trey Lockerbie: That last point is really interesting. It’s reminding me of that quote that’s thrown around a lot. That’s when investing, right. Don’t just stand there, do nothing. And that might be the hardest thing for an entrepreneur to do. So I totally understand that point. Very, very interesting. There are other groups out there similarly, like Vistage and I know some others.

[00:40:35] Trey Lockerbie: I, I’ve actually personally been a Vistage member for four years now building my business. And I understand the deep work that goes into those groups and those efforts. I know that you were actually a Vistage member before Tiger 21, so I’m curious what you took away from your experience there, what you had adopted, what you left behind to kind of help set the stage for Tiger 21.

[00:40:56] Michael Sonnenfeldt: Well, first of all, the two great c e o groups globally, our Vistage and Y P O, and it’s kind of remarkable both of them have as their members CEOs but Y P O tries to get you before you’re. And there’s a higher percentage of under 40 CEOs who are running inherited businesses, and I have absolutely no problem with that but obviously the journey somebody goes on to inherit a business is very different than somebody who takes a nickel and rubs it with a dime and creates a large business. But both members of Y P O and Vistage have the responsibility to run a business. Those organizations focus on running businesses and amazingly enough, they’re both 80 years old and they both have something like 30,000 members.

[00:41:44] Michael Sonnenfeldt: It’s remarkable because one is a nonprofit Y P O and one is a for-profit Vistage, and they’re both great organizations. I think the best way to understand Tiger 21 is those are the great colleges, the Oxfords and Cambridges or, and  we’re the great graduate school. When you sell your business, you graduate from YPO to Tiger 21.

[00:42:06] Michael Sonnenfeldt: It’s kind of remarkable. I only have the highest praise for both of those organizations. We don’t see ourself as competitive. We see ourself as compatible and they’re both fantastic. 

[00:42:18] Trey Lockerbie: Going back to your point about analysis, my relationship with Vistage has always been this kind of love-hate relationship, and that’s because it’s, for one, it’s hard to carve out time away from work, right?

[00:42:27] Trey Lockerbie: But also it is deep work, personally and professionally, which can be exhausting. So just like working out with a trainer, I always kind of dread going, but then I’m so happy when I leave afterwards. Have you experienced something similar to that with Tiger? The group dynamics are different. I know that it’s more practical. Yeah. 

[00:42:44] Michael Sonnenfeldt: Probably the most unique aspect of Tiger is something called the portfolio defense, their financial statements and a 20 page analysis of the purpose of wealth. What is legacy? If there was a downturn in the market, what are your goals? How do you define family? What is the purpose of this wealth?

[00:43:03] Michael Sonnenfeldt: What are your philanthropic goals? And very often it takes about a month to prepare the first portfolio defense. And the reason I called it a defense was like when you get a PhD at a university and you defend your thesis, this is an opportunity among 12 economic peers to defend, do I have enough cash?

[00:43:25] Michael Sonnenfeldt: Am I over-concentrated? Is my estate in order? Do I have enough insurance? Have I thought about how this will impact my kids? And endless other questions. And we exist within a world of peer-to-peer learning. The essence of what we do stems from the belief that the learning comes from your peers who collectively see things that you can’t see on your own.

[00:43:50] Michael Sonnenfeldt: They see your blind spots and the portfolio defense is nerve-wracking for many people There, literally, we’ve had people leave. Before their first portfolio defense. Most people think that once they get through that gauntlet, that’s what it feels like. It’s been the most incredible experience that they’ve had, and they look forward to it year after year because it’s the one time in a year where you can get an unvarnished feedback from people you respect.

[00:44:17] Michael Sonnenfeldt: And for many of our members, they’ve never shared this information with a spouse, with a friend. They can’t talk about it at their country club. They haven’t even shared it with their lawyers or their accountants. Each of those people know a piece of the puzzle, but we try and put the whole picture together and it’s an amazingly transformative experience and much like the one you’re describing. Lots of anxiety before and lots of pleasure. 

[00:44:45] Trey Lockerbie: What are some personality traits or other things that have come out of the surveys? For instance, I’m curious to know if anyone feels like they have actually achieved enough, right? Being an entrepreneur, you always want to strive for more. Is that a possibility or is it an inherent property of just being a human being or an entrepreneur that we constantly think we need more?

[00:45:04] Michael Sonnenfeldt: First of all, there’s lots of studies that show that once you achieve $75,000 a year of income, which you know, for most people it would cover all kinds of basics, very basics. Virtually everybody else thinks if they could only have 20% more, they’d be satisfied. Doesn’t matter whether they have a million, 10 million, a hundred million or a billion.

