SmartBe Wealth Aspirations Issue 04.

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Catching up with Ted Smith.

Sbe: What was the initial response to COVID like in Japan?

TS: Spiritually for me lockdown began on February 27th because that's the day that all the preseason baseball games were cancelled. It was in the middle of our spring camp and I was there with all the cheering staff. We had to cut our trip short and go home.

So who are you with and how are you holding up?

Right now I'm sheltering with my girlfriend. Her immuno-compromised grandparents live with her parents so we had a great excuse to move in together after only dating for a couple of weeks.

And how are you guys managing?

Fine. I think that the ultimate benchmark is where we're not killing each other.

What are you getting up to?

I still introduce myself as male cheerleader for a baseball team, which is a way better conversation starter than I'm a consultant. I help small and medium sized businesses bring their products to Japan or do things like open and staff a branch office.

What's different in Japanese business? What are the nuances? What's the magic key to success for a new entrant?

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South Korea and Japan are similar in that they're not really immigrant countries. There is no culture of thinking of immigrants as a valuable part of our society nor our economy. The idea that you would bring in a foreigner to do a specific job is foreign to the culture. There is a traditional mindset where the perception is that it is much easier and better to send someone abroad to learn English and Western culture and then bring them back. As it relates to my consulting there's part of it that is kind of an uphill battle. Not only do you have to, fight through all the all the red tape and bureaucracy, but you also have to also start trying to make incremental changes to the business culture.

How does Japanese society COVID from a Canadian perspective?

The mood here is kind of one of quiet stoicism. Maybe this is what England was like during the blitz. Japan is a country where natural disasters are frequent which has created a strong organizing principle that comes in handy when the lights go out. Panic is very uncommon. Looting is almost unheard of. Initially there was a bit of panic buying for toilet paper and masks, but for the most part, when people said we're going to reduce working hours and close big sporting events and department stores there was no fussing.

What are the trade-offs between people’s safety and keeping the economy running?

I think the economy kind of took precedence. The definition of an “essential worker” was pretty broad. As an example, construction went on full speed ahead. Schools were closed immediately but in many ways Japan was way worse off than a lot of places because of the subway scene. Everyone wore a mask, hand sanitizer was on every street corner and people sanitized before entering stores. That was great, but at the end of the day you still had millions funneled into these two tiny tubes and breathing. Tokyo had a really bad outbreak.

Tell us about your transition from super fan to consultant?

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It's hard to offer consulting services to people who want to come to Japan and open a business during a global pandemic. In the short term I've had to find another income solution. Regardless in the long term I believe the disruption in the supply chain is creating some interesting opportunities. I still have my finger in logistics as a small part of my business. The biggest takeaway through all this is that globalization is definitely here to stay. I don't think there's a cinder block big enough to derail that train.

That's interesting because the rhetoric we're hearing over here is more protectionist and nationalist. Dis-integration of supply chains to ensure all of your basic needs like drugs aren’t stranded in India or China.

There's definitely that here as well. Prime Minister Abe, for example, announced that they were going to start rolling out incentives to Japanese corporations to repatriate their manufacturing. That definitely sounded Trumpian which echoed pretty loudly through the “Rust Belt” of this country.

What's your routine like? What are you doing everyday?

COVID changed the drinking habits of the Japanese. Japan's an open carry country but daytime drinking on the train used to be a sign of total degeneracy. If someone cracked open a can of beer at 10:30 in the morning on a train people would move away from them. But now everybody is cheers-ing you. Part of me hopes that that doesn't really go away because the weather is so nice here. It would be great if you could get onto the subway at any point and then click glasses with a stranger.

Are you a saver or spender? How does money influence your life?

I think I used to be a saver and then I moved into this apartment that is very spacious and luxurious by Japanese standards because it has a guest bedroom. By Canadian standards it’s tiny. I live in the fairly metropolitan and international neighborhood with embassies and consulates. I think I might be the poorest person in my neighborhood, which is kind of a first for me coming from the student Ghetto. It’s kind of like Hollywood Hills overlooking the bay.

Do you aspire to be a billionaire? Are you happy having an existence that meets your basic needs?

