Unlocking True Diversification: Legal, Healthcare & Other Overlooked Alternatives

Transcript

Victor Menasce:
Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce. This is the weekend edition where we interview notable people from the world of real estate investing. Today is no exception. We have a great guest all the way from Honolulu. Welcome to the show, Patrick Grimes.

Patrick Grimes:
Victor, I appreciate you sharing in the Hawaiian spirit with me with your beautiful Hawaiian shirt on.

Victor Menasce:
Great. Well, my wife did pick this up in Maui, so it’s genuine and so great to have you here.

Patrick Grimes:
Yeah, glad to be back.

Victor Menasce:
Yeah, you were on the show before. You’re in a few different asset classes. One of the ones that you spoke about last time is lending specifically to the legal profession. We won’t focus on that today, but perhaps for the listeners at home, give a little bit of your backstory and how you got to this point in your journey.

Patrick Grimes:
Yeah. Well, like many of your listeners, I was a hardworking and eventually very high paid individual in corporate America. I did, in my case, machine design automation and robotics. So, I’m still a geek today. I just geek out about other things than machine design. But I got some advice early on and that was to invest in real estate. And I was shocked because that came from the founder, this titan of technology success, and he said, “As much as you can, as soon as you can, put it into real estate.”

Victor Menasce:
Well, no words were true or spoken. Absolutely. So, today, in addition to investing in particular asset classes, you also run a fairly broad ranging set of educational seminars and webinars in different alternative investments. And I know you run quite a few, we’re about to do one next week, which we’ll talk about, I’m sure. What are some of the landscape that you cover?

Patrick Grimes:
Well, man, when I was an engineer, I knew all about stocks. I knew about startups and I knew about crypto, but nobody ever came and told me, “Hey, aside from the 50 stocks that are volatile and sentiment driven, here’s the 50 alternative strategies that you can invest in. And these are the ones that don’t ride the same market fundamentals, that don’t ride the same cycles as the stock market or real estate or oil and gas or gold. Here are all the ones that you can invest in that actually have true sustainable long-term growth that are both recession resilient and what we call non-correlated.” Nobody ever told me that those existed, and so there’s really no place you can go as far as I know. I own the Alternative Investing almanac and there’s only, I know know my buddy who wrote it and there’s only a handful of them in there.

So, I created a platform where we talk about all of them. I showed my cards out and I got such a good response and when I showed my hand, I decided, “Look, let’s just show the whole deck.” And so, we brought 50 so different deep dives and called the Alternative Investing Mastery series where we just go with two or three panelists. Delighted to have you on, Victor. It’s going to be a really fun one coming up here quickly and where we deep dive into specific asset classes and the audiences there live to get the answer to all the questions that they have. So, it’s a passion project for me.

Victor Menasce:
I love it. Well, I think the name of the game is to find things that are truly countercyclical because there are so many folks out there thinking they’re diversified. In fact, I think back, there’s wherein one of those moments right now where there’s just a lot of head of steam built up around a few very specific industries. I was part of the dot-com bubble in the tech industry before the dot-communists were defeated. At that time, I remember having conversations with folks and they said, Oh, yeah. I’m diversified. I own shares in Nortel and Lucent and WorldCom and Cisco.” And I’m thinking, “Wait a minute, you’re not diversified at all.” And because all these things tend to track one another, you can hold the graphs up to the light and they basically track each other. Even things that historically were countercyclical like stocks and bonds today, in fact are often tracking one another almost perfectly, which is shocking.

Patrick Grimes:
That’s absolutely right. And I talked to a lot of… Unfortunately, the America just doesn’t have good financial education. It’s heavily weighted into these companies that are trying to put food on their own tables and they’re managing your retirement accounts. So, they’re telling you, keep it on with us. And even sometimes, I call it the rules of REITs. They’re saying, “Oh, you’re diversified because we got you in a REIT.” Well, in our slide decks, we show how REITs and the stock market track almost identically and we superimpose the real estate. But if you look at lots of other markets, lots of other markets outside of the novel ones, that’s why you see us in legal or in healthcare or in education because these are the markets that they’re needed in good times. The attorneys and doctors are needed at good times. When it comes to attorneys, man, they’re even needed more in bad times because people get really litigious. So, there are investments you can get into, ones that don’t ride the waves of oil and gas or gold. Well, those are all good stock market real estate.

Those are all good allocations where you have a piece of your pie. There are more novel asset classes that don’t ride of many of those waves. And if you look at the hedge funds, private equity funds, the sovereign funds, these are about reasonable growth. And you said the word diversification, I almost stop using it because there’s such a disparity between what it is, but non-correlated alts. That’s where they’re allocating to. They’re allocating their pie chart into things that, hey, look, they put a sliver here. The returns coming from this sliver won’t have anything to do, won’t be driven at all from the market fundamentals that’ll drive the rest of the portfolio. And that’s what we say is when you get true financial security, not just independence like I had. My first real estate deal, we didn’t talk about it on this when we did it last, I lost everything because of the subprime mortgage collapse. Man, I was going to make it big in one asset class and I lost it all. So, it’s true financial security, not just independence that you need to get there through these lesser known alts.

Victor Menasce:
It’s interesting that the marketplace talks about all of these things as alternative investments, as a basket of things that are in the lunatic fringe, where if it’s just not what Wall Street recommends either stocks or bonds, it’s other and it’s be careful and its fringe and it’s, I don’t know, scary yet really, when we think about where is the largest amount of investment, it’s in real estate, that is the largest asset class by far. The stock market doesn’t come close when you put it all together.