[00:45:27] Michael Sonnenfeldt: Obviously you have outliers, but when you asked the question, I was thinking, what would happen if you put a thoroughbred who just won the peak? In a pen that’s 20 feet long, you know, he’d, he’d be itching to it to run wild. Many of our members, it’s not the money, it’s in my case. I’m fine on the money.

[00:45:48] Michael Sonnenfeldt: I love being part of an act of creativity. If I end one thing, I want to start another. Some of our members want to change the world. Some of them started a business because they just thought they could make a difference. You know, many entrepreneurs in the nonprofit world exhibit much the same characteristics of saying, I can do this.

[00:46:10] Michael Sonnenfeldt: I grew up, maybe people had a low expectation and I want to prove to them that I can make a difference or I can do X or I can do. You know, you have these amazing outliers. I have no particular insight into the Elon Musks of the Steve Jobs of the world, but I know if they’ve gone through a transformation, thinking about a word called retirement, that word doesn’t exist anymore.

[00:46:34] Michael Sonnenfeldt: Largely, there’s a better word called rewire. I didn’t create it, but I like the word, the nature of our frictionless economy, internet and so forth, allows wealth to be created much earlier in life. People are creating wealth younger, and obviously when they’re creating wealth younger, they have more energy to create something else, whether it’s for profit or a nonprofit.

[00:46:57] Michael Sonnenfeldt: Very small fraction of them care about making much more money. They’re much more interested in legacy and impact, and sometimes the impact is on their family. Sometimes their impact is philanthropic, but we don’t hear a lot of discussions about just raw ambition to make more. 

[00:47:14] Trey Lockerbie: I know you also survey the members about asset allocation and other things, and, and real estate has been a longtime top performing or top choice, I guess, of a, for an asset across the board, but that’s now declined.

[00:47:26] Trey Lockerbie: Declined no more? No, that’s now declined. I mean, is that just because interest rates are going up? I mean, what, what is driving the, you know, outperformance of some of the other assets now in the groups? What’s the mentality going into that? That’s deprioritizing real estate. 

[00:47:39] Michael Sonnenfeldt: So we’re in a moment that’s remarkable, truly remarkable.

[00:47:44] Michael Sonnenfeldt: Something happened this month where obviously in February of 2023, something happened in this month that literally has never happened in the 15 years we’ve been recording this data over the last few months. A majority of our members think that we’re going into recession and a majority of those members think it’ll be a significant recession.

[00:48:04] Michael Sonnenfeldt: And yet, as of the fourth quarter, our members were more highly invested. In their portfolios than ever before. And even more remarkably, private equity zoomed from 23 to 31% of our portfolios. Private equity had been 10% only 15 years ago. So it’s the biggest shift out there. And real estate had been king for 15 years, hovering between 28 and 32%, and in the last year it’s fallen to 23%.

[00:48:37] Michael Sonnenfeldt: And public equity is obviously the other one of the big three. In the last year it fell from 28 to 23, which just reflects the downturn in the public markets over that period. But we’ve had what would be called rotational or sector shift with private equity for the first time, zooming to the top and real estate falling back.

[00:48:57] Michael Sonnenfeldt: And it was interesting. We’re just finishing our 12th annual conference where we have. Some of the top people in every industry, and one of our speakers, you’d know his name and I’d say he’s probably one of the five largest real estate owners in the world, said that the question was, if I had 10 million, what would you invest it in?

[00:49:17] Michael Sonnenfeldt: He said, well, I wouldn’t invest it in real estate. I think the prices are too high, they have to come down. We’re still pretending that interest rates are as low as they’ve been for the last decade, but they haven’t been. And so real estate looks like it’s coming down just a bit, but as anybody who’s been in real estate can tell you a deal of a lifetime comes across your desk every week.

[00:49:40] Michael Sonnenfeldt: And it doesn’t matter whether it’s good times or bad. If you do a great deal and they’re always out there, you can do well. 

[00:49:48] Trey Lockerbie: Talk to us a little bit about Michael Sonnenfeldt’s views on the markets and how you think they’re going toperform. You know, there’s all these mixed signals as you just mentioned going into this year, but how are you viewing things?

[00:49:59] Michael Sonnenfeldt:So the place where I’m most involved is in climate investing because I believe it’s the single biggest investment theme in the history of humanity. We’re going to rewire the entire utility network so that it can become electric and replace fossil fuels. We don’t have any choice but to do that. And the totality of the electric conversion and elimination of fossil fuels will be about two to 3 trillion a year for the next decade.

