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Health anxiety is a common yet often misunderstood condition that can significantly impact one's quality of life. Whether it's worrying excessively about potential illnesses or constantly seeking reassurance about your health, the effects can be overwhelming. Understanding the nature of health anxiety and learning effective strategies to manage it can make a world of difference. In this article, we explore five essential things you need to know about health anxiety and offer practical tips for recovery, with expert insights from Michael Steer. 1. UNDERSTANDING HEALTH ANXIETY: WHAT IT IS AND WHAT IT ISN'T Health anxiety is a term often misunderstood by many. It's not just about being overly concerned with your health or frequently looking up symptoms on Google. Health anxiety can be categorized into two main disorders: Illness Anxiety Disorder and Somatic Symptom Disorder. Illness Anxiety Disorder involves a preoccupation with health despite not having significant physical symptoms. On the other hand, Somatic Symptom Disorder includes severe and persistent physical symptoms that cause substantial distress. It's essential to understand these distinctions to recognize that health anxiety isn't simply a matter of being overly cautious or paranoid about one's health. Moreover, health anxiety can often intertwine with Obsessive-Compulsive Disorder (OCD), involving obsessive thoughts and compulsive behaviors centered around health concerns.  2. NAVIGATING THE MEDICAL SYSTEM WITH HEALTH ANXIETY Dealing with health anxiety within the medical system can be particularly challenging. One of the critical aspects to remember is the importance of finding a healthcare provider who listens and validates your concerns. If you feel dismissed or unheard, it is perfectly acceptable to seek a second opinion or switch providers. Additionally, distinguishing between different types of symptoms can help manage health anxiety more effectively. Medical symptoms require immediate attention, such as severe chest pain or sudden numbness. Physical symptoms, like a sore back from yard work, are often benign and manageable with self-care. Psychological symptoms stem from anxiety and can include manifestations like tightness in the chest or dizziness. Understanding these differences can help reduce unnecessary panic and improve communication with healthcare providers. 3. TRUSTING THE RELIABILITY OF YOUR THOUGHTS A common challenge with health anxiety is differentiating between real medical issues and anxiety-driven thoughts. Think of your anxious thoughts as spam emails—they're real, but their content isn't always reliable. Health anxiety often triggers false alarms that feel urgent and terrifying. Learning to question these thoughts and not take them at face value is crucial. Techniques like cognitive diffusion can help change your relationship with these thoughts. For instance, if you've convinced yourself numerous times that you're having a stroke and it hasn't happened, the likelihood that your current fear is another false alarm is high. Questioning the reliability of these thoughts can help manage the overwhelming fear they generate. 4. THE ROLE OF COMPULSIONS AND SAFETY BEHAVIORS Health Anxiety Compulsions and safety behaviors, such as constantly checking symptoms or seeking reassurance, often exacerbate health anxiety. One significant trap is becoming inwardly focused, constantly monitoring your body for signs of illness. This behavior leads to a vicious cycle where anxiety increases symptoms, which in turn heightens anxiety. Shifting your focus outward and engaging in meaningful activities can help break this cycle. It's essential to become more outwardly focused, enjoying life and participating in activities that bring you joy and fulfillment. This shift can reduce the power of health anxiety over your life. 5. EMBRACING LIFE DESPITE HEALTH ANXIETY Health anxiety often steals the very things we're afraid to lose—time, relationships, and enjoyment of life. The constant preoccupation with health can make us miss out on living fully. Therefore, the goal isn't just to reduce anxiety but to reclaim your life. Engage in activities you love and focus on adding value to your life. This shift in focus is incredibly powerful and can help you live a more fulfilling life despite health anxiety. It's not just about feeling less anxious; it's about living more fully and enjoying the moments that matter most. CONCLUSION Health anxiety can be overwhelming, but with the right strategies, it's possible to regain control and live a fulfilling life. Michael Steer's book, "The Complete Guide to Overcoming Health Anxiety," is a fantastic resource for those seeking further support and information. Additionally, his website, overcominghealthanxiety.com, offers a wealth of resources, including a free virtual support group. Remember, while health anxiety can take a toll on your life, effective strategies and a focus on meaningful activities can help you reclaim your joy and well-being. TRANSCRIPT: Kimberley: [00:00:00] Welcome back, everybody. Today I have Michael Steer here talking about the five things you need to know about health anxiety and how to recover from it. So welcome, Michael. Michael: Thanks for me. I'm really excited to be here and talk a little bit about health Kimberley: Yes. It's actually a very, very requested topic. It there's always questions about it. So I think this is really, really wonderful that we're doing it. Okay. So first of all, what is health anxiety? Let's just do a little bit of a, you know, intro, uh, tell me what it is and then tell me what it isn't. Cause that's point number one. Michael: Absolutely. Yeah. So we'll jump into point number one, which is I kind of was breaking down if I could have people know five things about health anxiety, what would I want them to know? Or people that support people with health anxiety. And number one point that you're going to bring it up is the first thing that I would want [00:01:00] people to know is exactly what health anxiety is. I feel like health anxiety is one of those things where, you know, you see somebody on their phone looking up symptoms and everybody kind of knows, right? They're like, Oh, I've been there before, right? We all kind of know what health anxiety is, but sometimes we don't know exactly like what it looks like or even more so that there's actually treatment that people can get that actually works. Not medical treatment, but maybe psychological treatment. So, um, I break down health anxiety in a couple of different ways, which is one is that. if you actually have a medical condition, so if you were diagnosed with cancer or, you know, whatever that might be. Um, there can still be anxiety around those types of things, but that's not exactly what we would be calling health anxiety. Uh, you know, kind of in a professional community, that would be an adjustment, Kimberley: Yeah. Michael: a massive adjustment, right? It's like you get this scary diagnosis, you're trying to go undergo treatment, those types of things. So that's kind of one category. And then, We also have this other category, maybe [00:02:00] what we would love them to call health anxiety, which actually is kind of awkward, too, because there's really no such thing as health anxiety, like, oops. Um, but there are some categories under health anxiety that we would say, these are actually what we're talking about. One of them is what we call illness anxiety disorder. Um, the other one is what we call somatic symptom disorder. And, uh, these are kind of the two things that we would call health anxiety. Now, Illness Anxiety Disorder is really a very basic way to break that down, is a preoccupation with your health, but you don't have a lot of symptoms that go along with it. I mean, you might have some here or there, and it's like, Oh, one day, like maybe my vision is a little bit more blurry, or I got a kind of weird pain over here. But the, usually the symptoms kind of come and go pretty, pretty quickly. Um, now, Somatic Symptom Disorder is still the preoccupation with your health. But the one big difference that people run into is usually the symptoms are pretty severe. They're [00:03:00] pretty significant, and they're usually a little bit long lasting. So, you know, maybe people are dealing with, you know, chronic stomach pain or pains in their stomach that they really become preoccupied about, but those symptoms are pretty significant where it's like impacting life, those types of things. Um, and then the other category that we can just throw in there real quick is also OCD. Um, and what we'll talk about here and, uh, maybe towards the end of this part is a lot of times I put health anxiety and OCD kind of as hand in hand. Uh, they're not the same thing, but they share so many of the similarities and how they work. And, um, if you ever look through some of the OCD literature. OCD can have health themes and so those would be times where we can be very, become very, you know, have the obsession and compulsion cycle go around health. So that's, that's really what health anxiety is, is usually one of those three things, which is either you don't really have many symptoms and you really worry [00:04:00] about it. You're actually having a lot of symptoms. you're worrying about it, or it may be a bigger dynamic of OCD, where maybe you have other obsessions and compulsions, and then maybe one of them is also just the obsessions and compulsions around your health. Kimberley: Amazing. Michael: yeah. Kimberley: What about hypochondria? Do we, where would you put that? Michael: So that's an older term. Kimberley: Yeah. Michael: So we've kind of, you know, and a lot of times, um, I feel like I'm kind of glad that that term has kind of shifted as just kind of like, you know, illness, anxiety, and somatic symptom. Um, just because there's a lot of judgment and a lot of negativity also around kind of, you know, as soon as somebody is like hypochondria, right? And it's kind of like, it comes with this like really negative experience and like, Oh, you know, they're, they just worry about their health all the Kimberley: Right. Michael: it kind of gets dismissed pretty quickly. So, um, that's just, if you ever see hypochondria, um, it's just an older term or sometimes it's still used in the medical community. [00:05:00] I think it's, even when you look up in some of the, um, Um, things to, uh, you know, for some of the coding, it still comes up as hypochondriasis. Um, however, it's just, it's the same, it's a different terminology just for what we would now call illness, anxiety disorder and somatic symptom disorder. Kimberley Quinlan, Thank you for sharing that too. Cause I think Googling, because that term has been used for decades, that is often what people are looking for. And I think, as you said, people get dismissed like, Oh, you're being such a hypochondriac about it. You know, that. I think is, I'm glad that you, you shared that. Okay. So that was number one. Number two, um, what is the second thing we need to know about health anxiety? Michael: So number two is kind of going right off of what you're saying is a lot of times, you know, what I would really want people to know is to, a lot of times people do get this mess. and even clients that I'm working with, because I work with a lot of health anxiety clients are still trying to navigate [00:06:00] that relationship between, they probably really do have some anxiety around their health, but they're also trying to work with the medical community. and that makes it quite challenging, um, because you know, there can, um, there can be some times where it can be challenging. People can get written kind of off of like, well, this person, you know, they've, they've been anxious about their health before, and then they've sort of become. Um, what could be an obsessive worry but also could be a very realistic worry of I go back into my doctor and they kind of know that I deal with anxiety around my health, they going to take me seriously? Michael: know, if I come in and I say, wow, I've been really having a pain here or here, are they really going to be listening to me? Like really take me seriously and investigating this or are they just kind of writing it off You know, this is, you know, awful, you know, this person has been anxious about a lot of those different things. So the one thing I, I think that we, um, that I think, I think is really important for people to know [00:07:00] is you're working with a medical provider and you don't feel like they're listening to you, they're not validating some of your concerns, they're, they're, you don't feel like they're really invested in some of these things. Um, it's always okay to go find somebody Kimberley: Mm hmm. Michael: That is totally okay to do. You can take it from me. Hell, like, you know, what I would, I don't know if there's no delineation of a health anxiety specialist, but I think there can be some of those times where things are not taken serious. So Kimberley: Yep. Michael: do feel like that is a relationship that you're having with a health provider, find somebody new. Go find somebody that really does listen to you, right? Now if you're also working with somebody that you feel like you really trust, you feel like They feel like they got your back, like they're, they're, you know, but maybe you're kind of running to the end of the road of like, I, don't know really what else we could test for. That's something different, right? Because at least there's that level of trust. So the second thing that we like when it goes into this piece of, you know, like Val or validating people's [00:08:00] symptoms is we also have to realize that there is a difference between physical symptoms, medical symptoms and then also psychological symptoms. And so here's how I break these things down. Medical symptoms is usually the ones we're really afraid of. medical symptom could be like if I have chest pain. And a medical symptom would be I need to go to the hospital because I'm having a heart attack. That is an explanation, a medical explanation of a symptom that I'm Kimberley: Mm hmm. Mm hmm. Mm. Mm. Mm. Mm. Michael: ER, those types of things. one category or one bucket that sometimes we put those in. A second bucket is what we call physical symptoms. And a physical symptom is something that's actually really happening in our body, probably don't need to run to the ER or the urgent care because of that. So like, for instance, if I went and did a bunch of yard work over the weekend, and my back really hurts, um, arguably because I'm getting [00:09:00] older or because I've done a lot of yard work, who knows? Um, Um, I don't, that's a real physical symptom that a lot of times our mind could try to catastrophize, but it's probably not something that I need to go and run to the doctor about. I probably need to take it easy, put a little bit of ice on my back, et cetera, et cetera. So we have medical symptoms, we have physical symptoms, but then also we have psychological symptoms and this is the way that our mental health can also affect our physical body. So for instance, if we're becoming anxious, I'm sure that, you know, if anybody has ever been anxious before, which I'm going to assume everyone has, If we become anxious, sometimes our chest gets tight. That's a real physical symptom. That's a real symptom that we have. But the origins of the conclusions of that is from a psychological standpoint. Now, here's why I think these buckets are important, why I want people to know about them. Surprise, surprise, health anxiety always usually goes to one bucket. Medical symptoms, right? It's like, Lower back pain, medical. You know, my chest is tight, medical. This weird kind of [00:10:00] feeling in the back of my head, medical. You know, all of those different types of things. And one of the things is being able to have this context of if I could start to separate some of these symptoms out to maybe there are some symptoms that I could have that are medical, but maybe there's also physical symptoms that are just happening. There's a great article that I always like to give all my clients The Noisy Body by, uh, Abramowitz, that's just a wonderful handout, a wonderful article. And it just speaks to the nature of like, well, we get signs and symptoms and weird feelings and burps and farts and all these things all the time. The hard thing is, is when our mind gets really preoccupied and starts to put them into the category of, oh no, what if, could this be this really negative thing? So I'd like to, that's the second point that I would really want people to know is. We have to realize that even though there is always this scary explanation of symptoms, it's important to have this perspective of noticing that there could be, there could [00:11:00] be medical symptoms that I need to really do something about, physical symptoms that I need to do to some TLC, and then also psychological symptoms. And then one last thing I just throw in there real quick before we can go on to the third one is, um, the most important part about this is regardless of what bucket you put this in, all of them are valid and real symptoms. that's the other piece that we get into this kind of like stigma or negativity, that sometimes people will talk about a real symptom that they're having, and then they'll be like, Oh, well, that's just your anxiety as almost as if the symptom is not happening. And so I think what I would really want people to know with health anxiety is regardless of what bucket it's coming from, it's always real. You're always valid and feeling it. The one question that we have to just ask, which is going to lead us into number three at some point is. Or can we trust that the explanation for the symptom that our brain has brought us really the explanation of what's happening? Kimberley: Mm. [00:12:00] So, I have a question, which you might answer it in, you can even use this for the, for an example. So, a lot of my followers know that I, in, um, in 2018 was diagnosed with Postural Orthostatic Tachycardic Syndrome. Michael: Mm. Mm Kimberley: one of the main symptoms of that is that you faint and a lot of, I'm very well in recovery of this right now, but one of the things was me without using this terminology, which you've beautifully put out. And I actually learned this terminology from you is it was about passing out, passing, like not, not, not passing out, like, uh, differentiating, sorry, my accent got it, differentiating. Um, is this dizziness from my anxiety? Is this dizziness evidence that I'm going to pass out, like faint? Um, Michael: hmm. Kimberley: because a lot of [00:13:00] having this condition is tolerating dizziness 24 seven of the day. Like it's a symptom of the condition. Um, so in that case, just as that as an example, how would you, which bucket would you put this in? Michael: For sure. Good. Great question. And this is where, like, health anxiety, I think that's why it's really important to, to really notice the stickiness of Kimberley: Mm. Michael: Because, you know, as an, also as an OCD specialist, a lot of times when we deal with OCD themes, not often having people, like, deal with, uh, you know, harm obsession. And also undergoing evaluations to see if they're a Kimberley: Yes. Yes. Michael: Uh, that doesn't really make sense. health anxiety starts to become this kind of interesting dynamic of, well, what happens if we have anxiety around medical Kimberley: Yeah. Michael: And also we have to like, go get evaluations and other things that are actually Kimberley: Yep.