Patrick Grimes:
Yeah, absolutely. And I was doing a mastery series last night where I pull up statistic, 90% of all millionaires and American did so through real estate investments. Notice that wasn’t the stock market. It wasn’t the stock market, it was ones that are actually outpacing inflation. And I was listening some talks about inflation being a vector and the asset growth right now is not the basket of things that they put in the inflation number, but the inflation numbers right now in assets is almost 10%. So, if you can’t figure out a way to outpace that, you’re actually not keeping up with the wealth with your asset allocations for your investments. And so, you got to really look towards these not scary.

What’s more scary, and I think this is what I tell people oftentimes, and I am not a financial planner, a CPA, an attorney, so this isn’t finance, tax, or legal advice, but what I tell people is like, “Look, it may seem scary because the human condition is we’re nomadic, we travel in groups. Nobody wants to go to the forest or the desert alone.” So, I would first go huddle with people that are already doing these things. But think about it, when you go home tonight, think about it like, “Okay, here’s my pie chart and here’s all my allocations.” And then think about the waves and the cyclic nature of those cycles, and then where are we at today? And what it always makes sense to be diversified in non-correlated investments.

And we just got done with a pandemic, a black swan event, and what did that … that alone could have caused a bust, but interest rates rose faster than great depression. That could have caused, on its own, a bust causing major carnage across the financial markets, payroll costs, the materials costs, all of these indicators, maybe one or two of these things could have caused financial instability. 11 out of the last 14 fed rate hikes in and at a bust. So, probabilistically, but let’s add these additional things. Now, we’re in two proxy wars, Ukraine and Israel, and we just bombed Iran and that’s where a lot of 10% of the world’s energy comes from is my understanding, or at least oil and gas.

Again, major driving indicators that can cause major financial instability. Wow. A trade war is going on with our allies and around the world. Again, that alone, if not stacked together with all these indicators could financial instability while we just passed another spending bill adding 3 trillion to the deficit and the world’s biggest economies are betting against the dollar and the central banks are buying gold. Again, that alone, if not stacked with the other eight or nine things I said could cause market instability. The point is here anytime, any day, your entire life when you woke up, nobody saw the subprimary collapse happening, or maybe one or two guys did. Nobody saw the dot-com boom or maybe one or two guys did. But I don’t want to be the guy time in the market. At any time in your life, it makes sense to think about stability and long-term growth and capital preservation, your portfolio, especially today. They say the best time is two years ago. The second-best time is today.

Victor Menasce:
Absolutely. And today, we have an environment where, well, as always, investors crave stability. They crave certainty, which is probably the one thing the market cannot deliver, especially with the uncertainty that’s being intentionally injected by the White House. They do that or President Trump does that, I’m sure to maintain his negotiating leverage as the number one reason for that. It’s not that he’s aiming to be chaotic, I think he’s just trying to maintain his negotiating leverage, but the knock-on side effect of that is extraordinary in all reaches of the economy and investing.

Patrick Grimes:
I couldn’t agree anymore. And I’ll tell you, the engineer in me does not understand the political dynamics and how that’s going on right now, but just looking at the numbers and the instability, man, I can control what I can control and that’s not predicting the political climate or trying to understand what the politics are doing, but hedging against the uncertainty that it’s causing.

Victor Menasce:
Absolutely. So, next Wednesday, we’re going to be talking about senior housing. Tell us about the panel, I’m of the panelists, honored to be one of the panelists on that event. What was the thought process behind putting that event together?

Patrick Grimes:
Well, for many years, I was just trading the alts that I would get in my box, which is a couple of guys like baseball cards. So, then I showed my hands, these are the ones that I like, and then my audience was like, “Wow,” we have about a 15,000 investors that are tuning in to our list. And then we said, well, then they said, “Wait, what about these other ones?” Sista Living keeps coming up. Sista Living keeps coming up as an attractive asset class. So, when I like it or we get requests for, “Hey, let’s do a deep dive on this,” and in all of our panelists, we get two or three, just like yourself, experts in a certain asset class that can talk with confidence, that are thought leaders in the space. We get on and we have a friendly discussion. We talk about the pros and the cons, why it’s good strategy play, what should passive investors look out for in the asset class, how to be successful, what are the anticipated returns for different kinds of investments?

And so, it gives you that ability to show up live, get all your questions answered, we weave them in as we can and we don’t leave before we finish them all, and I’m delighted to have you there. It’s going to be a really cool one. We’ve got some super strong powerhouse players, including yourself, that are going to be there to help educate and unveil the ins and outs and the pros and cons of Sista Living investing.

Victor Menasce:
Love it. Well, Patrick, if folks want to connect, if they want to learn more, if they want to register for the webinar, what’s the best way?

Patrick Grimes:
Passiveinvestingmastery.com, that’s our website. At the top, you’ll see we have a few investments, but right below that, you’re going to see our Alternative Investing Mastery series. If you want to see Victor on there, register down below. We’re going to be hosting this one. I’m very excited about it. There’s also ability to set up a call and wherever you’re at in your career right now, I’d be happy to contribute. I’ve got a book if you’d like. I’d be happy to offer that to your audience, as well, Victor.

Victor Menasce:
Love it.

Patrick Grimes:
Okay.

Victor Menasce:
Well, Patrick, great to catch up as always. And for the listeners at home, definitely connect with Patrick Grimes at passiveinvestingmastery.com. The links for the website and the webinar series will also be in the show notes. And in the meantime, have an awesome rest of your weekend. Go make some great things happen, and we’ll talk to you again tomorrow. Nicely done.

Patrick Grimes:
Thanks, Victor. I love your show, man. I can’t wait to have my wife listen to it.