[00:50:32] Michael Sonnenfeldt: So, by any stretch, it’s the largest investment theme. The markets, even with how great oil and gas did in the last year, the markets have spelled the end of fossil fuels. Fossil fuels in 1980 or 90 were 28 or 29% of the market cap. And I think today they’re close to 5%. And if you believe in stranded assets, it’ll be even worse.

[00:50:53] Michael Sonnenfeldt: We just have to get the carbon out of the atmosphere or none of our children or grandchildren will inherit the life that we would, we would like. So climate investing, I’m particularly interested in VC climate investing where I focus on late seed and early A, because there’s too much big money in the later stages.

[00:51:14] Michael Sonnenfeldt: But I think we can make a difference. So I run a team called Muse Climate Partners, and we have about 30 VC investments under our belt that are just doing amazing across the entire spectrum. But in terms of interest rates coming out of the conference that I mentioned, I think interest rates likely are not going to accelerate.

[00:51:35] Michael Sonnenfeldt: I think it’s obviously been a bad route in the last year, but maybe, I don’t know if we’ve topped out, but I think the growth will slow and maybe top out. One of the ways I look at it is labor prices. Still tight. But if you look at so many other areas, you know, you couldn’t buy a used car a year ago.

[00:51:56] Michael Sonnenfeldt: Now you can’t spell one. A year ago you couldn’t ship something because the ships were all filled and the shipping rates had gone up. 10 x they’ve all fallen back. So a lot of those supply chain issues that were a result of the pandemic have resolved themselves. And I think some of the inflation was a result of what was called the bullwhip effect after the pandemic where inventories were low and then people started stacking, stacking up again.

[00:52:23] Michael Sonnenfeldt: But these are really complicated times. And let’s not forget, the war in Ukraine has turned the world upside down, not just because it turned energy prices. It was the greatest gift that energy owners had. And if you think about Russia, Russia might have invaded Ukraine just for its financial impact on Russia’s fossil fuel assets.

[00:52:45] Michael Sonnenfeldt: They’ve made fortunes from money. And I suspect the war has cost less than the increase in value in their oil and gas assets. But you know, we have the potential of Taiwan. I wouldn’t minimize that inflation, climate and political  instability and all of these things are creating a witches brew of black swans to mix a metaphor that we’ve never had before.

[00:53:07] Michael Sonnenfeldt: What Tiger members, I think are saying is, despite all of that, people need to wear clothes. They need to eat, they need to turn on their lights when they get in the car. They need to be able to move from point A to point B. There’s a lot of basic things that are amazing bets and good times and bad. And frankly, if you cure cancer, whether it’s good or bad, you’ll do well.

[00:53:31] Michael Sonnenfeldt: And if you create a new energy source that’s fossil fuel free and is cheaper than any other energy source, that’s going todo well. So there’s, there’s just endless categories of potential and we’re both in an age of kind of, Unlimited entrepreneurial potential bounded by the realities that polarization and these other challenges are creating.

[00:53:56] Trey Lockerbie: Now, I asked this question to Jeremy Grantham recently, who was also very focused on climate and VC specifically. Yeah, it’s fantastic. I’m curious what you are seeing that’s giving you the most optimism around climate. What new technology or what advancements you’ve invested in or seen that you’re most optimistic about?

[00:54:17] Michael Sonnenfeldt: So I’m the vice chairman of, or co-chairman of something called the Climate Pathways Project at MIT. That is where we house something called the Inroads Climate Simulator. It’s what I believe is one of the most advanced visual simulators of climate over a hundred year period. And you put in these 18.

[00:54:40] Michael Sonnenfeldt: Policy levers, you can move any lever anyway. You know, gas prices, oil prices, taxes, regulations, electric cars, afforestation, deforestation, and we could go through it. But you look at all the major policy areas and the fact is we know the science. This isn’t any more debate. Yes, there’s some wacko kooks, and I’ll just call it that, who are in denial.

[00:55:08] Michael Sonnenfeldt: And it’s not just the majority, science is virtually settled. That climate is manmade and it is going to threaten our way of life if we don’t cut back on the production of fossil fuel, CO2. And obviously CO2 is not the only, carbon dioxide is not the only pollutant. You have methane and a whole bunch of others as well.

[00:55:33] Michael Sonnenfeldt: But one thing that’s very optimistic is we know how to solve the problem. And by the way, there are many routes to solving the problem. The flip side is, will we have the political will to solve the problem? But the point that I’m making is not only is the science settled, and not only do we know how to solve the problem, we don’t need a single new technology invented to solve the problem.