Now that I met the right girl, I think she's on the same page with wanting to have five kids. That's a lot. It's expensive, it's very expensive, so barring some kind of massive change in the culture where college, education and all the expenses that go with it become obsolete. I'm going to need to really start stepping up my game.

How do you think about investing? What's your overall philosophy?

I can't say enough good things about SmartBe. I'm always trying to talk you up to my friends but it's kind of weird. There is kind of a religious aspect or belief system to Quant. There's those of us that have seen the light and who are now trying to preach to the “pagans” and it's not usually very well received. When Art first gave me the Wall Street Self Defense Manual, I was walking around like it was the Koran and browbeating my friends who thought I was a fool. 10 years later, they're talking to me about how great quant is and how I should move in with their firm because they're doing all this cool quant stuff. I tell them I’ve already been taking care of for the past 10 years.

As humans we’re all curious about the future. I think what SmartBe is really driving at is that we have a specific investment philosophy that only looks at the past to inform our investing today. Whereas everybody else is trying to use analytics to predict the future and the fact is it that not many are good at it. What you're doing is really innovative and counter intuitive. It is difficult to change people's mind and explain how this works.

It’s like the change from the Western Roll to the Fosbury Flop. When Dick Fosbury first started going over the bar backwards in the 60’s everyone thought it was stupid. Now there appears to be no other way of high jumping. So SmartBe is like another Fosbury. It's funny because much of the investing world has actually moved to the Fosbury flop and Canada still seems to be doing the Western Roll.

How do you collect information to be comfortable you're making good investment choices?

I would say that I read a lot, but I don't have any one particular publication that I subscribe to. I just know a lot of people working in the industry at various firms and in different countries and every time I touch base with someone I always ask them to send me the article that they last read that they thought was interesting. I rely on people I trust there's a lot of quackery going on in financial journalism. Usually a good proxy is how many degrees of separation that they are away from the University of Chicago.

What's the Millennial take on investing? How does your generation differ?

I really fear for my generation when it comes to this question. There is a culture of excess spending that's fueled by social media. A lot of people my age are eating out and taking exotic vacations when they really ought to be saving and investing because of how the math works with compound growth rates. Starting your portfolio at age 23 as opposed to age 33 is a difference that can be measured in millions of dollars. I can't stress that enough, but my generation wants to hear is it's not all our fault. We're facing the second recession of our young adult lives; the 2009 global crash and now the pandemic. Then there's the general instability of the so-called gig economy where once permanent jobs are becoming temporary or one-time consulting gigs. I would say that the labour market out there right now is very unhealthy. Having a college education is pretty common among people my age, and so people have credentials and training. But it's really hyper competitive because the lack of organic growth. We feel that Gen X and the boomers ahead of us just sucked all the air out of everything.

What is the Japanese psyche looking like as far as investing?

The general consensus from my community is that Japan is insular and slow to change. Japan is weird because it's both on the cutting edge of innovation and in the 19th century at the same time. Companies like Samurai Robotics are years ahead of the nearest equivalent firms, yet most are still caught up in this pyramid scheme of lifetime employment and guaranteed promotions. When I was working for a Japanese company to get approval for anything more than paper clips I had to ask my boss and then my grand boss and my great grand boss. Quant is still relatively new here. I'm only just now starting to meet fund managers and portfolio managers that are doing interesting things.

Life is pretty crazy right now. The world was shut down, started opening and the second wave is upon many of us. What's clear for you right now?

I don't know if this should be a source of comfort or a source of existential terror, but one thing that became really clear to me in the midst of the outbreak, is just how quickly things can go to hell in a hurry. This entire edifice, all these structures that we build to insulate and comfort ourselves they’re really fragile. It's like an anthill being stepped on. It takes so much time and effort to build it back up. I'm never going to get caught with my pants down again. All of those things that people told me to do and prepare for the worst, be long on cash, keep three months living expenses in your bank account. All the Wealthy Barber stuff.

What would Ted as the political leader manifest?