[00:14:00] Michael: that's a great point. And it's like, okay, so what if the, um, Um, you know, the symptoms that I'm feeling could be an explanation of a medical condition that's happening, or it also could be, you know, from the place of, um, you know, from my anxiety. Um, think the answer comes down to, um, is going to this, what I usually like try to call a pretty, a best guess. Which is, now, when we're thinking about passing out, the one thing I think is always important. as a person that works on a lot of needle phobias and blood phobias is that if you feel like you're going to pass out, get yourself in a safe place, right? Like sit down, make sure you don't hit your head. You know, Kimberley: Yep. Yep. Yep. Michael: But also there's this kind of conclusion that we can come through with our experience that says, know, um, if I, if I think about the symptoms that I'm having right now, where would I put my best guess on those, right? And if we're putting this, that medical side, then we could say, okay, well, [00:15:00] Um, I need to do whatever the doctor has recommended that I do in those situations because that's just what's most helpful. If I'm feeling like it's more on the anxiety side, that's maybe where I could use some of my tools that we learned in therapy to be able to manage that. Now is it a perfect system? No it's not, right? Because there's always this little piece of uncertainty and the unknown there Kimberley: hmm. Mm hmm. Mm hmm. Mm hmm. Mm hmm. Mm hmm. Michael: that's, I think that's what's also really important about being able to kind of discuss those things either with your doctor or a therapist to be able to really walk those muddy lines. Um, I have quite a few clients that we try to walk that line all the time where, I've had clients where thought that maybe this was or maybe it was assessed as like, Oh, this is just something anxiety related. That's why you're having symptoms. And then it's like, months later, surprise, I'm allergic to this, right? And so, that's why we don't always know the answers to all of [00:16:00] those things. Um, but as we kind of go, we can kind of walk that line to say, could I make my best guess about what this is at this current period of time? And if that was the case, what would I do in that Kimberley: Yeah. Michael: You know, and so do I need to go a medical route? Do I need to go to a psychological Kimberley: Yeah. Which I think takes us to next step number three so beautifully. So go ahead and share what is the third thing we need to know. Michael: Absolutely. So number three talks about. Um, a lot of times our brain can bring us to a lot of different conclusions and we just talked about the conclusions that a lot of times our brain Kimberley: Yeah. Michael: into in terms of medical, physical, psychological. And a lot of times we just take those conclusions as the truth. go with them because they're terrifying, they're scary, right? And they feel really threatening. And so one of the things that I think is important for people to recognize is I like to use the example of a spam email. is I'm sure we've all gotten spam emails. And if you haven't gotten a spam email, please let me know your trick because that would be I could clear out like [00:17:00] 75 percent of my email box. So but a spam email to me is kind of walking this line between is a spam email real? Oh, of course, we all get them in our email box, right? Like they actually come through to us. They have a time stamp, et cetera, et cetera, right? But the one question that we have to start to kind of wrestle with with health anxiety is. is the conclusion or email that I'm getting a reliable source of information. so if you get an email from tomjones1973 at AOL. com that claims to be from the FBI, why would the FBI be sending you from AOL? That doesn't make Kimberley: No. Michael: Now, is that email real? You betcha. However, if we can question its reliability to say, can, you know, do I trust this email to be what I think it is? Kimberley: Mm hmm. Michael: Then that can really start to dictate some of the actions that we take. So when we think about health anxiety, right, is your brain can give you a lot of really scary a lot of really unknown possibilities that could be going on with you. And [00:18:00] so, you know, one of the things that I think we have to really kind of start to become curious about is, do I just go with them? You know, am I there just responding to all of my spam emails in my email box? And if you do, we probably need to help like. Credit monitoring and all those Kimberley: Yeah. Michael: besides, from that point, do we get ourselves into a lot of actions that could be very unhelpful when we take these emails as as reliable? So, like, for instance, if you, you know, you have the dizziness, right? And you're, you're, you know, the initial evaluation or conclusion that your brain comes up with, aka what we could also call an obsession, right? Is like this could be an aneurysm, right? Or maybe you have a stroke or all these different types of really scary things. If we take that as a reliable piece of information, it starts to make Kimberley: Mm hmm. Michael: that we would be like, well, I need to figure that out. I need to be like, look up some symptoms of online or I need to go to the urgent care, whatever those things are, right? but if we get a, oh, by the way, I should have included this earlier, but [00:19:00] that's okay. We'll include it Michael: This is all on the premise that we have a relatively good answer. if you don't. If you're getting dizzy for no reason, and you have no idea why, I don't want you practicing anxiety Kimberley: Yes. Michael: Go to the doctor, right? Like, explore those things, figure those things out, try to get a pretty good answer. However, if we get a pretty good answer about something, and we are going to say it's like, I think this is because of my anxiety, but my brain wants to really convince me of all these other conclusions. can we use some of those tools in terms of, you know, Becoming curious about, can I really trust my brain sending me right Kimberley: Mm hmm. Mm Michael:  if this is like the 937th time that I'm convinced that I've had a stroke, what's the chances the 938th time is going to be it? Probably not. so, I could go look on things online, or probably got a lot of other things to do, too, that I could go and get involved with as well. So, that's it. One of those tools is, is really being [00:20:00] curious about, yeah, your brain's going to give you a lot of really scary medical possibilities. If we can ask that question of not if it's real or not, because those things are totally real, but can I trust the message that I'm being sent? It can start that process. Now, the other tool that I really like to use with people is diffusion. Um, and, and to kind of give it a quick breakdown of cognitive fusion, even though some people may be like some of the listeners may know, is just being able to like what kind of relationship that we have with some of our scary thoughts. so sometimes I kind of describe as like, well, it's not really necessarily getting away from them. It's just about changing our perspective towards them. So like, I kind of think about this example. It's like if you go out into like a really busy highway, you set up a lawn chair right in the middle of a busy highway and you have cars whizzing by you, you can see the traffic, but man, oh man, is it overwhelming. And so if we can use some diffusion skills and those would all be the great things, like, you know. Uh, just repeating or thanking our mind or my favorite is always just [00:21:00] singing, like, you know, the tune to happy birthday, Kimberley: Yep, Michael:  be right is sometimes those start to kind of be able to take us from this position of, could you just take your chair and put it on the side of the highway? And if we can do that, we can still see the traffic that's out in front of us, but it's much less overwhelming at that point because you don't have cars whizzing by Kimberley: all right Michael:  these cognitive interventions, I think, can be really helpful. Um, because a lot of times our brain is leading us to all of these conclusions, giving us these really scary ideas, and it might really start to go against the information that we have at that time, at least medically. Kimberley: Amazing. And I, the reason I love this is that was a big piece of it for me, just to sort of give a real example of me having health anxiety and a chronic illness when you are you're dizzy. My brain was like, this is it. You're going down, you're going down. And I had to get used to just having the thought like, yeah, you're dizzy. It could be it. But we know the symptoms of when you are, and you're just, you know, again, like you [00:22:00] often say, like, it's about being uncertain and being able to just to have the thoughts whenever they show up. So would you add anything to that or, Michael:  Know it. And I think what's important with that is, there's a piece of uncertainty Kimberley: um, Michael:  but we can also act within a reasonable Kimberley: yes, Michael:  right? It is like, you know, we can, we can always make those, you know, I always love delay in these situations Kimberley: um, Michael:  is if I start to become dizzy and I'm concerned that like this is going to be, this is me passing out, right? And if you just like, if you're dizzy and you remain dizzy and you remain dizzy, you know, those types of things and it, you know, you're just kind of like working through it and it's like, okay, maybe that's one thing if you're dizzy and then the wall start closing in, right? And you start to get tunnel Kimberley: yeah, Michael:  Well, that's what you can always make a different, Kimberley: yes, yes, um, Michael: I think the lay, but. nothing about health anxiety that likes delay, right? Because whenever these [00:23:00] symptoms come up, it's always going to be about you need to do this Kimberley urgent, Michael:  to the E. R. Currently, like right Kimberley: yeah, Michael:  wait, Kimberley: yeah, yeah, Michael:  if even if we're able to kind of like practice some type of delay, right? We'll be like, okay, this is what this feels like now. I understand the concerns my brain has, like not quite sure if I can trust it. I don't know. It's giving me some bad advice before. I But could I just wait that out and kind of see how that Kimberley yeah, Michael:  And, you know, if it continues to get worse or you start to get tunnel vision, go take care of it. There's probably something going on. But if those experiences, you know, I think what happens a lot of times for people is they, they try to move themselves on to something else, right? They get back to dinner or whatever it might be. And then they kind of have that reflection point or like later of being like, Oh yeah, I was like dizzy Kimberley: um, Michael:  earlier. And it's like, Oh, Kimberley: um. Michael:  to that? Right? So I think delay can be a really helpful Kimberley: Fantastic. Quickly, just because I have a couple of people in mind, and I know what their questions would be here, is in regards to [00:24:00] the, the point number two, where we were talking about the difference between medical, physical, and psychological. Let's say somebody. Um, has just intrusive thoughts about like, what if, actually maybe no, let's say they have a headache, a physical symptom and their brain is just constantly telling them like, this is a brain aneurysm, or this is a brain tumor, like this is cancer and it doesn't quit, um, Um, and the person also experiences this sort of intuition that this is what it is. What, how would you, what, what bucket would you put that in and would you use the same skills? Michael:  So, yeah, so the, the questions that I would have for that situation, which is number one, have you been to the doctor? You know, have you gotten it checked out? Have you like evaluated some of these, you know, headaches that you've been Kimberley: Mm. Michael:  Now if they say, uh, no, I've never been to the doctor about that. I'm, I'm not a doctor. I'm going to say would be [00:25:00] kind of silly of me at that point to be like, you're Kimberley: Yeah. Michael:  You know, that's Kimberley:  Just tolerate the uncertainty. Michael:  Yeah, that'd be good, right? We're like, that's probably not great. So because nobody would do Kimberley: No. Michael:  Like we, well, hopefully most people would not do that because if there is, so that's the first question I would always Kimberley: Mm. Michael:  is if you're having a physical symptom that's different, that's changed, that's more significant, whatever it might be, question needs to always be, have you gotten this Kimberley: Mm. Mm. Michael:  part that it's, I really wish there was a better answer to this. but there's not the least that I found, which is like how much is too much, you know? So if you're like, okay, so let's say the answer is yes, I have gotten it looked at and they can't find anything. Um, sometimes the conversation starts to become, well, how much, like, should I go for a second opinion or third or fourth or fifth or sixth? Um, and what's really difficult about that [00:26:00] is no one really knows that answer. Okay. And, um, what I try to really do to level with people, too, is that, you know, if you were having that headache and you're like, I don't know, Mike, like, this is like, I've seen like four doctors, still feel like there's something, like the intuition Kimberley: Mm hmm. Michael:  feel like there's something wrong. There's something going on. I can't, I can't fight you on that and being like, no, you shouldn't, right? Because I, the fifth time might actually be the time where it's like something comes back and you're like, oh my goodness, like, I'm so glad they found that. So. always this kind of difficult time that I get these questions where people would say like, what, what, what is too much now getting like a fourth or fifth or sixth opinion, whatever that might be, could just be reassurance Kimberley: Mm hmm. Mm hmm. Michael:  you know, getting another clear scan or whatever that might be. And it just kind of gives us that temporary relief of like, okay, goodness, like nothing's going on. But I think it's reasonable for us to know it's like it's not a very clear cut kimberley-_1_06-04-2024_101032: Mm hmm. Michael:  Of saying, like, [00:27:00] everybody's in their right to go get another opinion. you know, to, you know, however much you want to pursue that. We have to be on board and somewhat of being like, okay, like, go do that. But the other thing that I would always throw in there, too, that I like to try to work with people is, there's going to be productive ways that we can pursue that, there's going to be unproductive Kimberley: Mm. Michael:  you're having those headaches, and you're, and you're like, I've seen three people, I kind of want to go see four, I would say, I can't fight you on that. You should go see that fourth person, see what they say, but that's a productive method of trying to figure something out, right? Like, cause you could possibly, they could give you some scan, right? And be like, Oh my goodness, like right here, we found something, right? also other unproductive behaviors that sometimes people get into, um, that like your brain at 3 a. in the morning while you're ruminating about if there could be something going on in your brain or not, right? have no access to scans, like you're not gonna figure anything [00:28:00] out. You're not gonna come to some revelation of like, Oh, now that I can see inside my brain, I can see what the problem is, right? So, there's, there's kind of an encouragement that I try to give to people, too, is if you really feel like there's something wrong, and even though you've gotten a lot of things that have said maybe nothing is wrong, if you want, if you feel like it's necessary to continue to pursue those productive ways, set an appointment with a doctor. Go to that appointment when it's the time, right? Great, go do those. But some of these other things when we're thinking about like, but are we like ruminating about this for hours on end during the day? never going to become anything Kimberley: Mm. Michael:  not going to come to some insight of like, ah, I see everything clearly now, I see what's wrong. And so we try to practice those tools in those situations of saying, you know, if that's kind of an unhelpful thing to do, could I find something better to do? Uh, to do with my time than just endlessly going over this in my Kimberley: Yeah. Amazing. Which [00:29:00] ties us right into the thing number four. Um, tell us. Michael:  four, the four, I almost held up five, so that's good. Number four is, now, when we think of like, like, you know, for some of the viewers who might be a little bit more familiar with OCD, a lot of times I just use the terminology of TOs Kimberley: Mm. Michael:  triggers, obsessions, and Kimberley: Mm. Michael:  you might be saying, it's like, well, I didn't think health anxiety was really OCD. It's not. But. The functionality of these things kind of operate in the exact same way. So number four is talking about compulsions, or if you just wanted to view it as safety behaviors, that's cool, too. They kind of do the same thing, which is there's going to be physical or behavioral compulsions that we could do or mental. and one of the things that we really have to account for is just their ability to not really be able to give us an answer that we really want. and how sometimes it actually, especially with health anxiety, one of the things that I'll point with health anxiety. Usually makes things [00:30:00] worse. So there's always like pretty classic different mental or behavioral compulsions, you know, googling or, you know, going on Web and D and clicking on the little body right and being like, you know, we get the huge list, you know, you put in fatigue and it's like, gives you all these terrible things, right? It's like, Oh, maybe I don't Kimberley: There's like cancer at the bottom of every single Urban D article. Michael:  Yeah. Yeah, it's just like this. Just put it on the Kimberley: Yeah. Michael: you know, it'll be there. Um, the one thing I think is really important to consider specifically with health anxiety is the tendency for us to become really inwardly focused. And I think this makes it really difficult people to be able to have any chance of being able to move on from any of their health worries. a lot of times what we all want to do is the one thing that we want to monitor is the thing that's wrong. And so for instance, if you go back to your dizziness, right, we might continue to check in on that being like, well, my dizzy now or my dizzy now. How about now? [00:31:00] But the problem is, is that now you're like now you're swapping buckets, Because we have the medical that we have the physical and we have the psychological bucket. But what's a, um, I don't know. You feel dizzy because you drank a little bit too much coffee this morning. You're kind of feeling a little whoa, right? That's a physical symptom. not medical. You don't need to go to the doctor and be like, I've drank too much coffee and be like, great, just go run around for a little bit. Work it off. Right. Um, but the hard part about that is like, so that's a physical symptom. However, then we could start to get that conclusion that we talked about of like, Oh, my goodness, like, what does this mean? And maybe the conclusion is medical. You know, it's like, Oh, maybe I'm gonna pass out. but then the result of that is psychological. We start to get anxious about it. We're like, Oh my goodness, like this could be really bad and like, I don't want this to happen. However, now the byproduct of anxiety a lot of times is lightheadedness, right? And so we work into this catch 22. The [00:32:00] hard part about it is we keep checking in on those and there's a lot of body monitoring with health anxiety that really gets people stuck, um, paying attention to feelings and sensations and symptoms. And the hard part is it keeps going back and forth between these two things of we get really concerned about a symptom. It makes us feel anxious, which increases symptoms, which we notice more. And when we notice more, it makes us feel more anxious. And when we get more anxious, and so we just keep getting into the step ladder. So one of the things that I think is important when we think about this Catch 22 that starts to happen, is I try to really encourage people to think about, If often you get, start to get stuck within your body, your, your focus is inward thinking about how do I feel, what do I notice all of these different things? biggest goal that we can do with any of these things is how do we become more outwardly focused? That doesn't mean that you have to like [00:33:00] pretend that you're not feeling some of these things. Um, I'm a huge fan of dialectics in terms of using and Kimberley: Yes. Michael:  which is noticing like I'm feeling dizzy right now. And also I could try to be as best of my ability really involved in whatever is going on around me. Um, and so think it is, like there's a lot of different compulsions and things that we could talk about, but the biggest one I would want to bring up, at least for people to be aware of. it's becoming more inwardly focused, gets us stuck Kimberley: Yeah. Michael:  And, and it's, and understandably it's scary. to direct ourselves away from those, right? Because then it starts to feel terrifying of like, oh my goodness, if there's something that's really going wrong with me and I'm not paying attention to it? And that's where we start to get to the feared consequence, Kimberley: Yeah. Tell Michael:  some of the work starts to become, which is if I can recognize I have a pretty good answer about [00:34:00] this, maybe my brain isn't being all that reliable. I think this is just a psychological symptom. Um, maybe I'm willing to take the risk that maybe it could be something bigger, better. Um, but in service of being able to get back to my life do the things that I would like to be able to do, maybe that's a risk I'd be willing to take. Kimberley: me about number five. Michael:  That leads into number five. realize whenever I wrote these out, these were going to blend so well, but Kimberley: It's like we're flowing. We're in, we're jiving today. Michael: I know, right? The number five just goes back to this piece of The hardest thing about health anxiety is that one of the things it's not always about death because that sometimes that's what people always think is like, Oh, you're just afraid to die. Um, Kimberley: Mmm. Michael: people's faces whenever I always had the pre face, know, we always like to ask that question of like, what would be the worst thing about that? And health anxiety is always the really like, [00:35:00] uh, interesting one where it's like, well, I'd probably die and be like, what would be the worst thing about that? And people look at me and they're like, Kimberley: I'd be dead. Michael:  that'd be dead. And I'd be like, yeah, I know, but what would be the worst? And so for some people it is, Kimberley: Yeah. Michael:  death. But there's a variety of different, um, feared consequences that I think it's important for people to wrestle with too, which is some people it's around Kimberley: Mmm. Michael:  Some people it's about just the struggle. It's about treatment. It's about just how miserable it'd Kimberley: Mm. squadcaster-48hd_1_06-04-2024_121032: You know, uh, it would be about, you know, the whole process around, you know, getting treated and. You know, saying goodbye to people. For some people, it's not just about death, but it's also about, um, like, the impact that they would see a huge increase in health anxiety when people usually have, like, big life events. Uh, not just in terms of stress, but like, they get married, and now it's kind of like, it's up the ante of their health anxiety. It's like, well, now it would be kind of bad if you Kimberley: Yeah. Michael:  But it would be even [00:36:00] worse because now you'd leave like your spouse behind or even worse like Kimberley:  Yeah. Michael:  kids search into the picture, right? And it's like, Oh my goodness. And so I think it's really important to kind of start to look at is a lot of things that we could really fear to lose. The dirty trick that health anxiety plays it kind of makes us lose those things before we've even lost Kimberley: Yeah. Michael:  And what I mean by that is that sometimes we become so preoccupied with our health. Going to the ER, you know, running to the doctor again or, uh, just ruminating her mind or, you know, the family's around or you're having dinner and you're on your phone, right? Like looking up symptoms, right? things that we're afraid to lose might already be Kimberley: Yeah. Michael:  they're there in front of you to be able to engage in. the really hard thing is, is we're afraid that those would go away, but they've already gone Kimberley: Yeah. Umm. Michael: other process. So. think the one thing we have to kind of really wrestle with is [00:37:00] it's not just about trying to get rid of anxiety. I mean, that's part of the picture. Um, I'm sure for anybody that's ever in the helping profession, they'll always have somebody come in and saying, I really want, you know, this to go away, to be less pain, to feel less anxious, to feel less sad, whatever that might be. And those are cool goals. Like I'm on board with those, right? Like, I don't want people to feel more anxious. Um, I want people to feel less anxious. But if that's the extent of our goals for ourselves is just to, like, worry about my health less, I mean, that's kind of good, but we're missing a big part of the picture here, which is really, what can we add? You know, because health anxiety wants to steal all these things away from you in your life, The things that we're so scared to lose in the first place. And so a big part of number five, I think, is important for people to really recognize, is that Health anxiety is going to want to take those things away from you. And I wouldn't want people to work just like feel less anxious about their Kimberley: Yeah. Michael:  I would want them [00:38:00] to work in what are the things that you're really afraid to lose. I want you doing more of Kimberley: Yeah. Michael:  Right. And that is going to get to the point of having to work to give up some of the things that often would make us feel like we need to do to be able to keep ourselves safe. And that's hard. That is, that's the Kimberley: Yeah. Michael:  Is being able to lean into those things. But, the work also becomes, also gets with the reward, which is, we're actually being able to live life and be able to do those really meaningful and valuable things that we really are afraid to lose in the first Kimberley: Yeah. And when you start living your life, you tend to be focused less inward on all the symptoms as well. So it's sort of like a reverse snowball effect. Michael:  That one of the, absolutely. Good, I'm glad you bring up that point, right? Because that's what happens, Kimberley: Yeah. Michael: we get involved in something else, we start having fun, and then it's that tendency for our mind to want to go back to be like, well, how does this[00:39:00] Kimberley: Yes. Michael:  How does this feel? And so my encouragement for anybody is that about trying to get away from those. I try to draw a quick, line between distraction and redirection, which is a distraction is like an escape, right? Be like, I can't think about this. I got to get away from it. You know, like, let me focus on this movie, Kimberley: Mm hmm. Michael:  Where a redirection is really just trying to make a place for that of just noting of like, yeah, I am feeling this way. I noticed my brain is like yelling at me to be like, look this up on Google right Kimberley:  Yes. Michael: I could notice that. And also, I know it's going to be more helpful for me to make a place for that. Get back to the movie. Really try to get into that. Pay attention to it. that gives us a chance to do, just like what you said, is now we're focusing outside Kimberley:  Yeah. Michael: Instead of all the things that could be going on in our body, which some of them could possibly be serious, but most of them are probably just our bodies being Kimberley: and I think that's cool too is like our bodies will be bodies there, especially as we [00:40:00] age. I see a lot of people's health anxiety go up as aging. You said aches and pains, sleep issues, like it's so common. Yes. Yes. Okay. Yeah. Michael: and it's like sleeping on like something like really uncomfortable floor and And then like, I'm like, oh, I slept really good. And then like me, as I got older and there was like a sock in your bed that you slept on and you're like, oh my goodness. Like, and, and age is gonna Kimberley: Yeah. squadcaster-48hd_1_06-04-2024_121032: had to remember as, as age goes up, health kimberley-_1_06-04-2024_101032: Yes. Yeah. Yeah. Michael: you know, the question real quick, I'd just like to add with this is a lot of times I do get the question of like, well, what if you've had cancer in the past? Right? Like, is that still health anxiety? And it's like, well, you know, if you're in remission you're doing all the things that you need to do, you know, you're probably getting more frequent scans, all those different types of things. We can still become preoccupied with the [00:41:00] possibility of like, what if this new thing, whatever we're feeling is cancer again, right? And that's, I think we have to walk that, that piece of like, that's an incredibly understandable place. And also we go back to number three. which is, is like, are we getting information from our brain that's reliable? And if all the other information that we have in the current period of time, working with an oncologist, whatever it might be, is saying, Hey, your markers look good. Blood work looks good. Your scans look great. Then that's maybe what we challenge ourselves to say, maybe I need to get back the things that are most important. Kimberley:  I love this so much. Thank you so much for sharing these points and bringing so many applicable skills and tools as well. Tell us where people can hear about you. Tell us about your book. All the things. Michael: Yeah, absolutely. So, um, A couple different things with that. One is we did release a book in the mid December. Um, [00:42:00] it's right here. The Complete Guide to Overcoming Health Anxiety. Uh, How to Live Life to the Fullest Because You're Not Dead Yet. Kimberley:  Punchy little yes. Michael: Still here. So, um, there is a book out on Amazon. You can get it, uh, soft cover or you can get a Kindle version. It's written, wanted to write it. Uh, so the, my coauthor. Uh, Josh Kimberley:  Yes. Michael: and I wrote it, um, and we really wanted to write a book that didn't feel too clinical, didn't feel too like, um, you know, that, you know, like you're reading like a, an academic book or something like that. So I think if you appreciate maybe a little bit of a lighter approach, at sometimes funny, some points, uh, cringy, maybe not cringy, I'll just blame it on Josh. Maybe that was all his cringy points. I, I did all the good jokes. Uh, just kidding, Josh. I love you. Um, uh, it is, it's just written in a little bit of a different way that I hope that, you know, some of the feedback [00:43:00] is for people have said that like it's written differently, but it's just written and they feel like they can connect Kimberley: Yeah. Kimberley:  make sense. Um, but that's also very back to, you know, number three that we talked about in terms of cognitive interventions is that you know, it's really important to start to change our relationship with those. So the book is out there, but also we, we also started a website, um, overcoming health anxiety. com. Um, and it has a ton of different resources. We just redid it and try to add a bunch of different other stuff. So we have a health anxiety one on one section. We have treatment resources. have videos, you know, different podcasts. Um, we have a link to our free virtual support group that meets every Thursday of the month. Michael: So, um, uh, so, uh, we have a link to there. Because we really just want to be able to try to reach out. And like I said when we first started [00:44:00] is, a lot of people know that this is a thing, right? Because they, they know and there's even the term cyberchondria out there, right? Like people know about health anxiety. But very people do know that you can actually like get Michael: this not necessarily just through a doctor in terms of like, Oh, here's your medical treatment, but there's psychological tools that you can use that with that. So, yeah, those are our resources. We got that website. We got the book. Um, and, um, we're just trying to connect with health anxiety sufferers to show them that there's some hope to feel better. Kimberley: So good. Thank you. So many wonderful resources and amazing book. Thank you so much for coming on. Um, those folks are the five things you need to know about health anxiety. Thank you so much, Mike, for being here with us today. Michael: Thanks for having me. I appreciate it.

At the AI Pioneers Summit we announced Latent Space Launchpad, an AI-focused accelerator in partnership with Decibel. If you're an AI founder of enterprise early adopter, fill out this form and we'll be in touch with more details. We also have a lot of events coming up as we wrap up the year, so make sure to check out our community events page and come say hi!We previously interviewed the founders of many developer productivity startups embedded in the IDE, like Codium AI, Cursor, and Codeium. We also covered Replit's (former) SOTA model, replit-code-v1-3b and most recently had Amjad and Michele announce replit-code-v1_5-3b at the AI Engineer Summit.Much has been speculated about the StackOverflow traffic drop since ChatGPT release, but the experience is still not perfect. There's now a new player in the “search for developers” arena: Phind.Phind's goal is to help you find answers to your technical questions, and then help you implement them. For example “What should I use to create a frontend for a Python script?” returns a list of frameworks as well as links to the sources. You can then ask follow up questions on specific implementation details, having it write some code for you, etc. They have both a web version and a VS Code integrationThey recently were top of Hacker News with the announcement of their latest model, which is now the #1 rated model on the BigCode Leaderboard, beating their previous version:TLDR Cheat Sheet:* Based on CodeLlama-34B, which is trained on 500B tokens* Further fine-tuned on 70B+ high quality code and reasoning tokens* Expanded context window to 16k tokens* 5x faster than GPT-4 (100 tok/s vs 20 tok/s on single stream)* 74.7% HumanEval vs 45% for the base modelWe've talked before about HumanEval being limited in a lot of cases and how it needs to be complemented with “vibe based” evals. Phind thinks of evals alongside two axis: * Context quality: when asking the model to generate code, was the context high quality? Did we put outdated examples in it? Did we retrieve the wrong files?* Result quality: was the code generated correct? Did it follow the instructions I gave it or did it misunderstand some of it?If you have bad results with bad context, you might get to a good result by working on better RAG. If you have good context and bad result you might either need to work on your prompting or you have hit the limits of the model, which leads you to fine tuning (like they did). Michael was really early to this space and started working on CommonCrawl filtering and indexing back in 2020, which led to a lot of the insights that now power Phind. We talked about that evolution, his experience at YC, how he got Paul Graham to invest in Phind and invite him to dinner at his house, and how Ron Conway connected him with Jensen Huang to get access to more GPUs!Show Notes* Phind* BigScience T0* InstructGPT Paper* Inception-V3* LMQL* Marginalia Nu* Mistral AI* People:* Paul Graham (pg)* Ron Conway* Yacine Jernite from HuggingFace* Jeff DelaneyTimestamps* [00:00:00] Intros & Michael's early interest in computer vision* [00:03:14] Pivoting to NLP and natural language question answering models* [00:07:20] Building a search engine index of Common Crawl and web pages* [00:11:26] Releasing the first version of Hello based on the search index and BigScience T0 model* [00:14:02] Deciding to focus the search engine specifically for programmers* [00:17:39] Overview of Phind's current product and focus on code reasoning* [00:21:51] The future vision for Phind to go from idea to complete code* [00:24:03] Transitioning to using the GPT-4 model and the impact it had* [00:29:43] Developing the Phind model based on CodeLlama and additional training* [00:32:28] Plans to continue improving the Phind model with open source technologies* [00:43:59] The story of meeting Paul Graham and Ron Conway and how that impacted the company* [00:53:02] How Ron Conway helped them get GPUs from Nvidia* [00:57:12] Tips on how Michael learns complex AI topics* [01:01:12] Lightning RoundTranscriptAlessio: Hey everyone, welcome to the Latent Space Podcast. This is Alessio, partner and CTO of Residence and Decibel Partners, and I'm joined by my co-host Swyx, founder of Smol AI. [00:00:19]Swyx: Hey, and today we have in the studio Michael Royzen from Phind. Welcome. [00:00:23]Michael: Thank you so much. [00:00:24]Alessio: It's great to be here. [00:00:25]Swyx: Yeah, we are recording this in a surprisingly hot October in San Francisco. And sometimes the studio works, but the blue angels are flying by right now, so sorry about the noise. So welcome. I've seen Phind blow up this year, mostly, I think since your launch in Feb and V2 and then your Hacker News posts. We tend to like to introduce our guests, but then obviously you can fill in the blanks with the origin story. You actually were a high school entrepreneur. You started SmartLens, which is a computer vision startup in 2017. [00:00:59]Michael: That's right. I remember when like TensorFlow came out and people started talking about, obviously at the time after AlexNet, the deep learning revolution was already in flow. Good computer vision models were a thing. And what really made me interested in deep learning was I got invited to go to Apple's WWDC conference as a student scholar because I was really into making iOS apps at the time. So I go there and I go to this talk where they added an API that let people run computer vision models on the device using far more efficient GPU primitives. After seeing that, I was like, oh, this is cool. This is going to have a big explosion of different computer vision models running locally on the iPhone. And so I had this crazy idea where it was like, what if I could just make this model that could recognize just about anything and have it run on the device? And that was the genesis for what eventually became SmartLens. I took this data set called ImageNet 22K. So most people, when they think of ImageNet, think of ImageNet 1K. But the full ImageNet actually has, I think, 22,000 different categories. So I took that, filtered it, pre-processed it, and then did a massive fine tune on Inception V3, which was, I think, the state of the art deep convolutional computer vision model at the time. And to my surprise, it actually worked insanely well. I had no idea what would happen if I give a single model. I think it ended up being 17,000 categories approximately that I collapsed them into. It worked so well that it actually worked better than Google Lens, which released its V1 around the same time. And on top of this, the model ran on the device. So it didn't need an internet connection. A big part of the issue with Google Lens at the time was that connections were slower. 