[00:55:59] Michael Sonnenfeldt:  We need policies. If there was any one policy, it would be a climate carbon tax. There’s lots of words for carbon tax. It’s carbon fee, carbon dividend. But any time you put a price on carbon, you know, every time I turn on a light switch, I think, you know, if this costs twice as much, I turn it off sooner.

[00:56:19] Michael Sonnenfeldt: And every time I’m on the road and I see some of these, you know, huge gas guzzling vehicles zooming by me at 80 miles an hour, I say I’m in a Tesla or an ev. I say, you know, if the price of gas was another dollar or two, maybe somebody would drive a little slower, drive a little smaller car, completely the same quality of life doesn’t reduce your freedom, but it’ll save our children.

[00:56:42] Michael Sonnenfeldt: There’s so much that would unleash the entrepreneurial genius, both of America and the world. If we put a carbon price because it would unleash innovation. Unfortunately carbon price alone probably is only about 30, 40% of the problem, meaning it’s a solution that would solve only 30 or 40% of the problem. because we need to shut the coal plants down and we need to stop cutting down the forest in Brazil, which are the lungs of the planet.

[00:57:11] Michael Sonnenfeldt: But we know how to do it. We don’t need any new technology. The more new technology there is, the easier it’ll be. Someday we’ll be able to do what’s called carbon capture and literally turn on a gadget in a field and it’ll suck the carbon out of the air. But, That’s too expensive right now. And although it’ll, it’ll undoubtedly be used.

[00:57:31] Michael Sonnenfeldt: We know the science, we know what needs to be done, we just need the political will to do it. 

[00:57:37] Trey Lockerbie: I agree with you on the science being settled, but I am curious about this playing devil’s advocate. For instance, you mentioned this m i t model where you can pull different levers and forecast. There’s this Charlie Monger quote about not letting other people forecast for him because he doesn’t like throwing up on his desk.

[00:57:52] Trey Lockerbie: And it kind of goes back to your point earlier about human beings just not being able to think long term compounds. And, and, and it’s kinda that garbage in,  garbage out is what I’m getting at. And to a degree, right? With sure humans behind the wheel. How do we control for that when we’re forecasting climate impacts?

[00:58:08] Michael Sonnenfeldt: The fundamental relationship that you have to look at is how many parts per million in our atmosphere is the carbon dioxide. And you can see that it’s been going up from 350 parts into the mid four hundredths as the earth has been getting hotter. So we could debate whether one thing or another produces more or less carbon, but if anybody believes they can get in a car and drive down the freeway and the gas tank will fill up instead of empty, that’s a kind of science I don’t believe in.

[00:58:43] Michael Sonnenfeldt: So we could debate how fast the gas comes out of the car when you’re driving down the freeway, or we can debate how far you can go. Those are legitimate scientific debates, but that’s not the same as a debate about whether you can drive down the freeway and have the gas go up in your tank instead of  down.

[00:59:00] Michael Sonnenfeldt: And so when you look at the concentration of carbon in the atmosphere, we can either take. The best science that we have, knowing that it’s always an approximation, but we can say that if you burn so many gallons of fuel, it will produce so much pollutant that will raise the parts per million of carbon.

[00:59:21] Michael Sonnenfeldt: And we know that the more carbon in the atmosphere, the hotter the earth will be. And it’s just that simple. So whether it’ll be 17 years till we get to two degrees or 34 years, you and I can debate it, but we can’t debate whether burning fossil fuels is good and we can’t debate about whether having less fossil fuels and other pollutants.

[00:59:46] Michael Sonnenfeldt: And whether reducing the carbon in the atmosphere will reduce the temperatures that are rising seas, burning, burning down, if you will, forests creating these storms and melting Antarctica and the Arctic region. These are, you know, all of that is keyed off of temperature, and the temperature is very clearly a reflection of a very simple scientific fact.

[01:00:08] Michael Sonnenfeldt: So happy to debate with you any parameter, any leverage every, any intensity, but not whether the simple fact that more fossil fuels raise the parts per million in the atmosphere and get the earth to be hotter. 

[01:00:23] Trey Lockerbie: I know that you’re now focused on preserving the planet more so than preserving wealth, if you will, right at this stage.

[01:00:29] Trey Lockerbie: Right. But I know that Tiger has put out literature around this 2% rule for preserving wealth. Yeah. I’m kind of curious about, yeah, that rule at the moment. Inflation, obviously, rising asset prices, rising wealth gaps, widening. I’m just kinda curious, 2%, is that enough? Is that number still the rule of thumb?