I'm really concerned about debt. Debt can make an entire country disappear and you don't have to go way back to the Byzantine Empire. Just look at a map of Mexico in 1846 verses 1848. The Mexican - American War happened because the Mexican government owed a huge sum of money to the United States. They ended up paying the debt with Texas, Arizona, New Mexico and California. That was almost half their country and now Texas and California are two of the richest places on Earth. The difference that made in history is incredible. It's incalculable. Now we're printing money left and right and people just think this won't happen. This can happen, especially now that everything is inter-connected. We all feel that it's never going to happen again because we have more to benefit from cooperating than we do from fighting. I don't think there's any reason to be optimistic. If you put me in charge of any government at any level my first task would be to balance the budget.

Then I guess I would make all taxes value added. No more income taxes. Sorry accountants, it might wipe out your industry, but I just don't think we should be penalizing people for making and saving money. When you are earning money, growing money and saving you should get to keep all of that. Then when you spend it all the tax is value added. So simple and it allows people to make decisions appropriately. It's in their control.

Last of my three thoughts would be to replace all welfare with a revenue neutral wealth transfer. Like a universal basic income, but a straight wealth transfer from the top quintile to the bottom quintile and a progressive scheme in between. I'm not a fan of the way that people talk about average people or average intelligence. I think most people even the dumbest people I know, know how to spend their money. I don't think we should give government bureaucrats the chance to fill their own pockets with welfare money. Just because a few people are going to shoot it into their arms. That's the ultimate dilemma. We need to find a solution for the 5 or 10% of our society that is mentally infirm and for whom money is dangerous.

Who are your role models right now? Who are you looking up?

That is a difficult question when the world is in such chaos. Since we're talking about finance today, I will go with Peter Thiel and Eric Weinstein. I think it's incredible that Peter Thiel has the guts to stand up for what he's doing when everyone is calling him the worst things in the world. Then Eric Weinstein is the managing director of Teal Capital. He hit the podcast scene last summer with really mind-expanding stuff that reminds me of when I was an undergraduate having my head filled up with new ideas. Those two in particular have to be mentioned at the same time because they're almost polar opposite in their politics. Peter Thiel is a Trump guy and Eric Weinstein comes from old Democratic roots and despite all that they're still good friends. When all the forces in our media and culture are a source between the two camps it is encouraging to see that friendship carried out in public.

What books are you reading? Which shows you watching? What podcasts and music you do listen to?

I'm reading a Korean translation of the book Smart Baseball. The person who translated my book from English into Korean, famous and available in fine bookstores all across South Korea, translated another because the original sold millions. Keith Law’s book called Smart Baseball, I was getting nostalgic without the baseball season and decided to read that. I’m currently reading in its entirety The Decline and Fall of the Roman Empire. It provides an interesting perspective on the American Empire right now. Lot of similarities in my mind.

What's your superpower? What were you put on Earth to do?

I think my superpower is the ability to absorb at least some amount of information, like a couple Sparks notes from every person that I ever meet. This is function for me in my life and business. The ability to hold a conversation with anyone on any topic. I don't think I'm very deep, but I'm definitely wide.

You mentioned that you were tapping into yoga right now. Is that working for you?

It's been incredible. I didn't know how much my body hurts until it stopped hurting. I'm 33 now and things are starting to hurt for no reason. It’s giving me a glimpse of mortality.

When everything opens up again in Osaka, what do you want to do the most? Is it a baseball game or is it something else?

Definitely a baseball game. I can’t wait to grab my trumpet and go play as hard as I can, but that is going to be a while.

What's a big hug for the world right now?

I don't know about a big hug – but I would say less debt and supply chains that are more impervious to interruption. Less protectionism, that would fix a lot of problems.

Any lessons learned through this isolation period? Any goals that you changed for you?

I don't know if it's related to the pandemic, or the Eric Weinstein podcast that I was listening to, or that I'm reading The Decline and Fall of the Roman Empire, but I was thinking about what a society that I really want to live in looks like. Eric Weinstein said that a society that doesn't invest in its’ children is a society that's dying. That struck a cord for me somewhere in my chest that I didn't know was there. Maybe it's the girl I'm with, but I realized that I really want to have a family and be a father. I want to build something around that plan, make that the central part of my life.

And we're at our final question, what's love in the time of COVID look like for you?

Having someone that I can spend literally every waking hour of the day with and then go to sleep next to her feels like I've happened on a really meaningful connection. So I need to pursue that faithfully and honestly.