4G was around, but it wasn't nearly as fast. So there was a noticeable lag having to upload an image to a server and get it back. But just processing it locally, even on the iPhones of the day in 2017, much faster. It was a cool little project. It got some traction. TechCrunch wrote about it. There was kind of like one big spike in usage, and then over time it tapered off. But people still pay for it, which is wild. [00:03:14]Swyx: That's awesome. Oh, it's like a monthly or annual subscription? [00:03:16]Michael: Yeah, it's like a monthly subscription. [00:03:18]Swyx: Even though you don't actually have any servers? [00:03:19]Michael: Even though we don't have any servers. That's right. I was in high school. I had a little bit of money. I was like, yeah. [00:03:25]Swyx: That's awesome. I always wonder what the modern equivalents kind of "Be my eyes". And it would be actually disclosed in the GPT-4 Vision system card recently that the usage was surprisingly not that frequent. The extent to which all three of us have our sense of sight. I would think that if I lost my sense of sight, I would use Be My Eyes all the time. The average usage of Be My Eyes per day is 1.5 times. [00:03:49]Michael: Exactly. I was thinking about this as well, where I was also looking into image captioning, where you give a model an image and then it tells you what's in the image. But it turns out that what people want is the exact opposite. People want to give a description of an image and then have the AI generate the image. [00:04:04]Alessio: Oh, the other way. [00:04:06]Michael: Exactly. And so at the time, I think there were some GANs, NVIDIA was working on this back in 2019, 2020. They had some impressive, I think, face GANs where they had this model that would produce these really high quality portraits, but it wasn't able to take a natural language description the way Midjourney or DALL-E 3 can and just generate you an image with exactly what you described in it. [00:04:32]Swyx: And how did that get into NLP? [00:04:35]Michael: Yeah, I released the SmartLens app and that was around the time I was a senior in high school. I was applying to college. College rolls around. I'm still sort of working on updating the app in college. But I start thinking like, hey, what if I make an enterprise version of this as well? At the time, there was Clarify that provided some computer vision APIs, but I thought this massive classification model works so well and it's so small and so fast, might as well build an enterprise product. And I didn't even talk to users or do any of those things that you're supposed to do. I was just mainly interested in building a type of backend I've never built before. So I was mainly just doing it for myself just to learn. I built this enterprise classification product and as part of it, I'm also building an invoice processing product where using some of the aspects that I built previously, although obviously it's very different from classification, I wanted to be able to just extract a bunch of structured data from an unstructured invoice through our API. And that's what led me to Hugnyface for the first time because that involves some natural language components. And so I go to Hugnyface and with various encoder models that were around at the time, I used the standard BERT and also Longformer, which came out around the same time. And Longformer was interesting because it had a much bigger context window than those models at the time, like BERT, all of the first gen encoder only models, they only had a context window of 512 tokens and it's fixed. There's none of this alibi or ROPE that we have now where we can basically massage it to be longer. They're fixed, 512 absolute encodings. Longformer at the time was the only way that you can fit, say, like a sequence length or ask a question about like 4,000 tokens worth of text. Implemented Longformer, it worked super well, but like nobody really kind of used the enterprise product and that's kind of what I expected because at the end of the day, it was COVID. I was building this kind of mostly for me, mostly just kind of to learn. And so nobody really used it and my heart wasn't in it and I kind of just shelved it. But a little later, I went back to HugMeFace and I saw this demo that they had, and this is in the summer of 2020. They had this demo made by this researcher, Yacine Jernite, and he called it long form question answering. And basically, it was this self-contained notebook demo where you can ask a question the way that we do now with ChatGPT. It would do a lookup into some database and it would give you an answer. And it absolutely blew my mind. The demo itself, it used, I think, BART as the model and in the notebook, it had support for both an Elasticsearch index of Wikipedia, as well as a dense index powered by Facebook's FAISS. I think that's how you pronounce it. It was very iffy, but when it worked, I think the question in the demo was, why are all boats white? When it worked, it blew my mind that instead of doing this few shot thing, like people were doing with GPT-3 at the time, which is all the rage, you could just ask a model a question, provide no extra context, and it would know what to do and just give you the answer. It blew my mind to such an extent that I couldn't stop thinking about that. When I started thinking about ways to make it better, I tried training, doing the fine tune with a larger BART model. And this BART model, yeah, it was fine tuned on this Reddit data set called Eli5. So basically... [00:08:02]Alessio: Subreddit. [00:08:03]Swyx: Yeah, subreddit. [00:08:04]Alessio: Yeah. [00:08:05]Michael: And put it into like a well-formatted, relatively clean data set of like human questions and human answers. And that was a really great bootstrap for that model to be able to answer these types of questions. And so Eli5 actually turned out to be a good data set for training these types of question answering models, because the question is written by a human, the answer is written by a human, and at least helps the model get the format right, even if the model is still very small and it can't really think super well, at least it gets the format right. And so it ends up acting as kind of a glorified summarization model, where if it's fed in high quality context from the retrieval system, it's able to have a reasonably high quality output. And so once I made the model as big as I can, just fine tuning on BART large, I started looking for ways to improve the index. So in the demo, in the notebook, there were instructions for how to make an Elasticsearch index just for Wikipedia. And I was like, why not do all of Common Crawl? So I downloaded Common Crawl, and thankfully, I had like 10 or $15,000 worth of AWS credits left over from the SmartLens project. And that's what really allowed me to do this, because there's no other funding. I was still in college, not a lot of money, and so I was able to spin up a bunch of instances and just process all of Common Crawl, which is massive. So it's roughly like, it's terabytes of text. I went to Alexa to get the top 1,000 websites or 10,000 websites in the world, then filtered only by those websites, and then indexed those websites, because the web pages were already included in Dump. [00:09:38]Swyx: You mean to supplement Common Crawl or to filter Common Crawl? [00:09:41]Michael: Filter Common Crawl. [00:09:42]Alessio: Oh, okay. [00:09:43]Michael: Yeah, sorry. So we filtered Common Crawl just by the top, I think, 10,000, just to limit this, because obviously there's this massive long tail of small sites that are really cool, actually. There's other projects like, shout out to Marginalia Nu, which is a search engine specialized on the long tail. I think they actually exclude the top 10,000. [00:10:03]Swyx: That's what they do. [00:10:04]Alessio: Yeah. [00:10:05]Swyx: I've seen them around, I just don't really know what their pitch is. Okay, that makes sense. [00:10:08]Michael: So they exclude all the top stuff. So the long tail is cool, but for this, that was kind of out of the question, and that was most of the data anyway. So we've removed that. And then I indexed the remaining approximately 350 million webpages through Elasticsearch. So I built this index running on AWS with these webpages, and it actually worked quite well. You can ask it general common knowledge, history, politics, current events, questions, and it would be able to do a fast lookup in the index, feed it into the model, and it would give a surprisingly good result. And so when I saw that, I thought that this is definitely doable. And it kind of shocked me that no one else was doing this. And so this was now the fall of 2020. And yeah, I was kind of shocked no one was doing this, but it costs a lot of money to keep it up. I was still in college. There are things going on. I got bogged down by classes. And so I ended up shelving this for almost a full year, actually. When I returned to it in fall of 2021, when BigScience released T0, when BigScience released the T0 models, that was a massive jump in the reasoning ability of the model. And it was better at reasoning, it was better at summarization, it was still a glorified summarizer basically. [00:11:26]Swyx: Was this a precursor to Bloom? Because Bloom's the one that I know. [00:11:29]Alessio: Yeah. [00:11:30]Michael: Actually coming out in 2022. But Bloom had other problems where for whatever reason, the Bloom models just were never really that good, which is so sad because I really wanted to use them. But I think they didn't turn on that much data. I think they used like the original, they were trying to replicate GPT-3. So they just use those numbers, which we now know are like far below Chinchilla Optimal and even Chinchilla Optimal, which we can like talk about later, like what we're currently doing with MIMO goes, yeah, it goes way beyond that. But they weren't trying enough data. I'm not sure how that data was clean, but it probably wasn't super clean. And then they didn't really do any fine tuning until much later. So T0 worked well because they took the T5 models, which were closer to Chinchilla Optimal because I think they were trained on also like 300 something billion tokens, similar to GPT-3, but the models were much smaller. I think T0 is the first model that did large scale instruction tuning from diverse data sources in the fall of 2021. This is before Instruct GPT. This is before Flan T5, which came out in 2022. This is the very, very first, at least well-known example of that. And so it came out and then I did, on top of T0, I also did the Reddit Eli5 fine tune. And that was the first model and system that actually worked well enough to where I didn't get discouraged like I did previously, because the failure cases of the BART based system was so egregious. Sometimes it would just miss a question so horribly that it was just extremely discouraging. But for the first time, it was working reasonably well. Also using a much bigger model. I think the BART model is like 800 million parameters, but T0, we were using 3B. So it was T0, 3B, bigger model. And that was the very first iteration of Hello. So I ended up doing a show HN on Hacker News in January 2022 of that system. Our fine tune T0 model connected to our Elasticsearch index of those 350 million top 10,000 common crawl websites. And to the best of my knowledge, I think that's the first example that I'm aware of a LLM search engine model that's effectively connected to like a large enough index that I consider like an internet scale. So I think we were the first to release like an internet scale LLM powered rag search system In January 2022, around the time me and my future co-founder, Justin, we were like, this seems like the future. [00:14:02]Alessio: This is really cool. [00:14:03]Michael: I couldn't really sleep even like I was going to bed and I was like, I was thinking about it. Like I would say up until like 2.30 AM, like reading papers on my phone in bed, go to sleep, wake up the next morning at like eight and just be super excited to keep working. And I was also doing my thesis at the same time, my senior honors thesis at UT Austin about something very similar. We were researching factuality in abstractive question answering systems. So a lot of overlap with this project and the conclusions of my research actually kind of helped guide the development path of Hello. In the research, we found that LLMs, they don't know what they don't know. So the conclusion was, is that you always have to do a search to ensure that the model actually knows what it's talking about. And my favorite example of this even today is kind of with chat GPT browsing, where you can ask chat GPT browsing, how do I run llama.cpp? And chat GPT browsing will think that llama.cpp is some file on your computer that you can just compile with GCC and you're all good. It won't even bother doing a lookup, even though I'm sure somewhere in their internal prompts they have something like, if you're not sure, do a lookup. [00:15:13]Alessio: That's not good enough. So models don't know what they don't know. [00:15:15]Michael: You always have to do a search. And so we approached LLM powered question answering from the search angle. We pivoted to make this for programmers in June of 2022, around the time that we were getting into YC. We realized that what we're really interested in is the case where the models actually have to think. Because up until then, the models were kind of more glorified summarization models. We really thought of them like the Google featured snippets, but on steroids. And so we saw a future where the simpler questions would get commoditized. And I still think that's going to happen with like Google SGE and like it's nowadays, it's really not that hard to answer the more basic kind of like summarization, like current events questions with lightweight models that'll only continue to get cheaper over time. And so we kind of started thinking about this trade off where LLM models are going to get both better and cheaper over time. And that's going to force people who run them to make a choice. Either you can run a model of the same intelligence that you could previously for cheaper, or you can run a better model for the same price. So someone like Google, once the price kind of falls low enough, they're going to deploy and they're already doing this with SGE, they're going to deploy a relatively basic glorified summarizer model that can answer very basic questions about like current events, who won the Super Bowl, like, you know, what's going on on Capitol Hill, like those types of things. The flip side of that is like more complex questions where like you have to reason and you have to solve problems and like debug code. And we realized like we're much more interested in kind of going along the bleeding edge of that frontier case. And so we've optimized everything that we do for that. And that's a big reason of why we've built Phind specifically for programmers, as opposed to saying like, you know, we're kind of a search engine for everyone because as these models get more capable, we're very interested in seeing kind of what the emergent properties are in terms of reasoning, in terms of being able to solve complex multi-step problems. And I think that some of those emerging capabilities like we're starting to see, but we don't even fully understand. So I think there's always an opportunity for us to become more general if we wanted, but we've been along this path of like, what is the best, most advanced reasoning engine that's connected to your code base, that's connected to the internet that we can just provide. [00:17:39]Alessio: What is Phind today, pragmatically, from a product perspective, how do people interact with it? Yeah. Or does it plug into your workflow? [00:17:46]Michael: Yeah. [00:17:47]Alessio: So Phind is really a system. [00:17:48]Michael: Phind is a system for programmers when they have a question or when they're frustrated or when something's not working. [00:17:54]Swyx: When they're frustrated. [00:17:55]Alessio: Yeah. [00:17:56]Michael: For them to get on block. I think like the single, the most abstract page for Phind is like, if you're experiencing really any kind of issue as a programmer, we'll solve that issue for you in 15 seconds as opposed to 15 minutes or longer. Phind has an interface on the web. It has an interface in VS code and more IDEs to come, but ultimately it's just a system where a developer can paste in a question or paste in code that's not working and Phind will do a search on the internet or they will find other code in your code base perhaps that's relevant. And then we'll find the context that it needs to answer your question and then feed it to a reasoning engine powerful enough to actually answer it. So that's really the philosophy behind Phind. It's a system for getting developers the answers that they're looking for. And so right now from a product perspective, this means that we're really all about getting the right context. So the VS code extension that we launched recently is a big part of this because you can just ask a question and it knows where to find the right code context in your code. It can do an internet search as well. So it's up to date and it's not just reliant on what the model knows and it's able to figure out what it needs by itself and answer your question based on that. If it needs some help, you can also get yourself kind of just, there's opportunities for you yourself to put in all that context in. But the issue is also like not everyone wants these VS code. Some people like are real Neovim sticklers or they're using like PyCharm or other IDEs, JetBrains. And so for those people, they're actually like okay with switching tabs, at least for now, if it means them getting their answer. Because really like there's been an explosion of all these like startups doing code, doing search, etc. But really who everyone's competing with is ChatGPT, which only has like that one web interface. Like ChatGPT is really the bar. And so that's what we're up against. [00:19:50]Alessio: And so your idea, you know, we have Amman from Cursor on the podcast and they've gone through the we need to own the IDE thing. Yours is more like in order to get the right answer, people are happy to like go somewhere else basically. They're happy to get out of their IDE. [00:20:05]Michael: That was a great podcast, by the way. But yeah, so part of it is that people sometimes perhaps aren't even in an IDE. So like the whole task of software engineering goes way beyond just running code, right? There's also like a design stage. There's a planning stage. A lot of this happens like on whiteboards. It happens in notebooks. And so the web part also exists for that where you're not even coding it and you're just trying to get like a more conceptual understanding of what you're trying to build first. The podcast with Amman was great, but somewhere where I disagree with him is that you need to own the IDE. I think like he made some good points about not having platform risk in the long term. But some of the features that were mentioned like suggesting diffs, for example, those are all doable with an extension. We haven't yet seen with VS Code in particular any functionality that we'd like to do yet in the IDE that we can't either do through directly supported VS Code functionality or something that we kind of hack into there, which we've also done a fair bit of. And so I think it remains to be seen where that goes. But I think what we're looking to be is like we're not trying to just be in an IDE or be an IDE. Like Phind is a system that goes beyond the IDE and like is really meant to cover the entire lifecycle of a developer's thought process in going about like, hey, like I have this idea and I want to get from that idea to a working product. And so then that's what the long term vision of Phind is really about is starting with that. In the future, I think programming is just going to be really just the problem solving. Like you come up with an idea, you come up with like the basic design for the algorithm in your head, and you just tell the AI, hey, just like just do it, just make it work. And that's what we're building towards. [00:21:51]Swyx: I think we might want to give people an impression about like type of traffic that you have, because when you present it with a text box, you could type in anything. And I don't know if you have some mental categorization of like what are like the top three use cases that people tend to coalesce around. [00:22:08]Alessio: Yeah, that's a great question. [00:22:09]Michael: The two main types of searches that we see are how-to questions, like how to do X using Y tool. And this historically has been our bread and butter, because with our embeddings, like we're really, really good at just going over a bunch of developer documentation and figuring out exactly the part that's relevant and just telling you, OK, like you can use this method. But as LLMs have gotten better, and as we've really transitioned to using GPT-4 a lot in our product, people organically just started pasting in code that's not working and just said, fix it for me. [00:22:42]Swyx: Fix this. [00:22:43]Alessio: Yeah. [00:22:44]Michael: And what really shocks us is that a lot of the people who do that, they're coming from chat GPT. So they tried it in chat GPT with chat GPT-4. It didn't work. Maybe it required like some multi-step reasoning. Maybe it required some internet context or something found in either a Stack Overflow post or some