[01:00:48] Michael Sonnenfeldt: So look, if somebody retires and after tax they have 10 million or a hundred million or a billion, the first thing they’re going to say is, what can I afford to live on? What’s a prudent amount? And the fact is, if you, you know, we. That the average for our members is 2%. And so as a first order approximation, if somebody does their portfolio defense and they’re living on 5%, that’s going to set off an alarm bell.

[01:01:18] Michael Sonnenfeldt: That’s different. And you do have people who are going to live on 10% because they haven’t thought through the number, and they might have a pension, they might have a unique situation. Obviously if I’ve locked in some amazing financial asset that’s generating 15% a year for the next 30 years, I don’t have to worry about 2%.

[01:01:36] Michael Sonnenfeldt: I can live on 10%. But when you’re subject to general market conditions, a perfect example is, you know most, the markets were down 20% last year. Most investors were down 10, 11%, depending on which category, you’re not going to not eat. So in a year, like last year, if you were living on 2%, now you went down 13% because you had losses and so forth.

[01:02:00] Michael Sonnenfeldt: So if you look out over the long term, 2% is simply a number that if my kids had to learn one fact about prudent spending, you can’t go wrong spending 2% because even if you made no money, it would take you 50 years to get through it. But the point is that when you look at historic inflation and you look at what it costs to live and taxes 2% is a number that is prudent.

[01:02:27] Michael Sonnenfeldt: Obviously there are only a few people in the world who can actually have enough assets. That 2% is enough to live on. Because even at 10 million, you know, one of the phenomena that we have, that’s amazing, you have a business that you’re making, I’m just making an example, 3 million a year, and you say, what is that business worth?

[01:02:47] Michael Sonnenfeldt: Well, typically private businesses go at seven, eight times earnings, something like that. You might sell it for $20 million. And you sell it for 20 million and then you pay taxes and you’re left with 16. Well, if all you can get is 2% on that 16 million, that’s $320,000, your income has just gone down 90%.

[01:03:07] Michael Sonnenfeldt: That’s a phenomenon we call sticker shock. And in almost every case, except high tech or high margin businesses, the passive earnings you can earn on the proceeds of a sale are less than you were earning when you own the business because you sell it at a multiple that’s much lower than the rate of return that you’re getting on your investments after the sale.

[01:03:34] Michael Sonnenfeldt: And this is a real sticker shock. You know, if you were making 3 million, you might have been living on a million and giving away 200,000 a year, and now you can’t even give away 200,000 a year and be left with anything. So understanding the sale and the psychology and the shock and what’s different is really a critical thing.

[01:03:53] Trey Lockerbie: Well, Michael, I’ve learned a lot about you and your sales and this group you’ve built and all the knowledge that’s come out of it. I’m  so happy to have this discussion and I really enjoyed your book. It’s so to the point, it’s very clear, well-written, and impactful. I really enjoyed it, I devoured it honestly.

[01:04:09] Trey Lockerbie: And so I really love to do this again and catch up with you again. Before I let you go, please tell our audience where they can learn more about you or where they can learn more about Tiger 21. Any other resources you want to share? 

[01:04:20] Michael Sonnenfeldt: Tiger 21 is www.tiger21.com . And there’s a wealth of resources for that and if anybody is interested, it’s very clear from the website how to get more involved.

[01:04:30] Michael Sonnenfeldt: And if you’re qualified and interested the website will take you exactly where you need to be. If you just Google me, I think I was on CNBC, or other TV networks for the 57th time last week. So you can probably find me on Google.

 

[01:04:47] Trey Lockerbie: I really appreciate it. The book, again, is called Think Bigger: And 39 Other Winning Strategies from Successful Entrepreneurs. It came out a few years ago, I believe, but the lessons here are evergreen. I really enjoyed it. Michael, thank you again.

[01:05:04] Michael Sonnenfeldt: My pleasure. Great being with you. 

[01:05:06] Trey Lockerbie: All right, everybody, that’s all we had for you this week. If you’re loving the show, don’t forget to follow us on your favorite podcast app. And if you’d be so kind, please leave us a review. It really helps the show. If you want to reach out directly, you can find me on Twitter @TreyLockerbie. And don’t forget to check out all of the amazing resources we’ve built for you at theinvestorspodcast.com. You can also simply Google TIP Finance, and it should pop right up. And with that, we’ll see you again next time.

[01:05:44] Outro: Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.