documentation to solve it. And so then they paste it into find and then find works. So those are really those two different cases. Like, how can I build this conceptually or like remind me of this one detail that I need to build this thing? Or just like, here's this code. Fix it. And so that's what a big part of our VS Code extension is, is like enabling a much smoother here just like fix it for me type of workflow. That's really its main benefits. Like it's in your code base. It's in the IDE. It knows how to find the relevant context to answer that question. But at the end of the day, like I said previously, that's still a relatively, not to say it's a small part, but it's a limited part of the entire mental life cycle of a programmer. [00:23:47]Swyx: Yep. So you launched in Feb and then you launched V2 in August. You had a couple other pretty impactful posts slash feature launches. The web search one was massive. So you were mostly a GPT-4 wrapper. We were for a long time. [00:24:03]Michael: For a long time until recently. Yeah. [00:24:05]Alessio: Until recently. [00:24:06]Swyx: So like people coming over from ChatGPT were saying, we're going to say model with your version of web search. Would that be the primary value proposition? [00:24:13]Michael: Basically yeah. And so what we've seen is that any model plus web search is just significantly better than [00:24:18]Alessio: that model itself. Do you think that's what you got right in April? [00:24:21]Swyx: Like so you got 1500 points on Hacking News in April, which is like, if you live on Hacking News a lot, that is unheard of for someone so early on in your journey. [00:24:31]Alessio: Yeah. [00:24:32]Michael: We're super, super grateful for that. Definitely was not expecting it. So what we've done with Hacker News is we've just kept launching. [00:24:38]Alessio: Yeah. [00:24:39]Michael: Like what they don't tell you is that you can just keep launching. That's what we've been doing. So we launched the very first version of Find in its current incarnation after like the previous demo connected to our own index. Like once we got into YC, we scrapped our own index because it was too cumbersome at the time. So we moved over to using Bing as kind of just the raw source data. We launched as Hello Cognition. Over time, every time we like added some intelligence to the product, a better model, we just keep launching. And every additional time we launched, we got way more traffic. So we actually silently rebranded to Find in late December of last year. But like we didn't have that much traffic. Nobody really knew who we were. [00:25:18]Swyx: How'd you pick the name out of it? [00:25:19]Michael: Paul Graham actually picked it for us. [00:25:21]Swyx: All right. [00:25:22]Alessio: Tell the story. Yeah. So, oh boy. [00:25:25]Michael: So this is the biggest side. Should we go for like the full Paul Graham story or just the name? [00:25:29]Swyx: Do you want to do it now? Or do you want to do it later? I'll give you a choice. [00:25:32]Alessio: Hmm. [00:25:33]Michael: I think, okay, let's just start with the name for now and then we can do the full Paul Graham story later. But basically, Paul Graham, when we were lucky enough to meet him, he saw our name and our domain was at the time, sayhello.so and he's just like, guys, like, come on, like, what is this? You know? And we were like, yeah, but like when we bought it, you know, we just kind of broke college students. Like we didn't have that much money. And like, we really liked hello as a name because it was the first like conversational search engine. And that's kind of, that's the angle that we were approaching it from. And so we had sayhello.so and he's like, there's so many problems with that. Like, like, like the say hello, like, what does that even mean? And like .so, like, it's gotta be like a .com. And so we did some time just like with Paul Graham in the room. We just like looked at different domain names, like different things that like popped into our head. And one of the things that popped into like Paul Graham said was fine with the Phind spelling in particular. [00:26:33]Swyx: Yeah. Which is not typical naming advice, right? Yes. Because it's not when people hear it, they don't spell it that way. [00:26:38]Michael: Exactly. It's hard to spell. And also it's like very 90s. And so at first, like, we didn't like, I was like, like, ah, like, I don't know. But over time it kept growing on us. And eventually we're like, okay, we like the name. It's owned by this elderly Canadian gentleman who we got to know, and he was willing to sell it to us. [00:26:57]Michael: And so we bought it and we changed the name. Yeah. [00:27:01]Swyx: Anyways, where were you? [00:27:02]Alessio: I had to ask. [00:27:03]Swyx: I mean, you know, everyone who looks at you is wondering. [00:27:06]Michael: And a lot of people actually pronounce it Phind, which, you know, by now it's part of the game. But eventually we want to buy Phind.com and then just have that redirect to Phind. So Phind is like definitely the right spelling. But like, we'll just, yeah, we'll have all the cases addressed. [00:27:23]Swyx: Cool. So Bing web search, and then August you launched V2. Is V2 the Phind as a system pitch? Or have you moved, evolved since then? [00:27:31]Michael: Yeah, so I don't, like the V2 moniker, like, I don't really think of it that way in my mind. There's like, there's the version we launched during, last summer during YC, which was the Bing version directed towards programmers. And that's kind of like, that's why I call it like the first incarnation of what we currently are. Because it was already directed towards programmers. We had like a code snippet search built in as well, because at the time, you know, the models we were using weren't good enough to generate code snippets. Even GPT, like the text DaVinci 2 was available at the time, wasn't that good at generating code and it would generate like very, very short, very incomplete code snippets. And so we launched that last summer, got some traction, but really like we were only doing like, I don't know, maybe like 10,000 searches a day. [00:28:15]Alessio: Some people knew about it. [00:28:16]Michael: Some people used it, which is impressive because looking back, the product like was not that good. And every time we've like made an improvement to the way that we retrieve context through better embeddings, more intelligent, like HTML parsers, and importantly, like better underlying models. Every major version after that was when we introduced a better underlying answering model. Like in February, we had to swallow a bit of our pride when we were like, okay, our own models aren't good enough. We have to go to open AI. And actually that did lead to kind of like our first decent bump of traffic in February. And people kept using it, like our attention was way better too. But we were still kind of running into problems of like more advanced reasoning. Some people tried it, but people were leaving because even like GPT 3.5, both turbo and non-turbo, like still not that great at doing like code related reasoning beyond the how do you do X, like documentation search type of use case. And so it was really only when GPT 4 came around in April that we were like, okay, like this is like our first real opportunity to really make this thing like the way that it should have been all along. And having GPT 4 as the brain is what led to that Hacker News post. And so what we did was we just let anyone use GPT 4 on Fyne for free without a login, [00:29:43]Alessio: which I actually don't regret. [00:29:45]Michael: So it was very expensive, obviously. But like at that stage, all we needed to do was show like, we just needed to like show people here's what Fyne can do. That was the main thing. And so that worked. That worked. [00:29:58]Alessio: Like we got a lot of users. [00:29:59]Michael: Do you know Fireship? [00:30:01]Swyx: Yeah. YouTube, Jeff Delaney. [00:30:03]Michael: Yeah. He made a short about Fyne. [00:30:06]Alessio: Oh. [00:30:07]Michael: And that's on top of the Hacker News post. And that's what like really, really made it blow up. It got millions of views in days. And he's just funny. Like what I love about Fireship is like he like you guys, yeah, like humor goes a long a long way towards like really grabbing people's attention. And so that blew up. [00:30:25]Swyx: Something I would be anxious about as a founder during that period, so obviously we all remember that pretty closely. So there were a couple of people who had access to the GPT-4 API doing this, which is unrestricted access to GPT-4. And I have to imagine OpenAI wasn't that happy about that because it was like kind of de facto access to GPT-4 before they released it. [00:30:46]Alessio: No, no. [00:30:47]Michael: GPT-4 was in chat GPT from day one. I think. OpenAI actually came to our support because what happened was we had people building unofficial APIs around to try to get free access to it. And I think OpenAI actually has the right perspective on this where they're like, OK, people can do whatever they want with the API if they're paying for it, like they can do whatever they want, but it's like not OK if, you know, paying customers are being exploite by these other actors. They actually got in touch with us and they helped us like set up better Cloudflare bot monitoring controls to effectively like crack down on those unofficial APIs, which we're very happy about. But yeah, so we launched GPT-4. A lot of people come to the product and yeah, for a long time, we're just we're figuring out like what do we make of this, right? How do we a make it better, but also deal with like our costs, which have just like massively, massively ballooned. Over time, it's become more clear with the release of Llama 2 and Llama 3 on the horizon that we will once again see a return to vertical applications running their own models. As was true last year and before, I think that GPT-4, my hypothesis is that the jump from 4 to 4.5 or 4 to 5 will be smaller than the jump from 3 to 4. And the reason why is because there were a lot of different things. Like there was two plus, effectively two, two and a half years of research that went into going from 3 to 4. Like more data, bigger model, all of the instruction tuning techniques, RLHF, all of that is known. And like Meta, for example, and now there's all these other startups like Mistral too, like there's a bunch of very well-funded open source players that are now working on just like taking the recipe that's now known and scaling it up. So I think that even if a delta exists, the delta between in 2024, the delta between proprietary and open source won't be large enough that a startup like us with a lot of data that we've collected can take the data that we have, fine tune an open source model, and like be able to have it be better than whatever the proprietary model is at the time. That's my hypothesis.Michael: But we'll once again see a return to these verticalized models. And that's something that we're super excited about because, yeah, that brings us to kind of the fine model because the plan from kind of the start was to be able to return to that if that makes sense. And I think now we're definitely at a point where it does make sense because we have requests from users who like, they want longer context in the model, basically, like they want to be able to ask questions about their entire code base without, you know, context and retrieval and taking a chance of that. Like, I think it's generally been shown that if you have the space to just put the raw files inside of a big context window, that is still better than chunking and retrieval. So there's various things that we could do with longer context, faster speed, lower cost. Super excited about that. And that's the direction that we're going with the fine model. And our big hypothesis there is precisely that we can take a really good open source model and then just train it on absolutely all of the high quality data that we can find. And there's a lot of various, you know, interesting ideas for this. We have our own techniques that we're kind of playing with internally. One of the very interesting ideas that I've seen, I think it's called Octopack from BigCode. I don't think that it made that big waves when it came out, I think in August. But the idea is that they have this data set that maps GitHub commits to a change. So basically there's all this really high quality, like human made, human written diff data out there on every time someone makes a commit in some repo. And you can use that to train models. Take the file state before and like given a commit message, what should that code look like in the future? [00:34:52]Swyx: Got it. [00:34:53]Alessio: Do you think your HumanEval is any good?Michael: So we ran this experiment. We trained the Phind model. And if you go to the BigCode leaderboard, as of today, October 5th, all of our models are at the top of the BigCode leaderboard by far. It's not close, particularly in languages other than Python. We have a 10 point gap between us and the next best model on JavaScript. I think C sharp, multilingual. And what we kind of learned from that whole experience releasing those models is that human eval doesn't really matter. Not just that, but GPT-4 itself has been trained on human eval. And we know this because GPT-4 is able to predict the exact docstring in many of the problems. I've seen it predict like the specific example values in the docstring, which is extremely improbable. So I think there's a lot of dataset contamination and it only captures a very limited subset of what programmers are actually doing. What we do internally for evaluations are we have GPT-4 score answers. GPT-4 is a really good evaluator. I mean, obviously it's by really good, I mean, it's the best that we have. I'm sure that, you know, a couple of months from now, next year, we'll be like, oh, you know, like GPT-4.5, GPT-5, it's so much better. Like GPT-4 is terrible, but like right now it's the best that we have short of humans. And what we found is that when doing like temperature zero evals, it's actually mostly deterministic GPT-4 across runs in assigning scores to two different answers. So we found it to be a very useful tool in comparing our model to say, GPT-4, but yeah, on our like internal real world, here's what people will be asking this model dataset. And the other thing that we're running is just like releasing the model to our users and just seeing what they think. Because that's like the only thing that really matters is like releasing it for the application that it's intended for, and then seeing how people react. And for the most part, the incredible thing is, is that people don't notice a difference between our model and GPT-4 for the vast majority of searches. There's some reasoning problems that GPT-4 can still do better. We're working on addressing that. But in terms of like the types of questions that people are asking on find, there's not that much difference. And in fact, I've been running my own kind of side by side comparisons, shout out to GodMode, by the way. [00:37:16]Michael: And I've like myself, I've kind of confirmed this to be the case. And even sometimes it gives a better answer, perhaps like more concise or just like better implementation than GPT-4, which that's what surprises me. And by now we kind of have like this reasoning is all you need kind of hypothesis where we've seen emerging capabilities in the find model, whereby training it on high quality code, it can actually like reason better. It went from not being able to solve world problems, where riddles were like with like temporal placement of objects and moving and stuff like that, that GPT-4 can do pretty well. We went from not being able to do those at all to being able to do them just by training on more code, which is wild. So we're already like starting to see like these emerging capabilities. [00:37:59]Swyx: So I just wanted to make sure that we have the, I guess, like the model card in our heads. So you started from Code Llama? [00:38:07]Alessio: Yes. [00:38:08]Swyx: 65, 34? 34. [00:38:10]Michael: So unfortunately, there's no Code Llama 70b. If there was, that would be super cool. But there's not. [00:38:15]Swyx: 34. And then, which in itself was Llama 2, which is on 2 trillion tokens and the added 500 billion code tokens. Yes. [00:38:22]Michael: And you just added a bunch more. [00:38:23]Alessio: Yeah. [00:38:24]Michael: And they also did a couple of things. So they did, I think they did 500 billion, like general pre-training and then they did an extra 20 billion long context pre-training. So they actually increased the like max position tokens to 16k up from 8k. And then they changed the theta parameter for the ROPE embeddings as well to give it theoretically better long context support up to 100k tokens. But yeah, but otherwise it's like basically Llama 2. [00:38:50]Swyx: And so you just took that and just added data. [00:38:52]Michael: Exactly. [00:38:53]Swyx: You didn't do any other fundamental. [00:38:54]Michael: Yeah. So we didn't actually, we haven't yet done anything with the model architecture and we just trained it on like many, many more billions of tokens on our own infrastructure. And something else that we're taking a look at now is using reinforcement learning for correctness. One of the interesting pitfalls that we've noticed with the Phind model is that in cases where it gets stuff wrong, it sometimes is capable of getting the right answer. It's just, there's a big variance problem. It's wildly inconsistent. There are cases when it is able to get the right chain of thought and able to arrive [00:39:25]Alessio: at the right answer, but not always. [00:39:27]Michael: And so like one of our hypotheses is something that we're going to try is that like we can actually do reinforcement learning on, for a given problem, generate a bunch of completions and then like use the correct answer as like a loss basically to try to get it to be more correct. And I think there's a high chance I think of this working because it's very similar to the like RLHF method where you basically show pairs of completions for a given question except the criteria is like which one is like less harmful. But here we have a different criteria. But if the model is already capable of getting the right answer, which it is, we're just, we just need to cajole it into being more consistent. [00:40:06]Alessio: There were a couple of things that I noticed in the product that were not strange but unique. So first of all, the model can talk multiple times in a row, like most other applications is like human model, human model. And then you had outside of the thumbs up, thumbs down, you have things like have DLLM prioritize this message and its answers or then continue from this message to like go back. How does that change the flow of the user and like in terms of like prompting it, yeah, what are like some tricks or learnings you've had? [00:40:37]Michael: So yeah, that's specifically in our pair programmer mode, which is a more conversational mode that also like asks you clarifying questions back if it doesn't fully understand what you're doing and it kind of it holds your hand a bit more. And so from user feedback, we had requests to make more of an auto GPT where you can kind of give it this problem that might take multiple searches or multiple different steps like multiple reasoning steps to solve. And so that's the impetus behind building that product. Being able to do multiple steps and also be able to handle really long conversations. Like people are really trying to use the pair programmer to go from like sometimes really from like basic idea to like complete working code. And so we noticed was is that we were having like these very, very long threads, sometimes with like 60 messages, like 100 messages. And like those become really, really challenging to manage the appropriate context window of what should go inside of the context and how to preserve the context so that the model can continue or the product can continue giving good responses, even if you're like 60 messages deep in a conversation. So that's where the prioritized user messages like comes from. It's like people have asked us to just like let them pin messages that they want to be left in the conversation. And yeah, and then that seems to have like really gone a long way towards solving that problem, yeah. [00:41:54]Alessio: And then you have a run on Replit thing. Are you planning to build your own repl? Like learning some people trying to run the wrong code, unsafe code? [00:42:03]Michael: Yes. Yes. So I think like in the long term vision of like being a place where people can go from like idea to like fully working code, having a code sandbox, like a natively integrated code sandbox makes a lot of sense. And replit is great and people use that feature. But yeah, I think there's more we can do in terms of like having something a bit closer to code interpreter where it's able to run the code and then like recursively iterate on it. Exactly. [00:42:31]Swyx: So you're working on APIs to enable you to do that? Yep. So Amjad has specifically told me in person that he wants to enable that for people at the same time. He's also working on his own models, and Ghostwriter and you know, all the other stuff. So it's going to get interesting. Like he wants to power you, but also compete with you. Yeah. [00:42:47]Michael: And like, and we love replit. I think that a lot of the companies in our space, like we're all going to converge to solving a very similar problem, but from a different angle. So like replit approaches this problem from the IDE side. Like they started as like this IDE that you can run in the browser. And they started from that side, making coding just like more accessible. And we're approaching it from the side of like an LLM that's just like connected to everything that it needs to be connected to, which includes your code context. So that's why we're kind of making inroads into IDEs, but we're kind of, we're approaching this problem from different sides. And I think it'll be interesting to see where things end up. But I think that in the long, long term, we have an opportunity to also just have like this general technical reasoning engine product that's potentially also not just for, not just for programmers. It's also powered in this web interface, like where there's potential, I think other things that we will build that eventually might go beyond like our current scope. [00:43:49]Swyx: Exciting. We'll look forward to that. We're going to zoom out a little bit into sort of AI ecosystem stories, but first we got to get the Paul Graham, Ron Conway story. [00:43:59]Alessio: Yeah. [00:44:00]Michael: So flashback to last summer, we're in the YC batch. We're doing the summer batch, summer 22. So the summer batch runs from June to September, approximately. And so this was late July, early August, right around the time that many like YC startups start like going out, like during up, here's how we're going to pitch investors and everything. And at the same time, me and my co-founder, Justin, we were planning on moving to New York. So for a long time, actually, we were thinking about building this company in New York, mainly for personal reasons, actually, because like during the pandemic, pre-ChatGPT, pre last year, pre the AI boom, SF unfortunately really kind of, you know, like lost its luster. Yeah. Like no one was here. It was far from clear, like if there would be an AI boom, if like SF would be like... [00:44:49]Alessio: Back. [00:44:50]Michael: Yeah, exactly. Back. As everyone is saying these days, it was far from clear. And so, and all of our friends, we were graduating college because like we happened to just graduate college and immediately start YC, like we didn't even have, I think we had a week in between. [00:45:06]Swyx: You didn't bother looking for jobs. You were just like, this is what we want to do. [00:45:08]Michael: Well, actually both me and my co-founder, we had jobs that we secured in 2021 from previous internships, but we both, funny enough, when I spoke to my boss's boss at the company at where I reneged my offer, I told him we got into YC, they actually said, yeah, you should do YC. [00:45:27]Swyx: Wow. [00:45:28]Alessio: That's very selfless. [00:45:29]Swyx: That was really great that they did that. But in San Francisco, they would have offered to invest as well. [00:45:33]Michael: Yes, they would have. But yeah, but we were both planning to be in New York and all of our friends were there from college at this point, like we have this whole plan where like on August 1st, we're going to move to New York and we had like this Airbnb for the month of New York. We're going to stay there and we're going to work and like all of that. The day before we go to New York, I called Justin and I just, I tell him like, why are we doing this? Because in our batch, by the time August 1st rolled around, all of our mentors at YC were saying like, hey, like you should really consider staying in SF. [00:46:03]Swyx: It's the hybrid batch, right? [00:46:04]Michael: Yeah, it was the hybrid batch, but like there were already signs that like something was kind of like afoot in SF, even if like we didn't fully want to admit it yet. And so we were like, I don't know, I don't know. Something kind of clicked when the rubber met the road and it was time to go to New York. We're like, why are we doing this? And like, we didn't have any good reasons for staying in New York at that point beyond like our friends are there. So we still go to New York because like we have the Airbnb, like we don't have any other kind of place to go for the next few weeks. We're in New York and New York is just unfortunately too much fun. Like all of my other friends from college who are just, you know, basically starting their jobs, starting their lives as adults. They just stepped into these jobs, they're making all this money and they're like partying and like all these things are happening. And like, yeah, it's just a very distracting place to be. And so we were just like sitting in this like small, you know, like cramped apartment, terrible posture, trying to get as much work done as we can, too many distractions. And then we get this email from YC saying that Paul Graham is in town in SF and he is doing office hours with a certain number of startups in the current batch. And whoever signs up first gets it. And I happen to be super lucky. I was about to go for a run, but I just, I saw the email notification come across the street. I immediately clicked on the link and like immediately, like half the spots were gone, but somehow the very last spot was still available. And so I picked the very, very last time slot at 7 p.m. semi-strategically, you know, so we would have like time to go over. And also because I didn't really know how we're going to get to SF yet. And so we made a plan that we're going to fly from New York to SF and back to New York in one day and do like the full round trip. And we're going to meet with PG at the YC Mountain View office. And so we go there, we do that, we meet PG, we tell him about the startup. And one thing I love about PG is that he gets like, he gets so excited. Like when he gets excited about something, like you can see his eyes like really light up. And he'll just start asking you questions. In fact, it's a little challenging sometimes to like finish kind of like the rest of like the description of your pitch because like, he'll just like asking all these questions about how it works. And I'm like, you know, what's going on? [00:48:19]Swyx: What was the most challenging question that he asked you? [00:48:21]Michael: I think that like really how it worked. Because like as soon as like we told him like, hey, like we think that the future of search is answers, not links. Like we could really see like the gears turning in his head. I think we were like the first demo of that. [00:48:35]Swyx: And you're like 10 minutes with him, right? [00:48:37]Michael: We had like 45, yeah, we had a decent chunk of time. And so we tell him how it works. Like he's very excited about it. And I just like, I just blurted out, I just like asked him to invest and he hasn't even seen the product yet. We just asked him to invest and he says, yeah. And like, we're super excited about that. [00:48:55]Swyx: You haven't started your batch. [00:48:56]Michael: No, no, no. This is about halfway through the batch or two, two, no, two thirds of the batch. [00:49:02]Swyx: And you're like not technically fundraising yet. We're about to start fundraising. Yeah. [00:49:06]Michael: So we have like this demo and like we showed him and like there was still a lot of issues with the product, but I think like it must have like still kind of like blown his mind in some way. So like we're having fun. He's having fun. We have this dinner planned with this other friend that we had in SF because we were only there for that one day. So we thought, okay, you know, after an hour we'll be done, you know, we'll grab dinner with our friend and we'll fly back to New York. But PG was like, like, I'm having so much fun. Do you want to have dinner? Yeah. Come to my house. Or he's like, I gotta go have dinner with my wife, Jessica, who's also awesome, by the way. [00:49:40]Swyx: She's like the heart of YC. Yeah. [00:49:42]Michael: Jessica does not get enough credit as an aside for her role. [00:49:46]Swyx: He tries. [00:49:47]Michael: He understands like the technical side and she understands people and together they're just like a phenomenal team. But he's like, yeah, I got to go see Jessica, but you guys are welcome to come with. Do you want to come with? And we're like, we have this friend who's like right now outside of like literally outside the door who like we also promised to get dinner with. It's like, we'd love to, but like, I don't know if we can. He's like, oh, he's welcome to come too. So all of us just like hop in his car and we go to his house and we just like have this like we have dinner and we have this just chat about the future of search. Like I remember him telling Jessica distinctly, like our kids as kids are not going to know what like a search result is. Like they're just going to like have answers. That was really like a mind blowing, like inflection point moment for sure. [00:50:34]Swyx: Wow, that email changed your life. [00:50:35]Michael: Absolutely. [00:50:36]Swyx: And you also just spoiled the booking system for PG because now everyone's just going to go after the last slot. Oh man. [00:50:42]Michael: Yeah. But like, I don't know if he even does that anymore. [00:50:46]Swyx: He does. He does. Yeah. I've met other founders that he did it this year. [00:50:49]Michael: This year. Gotcha. But when we told him about how we did it, he was like, I am like frankly shocked that YC just did like a random like scheduling system. [00:50:55]Alessio: They didn't like do anything else. But, um. [00:50:58]Swyx: Okay. And then he introduces Duron Conway. Yes. Who is one of the most legendary angels in Silicon Valley. [00:51:04]Michael: Yes.So after PG invested, the rest of our round came together pretty quickly. [00:51:10]Swyx: I'm, by the way, I'm surprised. Like it's, it might feel like playing favorites right within the current batch to be like, yo, PG invested in this one. Right. [00:51:17]Alessio: Too bad for the others. [00:51:18]Swyx: Too bad for the others, I guess. [00:51:19]Michael: I think this is a bigger point about YC and like these accelerators in general is like YC gets like a lot of criticism from founders who feel like they didn't get value out of it. But like, in my view, YC is what you make of it. And YC tells you this. They're like, you really got to grab this opportunity, like buy the balls and make the most of it. And if you do, then it could be the best thing in the world. And if you don't, and if you're just kind of like a passive, even like an average founder in YC, you're still going to fail. And they tell you that. They're like, if you're average in your batch, you're going to fail. Like you have to just be exceptional in every way. With that in mind, perhaps that's even part of the reason why we asked PG to invest. And so yeah, after PG invested, the rest of our round came together pretty quickly, which I'm very fortunate for. And yeah, he introduced us to Ron. And after he did, I get a call from Ron. And then Ron says like, hey, like PG tells me what you're working on. I'd love to come meet you guys. And I'm like, wait, no way. And then we're just holed up in this like little house in San Mateo, which is a little small, but you know, it had a nice patio. In fact, we had like a monitor set up outside on the deck out there. And so Ron Conway comes over, we go over to the patio where like our workstation is. And Ron Conway, he's known for having like this notebook that he goes around with where he like sits down with the notebook and like takes very, very detailed notes. So he never like forgets anything. So he sits down with his notebook and he asks us like, hey guys, like, what do you need? And we're like, oh, we need GPUs. Back then, the GPU shortage wasn't even nearly as bad as it is now. But like even then, it was still challenging to get like the quota that we needed. And he's like, okay, no problem. And then like he leaves a couple hours later, we get an email and we're CC'd on an email that Ron wrote to Jensen, the CEO of Nvidia, saying like, hey, these guys need GPUs. [00:53:02]Swyx: You didn't say how much? It was just like, just give them GPUs. [00:53:04]Alessio: Basically, yeah. [00:53:05]Michael: Ron is known for writing these like one-liner emails that are like very short, but very to the point. And I think that's why like everyone responds to Ron. Everyone loves Ron. And so Jensen responds. He responds quickly, like tagging this VP of AI at Nvidia. And we start working with Nvidia, which is great. And something that I love about Nvidia, by the way, is that after that intro, we got matched with like a dedicated team. And at Nvidia, they know that they're going to win regardless. So they don't care where you get the GPUs from. They're like, they're truly neutral, unlike various sales reps that you might encounter at various like clouds and, you know, hardware companies, et cetera. They actually just want to help you because they know they don't care. Like regardless, they know that if you're getting Nvidia GPUs, they're still winning. So I guess that's a tip is that like if you're looking for GPUs like Nvidia, they'll help you do it. [00:53:54]Swyx: So just to tie up this thing, because so first of all, that's a fantastic story. And I just wanted to let you tell that because it's special. That is a strategic shift, right? That you already decided to make by the time you met Ron, which is we are going to have our own hardware. We're going to rack him in a data center somewhere. [00:54:11]Michael: Well, not even that we need our own hardware because actually we don't. Right. But we just we just need GPUs, period. And like every cloud loves like they have their own sales tactics and like they want to make you commit to long terms and like very non-flexible terms. And like there's a web of different things that you kind of have to navigate. Nvidia will kind of be to the point like, OK, you can do this on this cloud, this on this cloud. Like this is your budget. Maybe you want to consider buying as well. Like they'll help you walk through what the options are. And the reason why they're helpful is because like they look at the full picture. So they'll help you with the hardware. And in terms of software, they actually implemented a custom feature for us in Faster Transformer, which is one of their libraries.Swyx: For you? [00:54:53]Michael: For us. Yeah. Which is wild. I don't think they would have done it otherwise. They implemented streaming generation for T5 based models, which we were running at the time up until we switched to GPT in February, March of this year. So they implemented that just for us, actually, in Faster Transformer. And so like they'll help you like look at the complete picture and then just help you get done what you need to get done. I know one of your interests is also local models, open source models and hardware kind of goes hand in hand.Alessio: Any fun projects, explorations in the space that you want to share with local llamas and stuff? [00:55:27]Michael: Yeah, it's something that we're very interested in because something that kind of we're hearing a lot about is like people want something like find, especially comp

Michael Ringel is a certified divorce financial analyst. He helps women facing divorce become confident around money. He also helps them avoid getting taken advantage of during the divorce process.Michael helps women align their purpose for money with how they invest. He can help you answer the question "Am I gonna be okay" financially?If you're already going through divorce maybe this episode is for you. And then decide what money means to you (12:30)The best investment you could make (18:26)Don't gamble with your money...Connect with Michael: For information about his American Dream Experience course - Phone - +1 917-734-4748 or send an email for a list of free events to: mringel@strategiesforwealth.com | websiteBio: Michael empowers families to experience purpose, freedom and abundance in their lives. He accomplishes this by inspiring and coaching families on the truths of investing and designs a plan to support their purpose. Michael provides financial analysis, investor coaching and behavioral coaching throughout and after the divorce process. Michael addresses the primary financial concern of all of his clients, “Am I going to be OK?” He proactively coaches his clients to build and maintain confidence around their money.Find more solo moms resources at: Our website | Solo Moms MeetUp Group | Instagram/Twitter: @jrosemarie1https://solomomstalk.mysites.io/podcast-2-copy/next-episode This podcast is hosted by Captivate, try it yourself for free. This podcast uses the following third-party services for analysis: Podcorn - https://podcorn.com/privacy

In this second episode with Aaron Chapman, we discuss how much interest rates actually matter. Over the past couple of years, low interest rates have allowed people to get into a deal and see immediate cashflow. But with interest rates rising, many are concerned that they are not seeing immediate positive cash flow. Is that a deal breaker? Should investors sit on the sidelines and wait for rates to drop once again? Or should investors be thinking about real estate like other business models and be willing to put their capital into a deal and expect to see profits occur over a longer time horizon? Tune in to hear Aaron's unique take on these questions.    Aaron Chapman is a veteran in the finance industry with 25 years of experience helping clients better understand, source, and finance cash-flow positive investment properties. He advises over 100 clients a month in the acquisition and financing of their investment properties and primary residences. Aaron is ranked in the top 1% of mortgage loan processors in the country, in an industry of over 300,000 licensed loan originators, closing in excess of 100 transactions per month. Episode links: https://apps.apple.com/uy/app/qjo-investment-tool/id1533823468 https://www.aaronbchapman.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the remote real estate investor. I'm Michael Albaum and today joining me again, I got Aaron Chapman. And in case you missed, here's prior episodes, definitely go back and give that a listen. But Aaron is a lender in the residential mortgage industry. And he's got a wealth of knowledge and experience under his belt. And today we're talking about how much interest rates actually matter to doing our deals. So let's get into it.   Aaron Chapman, welcome back, man. Good to see you.   Aaron: Good to see you too, man. It's good to be back. In fact, it hasn't been long.   Michael: For those of you that caught our prior episode with Aaron, we are recording this back to back so we figured we just knock it out.   Aaron: I don't I don't have a dozen of these specific shirts for those who are wondering.   Michael: Like, yeah, he bearded his braid exactly the same and wearing the exact same hat and funny, he's in the exact same location. So Aaron, today we're talking about how much rates really matter. And you've been in the mortgage business since 97. For those folks that didn't catch your bio and background go and get that first episode listen to let's talk about like how much rates matter, man, like rates are creeping up, not keeping up but seem to be running up as to where they were previously. And I'm hearing a lot of folks kind of get scared and spooked and want to hang on the sidelines until rates come down. So give us a little bit insight is that right thinking? Is that the wrong thinking help drop some knowledge?   Aaron: Well, it's I like to tell everybody so level of your everything has to do with a level your comfort, right? Your ability to get in there and, and slug it out and make things work? Because it all has to be about interest rate. And are you really a real estate investor, because that's why I work with as a real estate investor, opportunity is only sitting in front of you at the time that it's in front of you. And often people are trying to get the market to line up and I look at that kind of like watching a star football player sitting on the bench on the sidelines, waiting for the perfect time to jump on the field to get on the highlight reel. Well,   Michael: That's such a good analogy.   Aaron: We're on the field at the time the game is being played, right? They're not sitting on the sidelines at all. It's amazing how often people think that they have the capability to time something and most people trying to time it have never time the damn thing in their life. Right. In fact, most of them are fairly new new investors or investors with maybe you've had five or six houses. So you feel like you're a seasoned investor. I've been doing this for 24 years I've been at this since 1997. I'm barely seasoned in what I do. And the reason I feel that I'm barely seasons, because I do over 1300 transactions a year for real estate investors, I get to see where a lot of people are making decisions, or a lot of people are making mistakes and where a lot of people are doing it right where a lot of people failing or a lot of people are succeeding.   What I tell all my all the people I work with is there's this old saying good judgment comes from experience and experience comes from bad judgment, great way to learn on the grade school playground of very, very tough way to learn in real estate. So don't go about trying to figure out things that way yourself. Reach out to me, I got to see for 1000s of people have made decisions. I'll guide you through that telling you stories. I don't answer questions. I tell stories as to what I've seen other people do. So you will have practical data, not speculation in theory, and then hopefully, hopefully, we're able to guide you in a way that makes you successful now is it going to be successful every time you make a decision? No, you're going to hit a brick wall between those brick walls, that just means you got to change your direction and keep moving and keep moving and keep moving.   So then you eventually find success because you become nimble enough become successful, it does not benefit me to close a deal and you fail, because that's only one deal. I need your 100th deal. That's what makes my business work is to do this dozens of time with you not just one time and walk away. That's not the business I built. So when it comes to interest rates, you need to get comfortable with it and understand that you're never the price of money is always going to move. But what we also have is the price of housing is always moving. You know, we talked about in last episode, the average rent is going up by 12%. Year over year. I don't expect that to be sustainable. I think it's probably a go up, you know, maybe seven, but it's going to keep going right? We have we're short how many houses right now in the United States,   Michael: I think like 5.2 million or something of that effect.   Aaron: 5.2 million and what's the building looking like right now people are not there's not a lot of construction going on, compared to what the demand is. We've got a hurricane, they just wiped out on how many houses we don't even know that the full total that devastation and then the ability of the supply chain to be able catch up with that. And then of course there's talk of another pandemic coming which we saw the effects of that one, and how well handled that mess was. You start stacking all these things up rents and quarterly rental increases are here to stay. So when you're on that end of it, and you get to continue to increase your rents effect, let's do the math real quick here. Let's say, let's say you got $100,000. House, you're renting it for $1,000 a month. Right. And now you get to raise the rent by 3%. Well, they're saying you're only getting say 60 bucks a month in cash flow. That's not sexy. You're not getting excited, right?   Michael: That's a couple of Chipotle is with guacamole.   Aaron: Exactly. So 60 bucks right now, not a big deal. So you raise the rents by 3%? What's 3% of 1030 bucks, 30 bucks, nothing. It's actually nobody's excited. Again, what's really cool about is your tenant won't get excited. And I can just up and move and know the night and dump concrete down the toilet. Right? So it went up by 30 bucks. But you're making $60 a month cash flow, you're one now you're making 90. So what percentage did your cashflow go up by?   Michael: 50%.   Aaron: That's a 50% compound growth in your cash flow. So what you start to see here is over time, it's not going to happen right away. You know, it's not, it's not Swift, but it is certain that you will continue to get this compound growth in the double digits a year over year over year. But as we talked about, in the last episode, go back and listen and get my get my my tool, the QJO investment tool, and run these numbers, you're gonna find that you're paying back less and less and less for that set mortgage you have, even if the rates go eight, nine, 10%, you're paying back less, because inflation is eroding the dollar. But yet you're increasing at double digits. As far as your cash flow, there will come a point that one catches the other and you surpass it. It's much like any investment that a person does. It's amazing how we can talk ourselves into getting into other types of investment vehicles, like all but if you stick with it for three, four years, you're gonna see it really grow or 10 years or whatever. But yet you get into a house. And also we think of it as an expense. When it comes to real estate. It's not you're not spending money and going into debt. You're a business owner, that is now the pass through for this capital, you get to increase.   Michael: I love that. I love that. Aaron answer me this because I think it's something that I've been hearing from a lot of people I know for sure, in the Roofstock Academy is folks saying, Michael, five months ago, I could go buy a house for 150 grand and make 100 bucks cash flow at three and a half 4%. Now that same have that same price, the same purchase price is still 150 grand, but now I'm paying seven and a half percent that eroded all my cash flow. Does that mean I should still go buy that deal? And hang on for those first couple of years? Because I'm going to get that double digit compound growth with the rental increase? Or do I just need to go find a new deal? Or potentially a different market?   Aaron: I've got I've got a few answers that I would give right. And I sometimes depends on the individual, right? Because I do ask them Okay, so what do you think right? Now let them tell me, because I want to find out what's going on your head, right? So tell me what your first instinct is. But if they're asked me exactly what I would do, I mean, again, I might get cut out here, guys, when I was gonna have your balls attached or are they there for decoration, right? Nobody has ever made a fortune because they they want out of the gate. Nothing is ever has ever paid what a few things are paid off out of the gate, right. But most times they don't. We had a history of people making this amazing cash on cash return for the last, what 10 years, it was the easiest thing in the world to sell cash on cash return for the real estate sales side of it. I think my personal belief is the real estate sales side of it has actually put themselves in a corner, and they're trying to claw their way out of it. Because we spent so much time talking cash on cash. We never talked about the rest of the ways people made money. It never got discussed.   For the last eight, nine years. I've talked about everything but cash on cash return, if they take that metric and throw it away, take their performance somebody gave you because that's that's Greek for bullcrap. It doesn't mean anything. They made those numbers up. Right? So let's talk about reality. Right? And reality is business is going to cost you something nobody has ever opened up a shoe store was profitable in the first five years, right, you have to have a certain amount of capital to get started, everything needs a certain amount of capital to get started. You're the CEO, the CEO of your startup real estate investment firm, that means you are going to be a lot more discerning about what kind of property you buy, when you're not making $200 a month cash flow out of the gate than you would be when your before making cash no matter what happened because of interest rates are so low, they softened all the blows.   But now, because of things the way they are, you're going to become a better CEO, you're going to sink more, you're going to take more time to understand what you're buying, you're going to buy the right property. And that's what it's all about. What can you keep reasonably rented for the entire time you own it, and what can you raise rents on that's it. If you can get that to line up and that alone, you will continue you will see that compound increase we were talking about. You may have to nurse that that investment along for the first couple of years. But then you're going to get that compound set and forget it kind of growth. And that's where I tell people it's going to teach you to be a real estate investor now. The people that are not real estate investors, they're out we're not gonna have to deal with them anymore. You're not gonna have to fight with the masses of people try To get in on that one deal and bidding at too high, what you're going to have is people gonna be very, very discerning, and you're become a smarter person as a result.   Michael: Yeah, I think it makes a lot of sense. And I was just going to ask you, but I think you kind of beat me to it, do you think we're going to see the investment investor pool thin out, because folks are looking at deals and saying, the numbers don't work, I can't invest in this, or they bought deals two months ago, and are now getting burned by it?   Aaron: Yeah, I think we're going to see people get out of it. And we're gonna have some of the true investors be able to capitalize on it, that people understand what they're getting into, they're gonna jump in there, and they're gonna be able to weather this properly. Because it's about the it's about the real estate itself. It's not about the loan, it never was about the loan, you know, we had the loan was a way of getting a lot of people involved. And probably a lot of people shouldn't have been involved with, they got involved anyway, right. And so they're still going to do well, because what's really cool about that, if you got that in that loan, that 3%, or 4%, or 5%, loan, that is an, that's an asset in itself. That's a massive asset. In fact, any loan for 30 years is a massive asset. But that's even even bigger assets. So now you have a tradable commodity, if you will, because now it's like hey, I can I can hold this house, and I can literally kind of sell this into with a with an owner financing kind of deal or something to that effect.   Now how that will play out, don't say Aaron Chapman said it's okay to do this. You got to check with your lender, make sure you're not putting yourself in a bad spot, talk to an attorney, all that kind of thing. There's instruments to make that happen. I'm not your guy to guide you through that. I'm just saying that that's a valuable thing to lock money up in single digits. Think about that single digits, because if you go back to 1971, all the way till 2009, the average interest rate for somebody living in a house was 9.1%. If you take that 1971 Till now, the average interest rate was 7.76%. For somebody living in the house, that was not real estate investors. The only reason it went down from 9.1 to 7.76. Is because of quantitative easing. When did quantitative easing start, Michael?   Michael: Man, I didn't know I thought it was just gonna be an interview. I didn't know it was gonna be a frickin test. When did it start?   Aaron: I'd love to quiz everybody. Because here's why your mind starts thinking and now you're gonna remember the answer. We're gonna give it to you.   Michael: That's true.   Aaron: Hopefully, because I'm gonna ask you next time. So quantitative easing didn't start till after the crash crash happened in 2008 2008. We'll talk about that in our next time we come together because that right there had to teach resiliency to a lot of people. Well, then the government decided, Okay, we're gonna start this quantitative easing thing, we're gonna take US Treasury capital flowing through the Fed. And we're going to start buying into mortgage backed securities and into treasuries in was a corporate bonds and all of these other things. And as a result to doing that started January 1, 2009, till the end of March 2010, the Fed dumped $1.25 trillion into the market, just in that short window of time to bring interest rates down and start getting the economy going again. But now, they couldn't stop it, and they kept it going and kept going kept going, then you get to the pandemic of 2020. Now, we just talked about 1.25 trillion between March January 2009, to end of March 2010. Now you get to March 20, 2020. From March 20 to march 30. They dumped in another trillion in 10 days to basically bring the market off of where it was because the market crashed. Right. We had a massive meltdown in the in stocks.   What happens? What happens if people have more? Have stocks on margin when stocks dropped that far?   Michael: Oh big problem.   Aaron: Yeah, massive, I've got a margin call, right? Well, banks don't take our money that we deposit and just stick it in the vault, right? They invest it places, they need to make money on that money, they're gonna pay us our little pittance of whatever, right? They're gonna continue to make money on it? Well, a lot of times, they're gonna have that money into the markets and stocks and other equities. And as a result of that, they may have no margin, they did have no margin, they gotta pay a margin call. They can't just go back to the coffers. Because the the vaults empty, they have it all on investment. So they have to sell assets, what assets did they sell, they sold mortgage backed securities. Interest rates spiked during that window of time. It was it was amazing how much they spiked. The fact got to the point, I couldn't lock rates now. Now and again, the rates will be published might have five people on my team all ready to go. And I just kept refreshing the rates all day. As soon as there's ready to go, we could we'd lock 50 loans at a time. And they were ugly rates, but people needed to lock.   And so we had this message that we're going to continue to keep business flowing during that window of time. But then they got that trillion dollars dumped in there, they got seeing semi stable, they're dumping 30 to $40 billion a month in the market, sometimes more hundreds of billions of dollars a month in the market, trying to keep this money flowing. And that's how we got our interest rates down into the threes and fours.   So because of that, all that capital going in there, we had this this run on lower interest rates. So from January 2009. Up until just this last year, we had all this capital dumped into the keep the rate so that's what gave our average that a little bit lower point. But you know, some people are saying well, can we just get an ARM and wait for the rates to go back down? What makes you think they're going back down? The only time they went down from that average of 9.1 was when they dumped eight Point $9 trillion into the markets? Are they doing that again? I think they've learned their lesson not to do that. Michael: Yeah.   Aaron: So if that's the case, and let's just say that's the case, let's say, somebody's actually going to learn from history, and we're not going to erase history, we're not going to call it you know, whatever, whatever make up whatever we want to make up about it and say we're triggered by it, we're actually gonna remember this move was a bad move. I don't see interest rates getting back anything lower than what we have right now, this might be the lowest interest rates that we see in our lifetimes.   Michael: Interesting. Over the last 30-40 years, when we've seen interest rates spike like they have hasn't there been a pretty sharp decline after the fact?   Aaron: We have seen that a lot in our lifetime, just because of what I was just talking about with the Fed manipulating it. But prior to that, we didn't see that very much. We saw interest rates, hovering in fact, I got in the industry in 1997, the interest rates are in the sevens. And then that was for owner occupied. And then when they went down, like 6.875, I got this refi boom going on. In fact, you know, I was working two jobs, I was running heavy equipment in the morning, from 3am till noon, they go to the office from two till 10pm, I sleep four hours a day, for for a full year. But for the until those rates dropped below 7%, I was able to replace my income of 50, whatever, thousand a year at the time, and got full time into this industry. Well, as a result of that, you know, we got this 6% thing going on. And it never really got much lower than that we saw a window where the during the mid 2000s, that I was able to get an adjustable rate loan, like a five year ARM don't like 5.75. But that was it. It wasn't until quantitative easing do we start seeing these enormously low rates.   So we're not seeing these massive swings, like we see now, then the swings happen to be because we have a global market that everybody's tapped in, we get to see everything that's going on in real time, all the time. That's one of the really, really bad things of social media in the way our, our our technology is, what it's done for us has brought us to where we see the slightest thing happened. But on the other side of the world, it kills markets overnight. So that's why I see such massive swings. So some people think, well, if it goes down as we come right back up. We don't know that because there's another black swan waiting right around the corner. Why do we know that because we know what's going to happen in the other country when it happens.   It'd  be one thing we were just a an economy to ourselves. And it was not such a big big market mover. Now we're a global economy. And we have we have crazy people out there running countries, including our own doing stupid things that's causing such a massive swings and so much so much emotion in the market that I can't say it's going to improve. Now it's going to have to I mean, there will be some but to the extent we've seen I don't believe so.   Michael: Yeah. Interesting.   Aaron: Let me just say I pray I'm wrong.   Michael: Yeah. That makes two of us man.   Aaron: You're wrong. We're back in the season. We're good because I'm making another couple million dollars a year.   Michael: I love it. Someone if they didn't have the wisdom of hearing this show five years ago, three years ago, when they got their five, one ARM and now they got two years left on it and they got a 5% They got the ability to lock in a 6% for 30 years say? Or do they roll the dice and let it roll for another two years? See where interest rates land? What are you doing?   Aaron: I think goes back to that are your balls attached situation, just see, see what you're willing to do? Right, you're the ones guy put your head on the pillow at night, you got to be able to understand how you feel about. Me, I love to control things for as long as I can control it. I'll take my lumps. And I'll take that 6% all day long. Because I would much rather allow inflation to erode the dollar over a long period of time. Rather than forcing me in a situation like that. I've had too many people that I've talked to that did the ARM thing in somebody else's request even at my own. I mean, I did the there's something out there right now called the all in one. This is a big deal. Back in the early 2000s. We sold something very, very similar to this. It just wasn't called the all in one.   And when the market freaked out in 2008. And they started freezing these people's credit lines, I got numerous calls saying What did you put me in? Because I didn't know what was going to happen. Now I do know. And everybody says, well, they're not going to do that. What makes you think I'm not going to do that? The banking industry will do whatever the heck they want to do. They'll shut down. They will kill product, they will not honor locks. They'll wipe anything out that makes it work for them on the next day. They don't care about what they committed to today. They care about what it keeps them in existence tomorrow. As a result of that. I know that's what they do. I've seen them do it. I can't in good conscience do anything but tell person Hey, the 30 year fix so far is the only one with a proven track record.   Michael: Yeah, that makes a ton of sense. How did you think about the interest? I know you said it's not all about the interest rate. But let's put that on the shelf for a minute. If someone's got a property that they're not thrilled with its performance, but they've got this outrageously low rate and a 30 year fixed. Do you think time is going to heal that wound or do you think they should maybe look to move into something else at a higher rate, but that they might be a little bit happier with?   Aaron: I think it really, really depends upon the scenario what's making them so unhappy about it, is there a possibility to try to change whatever is making them happy unhappy about that there's something about the property, this specific thing that's creating a difficulty with it, is it just not being rented because of this or because of that, you know, it may be one of those times, we have to spend some time understanding what's happening in the market that's causing that property to be what it is, right? People coming by either I don't want to rent this thing. Because of this, or because of that, it could be a very simple thing. You know, when we own something we don't see with our lens very, very well, we see, hey, this is what the possibility is because we can only see from one angle, but when you get the whole market's angle on a multiple people are willing to come through a look at it, sit them down and ask them, Hey, can you tell me what what about this place? What would have to happen to that make it something so yes, I do want to rent this, or yes, this I can make my home for five years?   Understand that is sometimes you might have to bite the bullet, put a few bucks into it. And next thing, you know, now you have a very low interest rate, which again, that right there is, is is a very, very valuable piece in itself. And then you have whatever changed on this house that now makes it what it needs to be. And its location that might be something's completely, you know, one of these things you can't fix, right? You have to find the one person in the world that wants that and carry a note for them and see if you can swing something like that. But if it's something that's changeable because of aesthetics, or or usability, or it's just whatever that might be, you might have to bite the bullet and fix that one thing.   But investigate it first, before you try and make a very, very big decision. Like leave it as is and suck it up and write it out or dump it and move because I've seen I've got a very good friend of mine, named Joel, he owns a lot of shopping centers. I don't understand shopping centers. This guy's like the walking talking Stephen Hawking of shopping center this guy, just look at it, tell you what's wrong with it, and make it make money overnight. And the guy's amazing at what he's able to do. And because one person can't make it work, you have a guy like Joel come in, he looks at it makes an offer, they sell it cheap. He spends a few bucks. And now that thing's fully rented, and it's worth 10 times what he paid for it. It's just a matter of getting the right perspective. Take the time, understand the market, get the perspective.   Michael: I love that. I love that. Aaron, I want to get you out of here until next time, but in the meantime, where can folks if they didn't catch on the first episode, reach out to learn more about you or get a hold of one of your loans?   Aaron: Just go to aaronchapman.com And if that one doesn't work, go to aaronbchapman.com. Another good place to just Google Aaron Chapman. There's like five of us out there that pop up on Google there's only one bearded redneck lender there is a pastor there's a there's a English soccer player there is a an author and then camera with the other guy is but yeah, there's five and I'm an author as well so you can go to you can look me up on Amazon that kind of stuff. I'm working on another book got a few things cooking.   Michael: Right on man love it. Well hey, this was awesome as always and until next time, looking forward to it be well.   Aaron: Thanks, buddy. Good to see you again.   Michael: Likewise.    Alright everyone that was our episode A big thank you to Aaron for coming on again dropping some fantastic wisdom, insights and knowledge. As always, if you enjoyed the episode, feel free to leave us a rating or review and we look forward to seeing the next one. Happy investing

“There is no more complex strategy game in the world that I know of than building companies,” says Michael Zuerchner, CEO and Co-Founder of Prismatic. He would know. At age 19, he started a software company whose product integrated 600 tasks to be used in all aspects of law enforcement, such as jail door systems to alarm systems for putting dots on maps when 911 calls were made. It started as a summer job getting his hometown's law office records software up to date, and then he and a friend bootstrapped that software into a fully-fledged business. It became unsustainable once they scaled. After leaving the company, the two started Prismatic to solve the problems they encountered in the first place. Michael explains that integration platforms have been historically focused on integrating the things the company uses together, taking all the things that are in their ecosystem and making the data flow well among them. Prismatic offers a complete iPaaS, or integration Platform as a Service, solution for your whole organization to make everything run more smoothly and at optimum potential.  In this episode, Michael discusses the unique challenges of running a sophomore company and the problem with overestimating your experience and underestimating the variables of starting a company.  Quotes: “At the end of the day you're going to have to do what is going to serve your target market the best. (4:32-4:37 | Michael) “We're all obviously end users of B2B software in some form or fashion, and wouldn't we all like it if there was just one end-all answer that was the magic solution and we didn't have to deal with all of this? If that could exist that would be amazing. I think the hard thing, of course, is building that one true thing that meets the demand of enough of the market.” (9:21-9:40 | Michael) “I don't know very many people who were successful who didn't love the game so much that they wanted to go right back into it.” (16:30-16:39 | Michael) “For all the people that are out there grinding right now, the beach is not all it's cracked up to be, just sitting around doing nothing. It's nice to have freedom, one hundred percent. However, go do nothing for a month; it gets tiring really quickly.” (17:14-17:34 | Brendan) “There is a fundamentally different problem if you are a sophomore company. I don't need to integrate together the things that I use—or maybe I do, but that's a separate thing. I need to connect the product I sell to the other products my costumers use.” (19:52-20:07 | Michael) One of the challenges in our market, and something that I think we do well, is doing a good job for both of those personals. I think we have a solution that speaks very well to product folks and the problems they have, and a product that's very friendly to developers without turning off the rest of the organization. And I think that's a fine line to walk.” (32:28-32:50 | Michael)  Connect with Brendan Dell: LinkedIn: https://www.linkedin.com/in/brendandell/ YouTube: https://www.youtube.com/c/BrendanDell Instagram: @thebrendandellTikTok: @brendandell39 Buy a copy of Brendan's Book, The 12 Immutable Laws of High-Impact Messaging: https://www.indiebound.org/book/9780578210926  Connect with Michael Zuercher:Website: http://prismatic.io/ LinkedIn:https://www.linkedin.com/in/michael-zuercher/ Check out Michael Zuercher's recommended books:• No Man's Land: Where Growing Companies Fail by Doug Tatum: https://www.indiebound.org/book/9781591842491 Startup CEO: A Field Guide to Scaling Up Your Business by Matt Blumbert: https://www.indiebound.org/book/9781119723660 • The Strategy and Tactics of Pricing: A Guide to Growing More Profitably  by Thomas Nagle and Reed Holden: https://www.thriftbooks.com/w/the-strategy-and-tactics-of-pricing-a-guide-to-growing-more-profitably_thomas-t-nagle/272437/?resultid=b8ecc8a1-c660-4d32-8904-d6ccb162d545#edition=19123891&idiq=53411030  Please don't forget to rate, comment, and subscribe to Billion Dollar Tech on Apple, Spotify, or wherever you listen to podcasts! Use code Brendan30 for 30% off your annual membership with RiverSide.fm  Podcast production and show notes provided by HiveCast.fm

Michael Benezra is the Executive Director and Co-Founder of the GK Fund: a nonprofit social impact fund to support BIPOC-owned companies in Greater Boston. Michael also serves as the COO of Colette Phillips Communications, helping to lead the All Inclusive Boston (https://www.bostonusa.com/allinclusivebos/) tourism campaign, among other projects. Chad talks with Michael about being a BIPOC ally, disparities amongst the VC world, and how the GK Fund looks for the same things in BIPOC-owned companies that they look for in other companies because the innovation is there; it's just that the opportunity isn't. The GK Fund (https://www.thegkfund.org/) Follow The GK Fund on Twitter (https://twitter.com/GK_Fund) or LinkedIn (https://www.linkedin.com/company/thegkfund/). Colette Phillips Communications (https://www.cpcglobal.com/) All Inclusive Boston (https://www.bostonusa.com/allinclusivebos/) Black Owned Bos. (https://www.blackownedbos.com/) Follow Michael on Twitter (https://twitter.com/MichaelBenezra) or LinkedIn (https://www.linkedin.com/in/michaelbenezra/). Follow thoughtbot on Twitter (https://twitter.com/thoughtbot) or LinkedIn (https://www.linkedin.com/company/150727/). Become a Sponsor (https://thoughtbot.com/sponsorship) of Giant Robots! Transcript: CHAD: This is the Giant Robots Smashing Into Other Giant Robots Podcast, where we explore the design, development, and business of great products. I'm your host, Chad Pytel, and with me today is Michael Benezra, Executive Director and Co-founder of the GK Fund, a non-profit social impact fund to support BIPOC-owned companies in Greater Boston. Michael is also the COO of Colette Phillips Communications, helping to lead the All Inclusive Boston Tourism Campaign, among other projects. Michael, thank you for joining me. MICHAEL: Thanks for having me. CHAD: I'm curious about the GK Fund. When did you start the Fund? MICHAEL: So, at the time, I was working for the Israeli Foreign Ministry, and I was working with venture capital firms, private equity firms. And I was representing over 200 Israeli companies in New England, most of them startups. And my wife is Black; my family is Black. I've been close to that community for a long time. And especially in the venture capital world, I started to see some real disparities amongst other disparities in general everyday life, but it was particularly bad in the VC world. And so Colette being a mentor and a friend of mine, Colette Phillips, I approached her, and I said, "Hey, what do you think about starting this fund, this non-profit fund?" And her and Andre Porter, who is our other co-founder who used to be the head of the state's business development agency in Massachusetts, we all decided to band together and start this non-profit. Now, we started the non-profit in December of 2019, so the pandemic hit right as we were creating this organization. And we had a decision to make, do we put this on hold, or do we move forward and accelerate? And we decided to just move forward. CHAD: Well, I'm glad you did. I'm glad you made that decision. Hopefully, you feel the same way. [laughs] MICHAEL: Yeah, I do. CHAD: You're absolutely right. There's a big need here. And I actually have had over the last two months or so a few different guests that are creating VC funds or funds of certain kind that address underrepresented communities, Black, another one was veterans. And there's such a big need. How did you decide what you were going to focus on or focus down into so, for example, focusing on Boston? MICHAEL: For Boston specifically, it had to do mostly with proximity. So I went to Harvard here for grad school. I worked for Governor Patrick. And so, for me, it was natural to stay local, especially during COVID. In my experience, there were a lot of BIPOC, particularly Black-owned startups, that were on paper akin to a lot of other startups in the Israeli world, which were very developed or also in the United States. I'll give you an example; there was a company that I worked with that had a $100 million valuation but had no products, no physical products. They had no revenue, but they had innovation. Now, you and I being very honest, do you think a Black-owned company could get away with that? CHAD: Yeah, no. MICHAEL: There is no way. I knew that; the other entrepreneurs that I've talked to know that. That is a terrible double standard that needs to be fixed. So we look for the same things in BIPOC companies that we look for in other companies because, for the most part, the innovation is there; it's just that the opportunity isn't. CHAD: Yeah. To dig into that a little bit more, I think one might say, well, if they had a founding team that had a proven track record, then maybe. And that's where you get to the fact that it's systemic, too, because if the headwinds are there where they can never get that experience, to begin with, they never get that opportunity, to begin with, then they're not going to have a founding team that has a track record that will be invested in based on just the team. MICHAEL: That is 100% accurate, but it's actually even worse. So we do not ask our founders in the application process for their educational background. But all six of the companies that got grants from us last November they all have their bachelor's, four out of six have masters or higher. And so the cream definitely rose to the top. We had a store owner she owns an online boutique who got an engineering degree from Purdue. And we also have an entrepreneur who was an attorney at State Street, a corporate attorney, and now he's created this startup. And so, in some cases, like in most other areas, these individuals are overqualified. CHAD: So, what is the funding model for GK on both sides of the equation? Where is the money coming from, and then how are you funding the companies? MICHAEL: So we raise money organically like any other non-profit does. So we apply for grants. We take corporate donations. We take individual contributions online. Most of our money so far has come in through corporate contributions. So PNC Bank has been with us since the beginning. They made a very large commitment to supporting racial equity, and they've really stuck to it. The Bar Foundation has been exceptional. And then we've also had a group of individual donors who were actually White women who have started their own non-profit now, and they've also banded together to give us money that we need to re-grant to the companies. We have over 100,000 from the State of Massachusetts to operate a grant program. So money is coming through a number of different avenues. We've issued six micro-grants so far at $10,000 each. We did that in November. We plan to do ten more in the next month. I said in the Boston Business Journal article you can give us money, but you can't park it with us like you could with a donor-advised fund and watch it accumulate interest for 15 years. We're going to take it, and we're going to give it to the people that need it the most. CHAD: And are they grants then? You're using the word grants, so I assume that they are. So you're not doing this in exchange for equity in the companies? MICHAEL: No, no equity in the companies, no convertible notes, just a straight capital grant directly to the company. So I send a message over to our fiscal sponsors at Philanthropy Massachusetts. They send the check directly over to the company. After that, we have the company fill out a survey letting us know what they plan to use it for, but we're not overly prescriptive. And that's actually the way that philanthropy is heading right now is, putting fewer restrictions and barriers in the way. And that's another thing I'll talk about as well is making it easier for companies to gain access. CHAD: So, did you ever consider more of a traditional VC fund model with this? MICHAEL: Yeah, originally, I did. Before the pandemic, actually, I did. So the original purpose or impetus of the fund was to take companies that were coming out of accelerator programs that were underfunded. You have some great accelerators, but you have companies leaving with a business plan and $2,000. In some cases, there are companies that have been through three accelerator programs. They're not getting as much out of it as they should. I wanted us to intervene, find the companies that have the most potential, and make investments. But after COVID hit, it was a crisis. And so, we needed to shift our focus to philanthropy. CHAD: The nice thing about that is then you can do those grants with basically no strings attached for the companies. Whereas if you were taking money from people who expect to get a return on that investment, you wouldn't be able to do that. MICHAEL: That's exactly right. There are organizations out there that say that they're making an impact when in reality they're just making, you know, loans which is not a not a bad thing. But they're issuing loans, or they're taking equity in the companies, that's fine, but it's not what we're doing. CHAD: What are your plans for, like, upcoming? Are you going to be continuing with micro-grants, or do you have bigger plans? MICHAEL: We have bigger plans. So I can't say too much right now because we have an announcement coming up. But I will say issues like legal services have come up. There's a constant need for attorneys for any company, whether it's contracts, or locking down real estate, or copyright and trademark, or IP. We are working with a very large prestigious law firm that's really making a generous commitment to our companies. And this would involve us even adding free legal services for an entire year to our grantees. So that's one thing that we're planning to do. And then the other is, and this another function of the fund, is we speak with organizations like Lyft who's donated like $5,000 in ride credits that we're giving to our grantees or Wix, which has given us like 75% off of websites. We work with partners who can also give us other services that we can provide to these companies to try to get them closer to where there's a gap. Giving them capital is not enough. The disparities are too significant. We also partnered with Berkshire Bank, so I can make direct referrals for loans if they need them. But the idea is to really narrow that gap and give these companies the same opportunities that their White counterparts have. CHAD: That's great. So you, as someone who's White doing this work, how do you find yourself in the community? How do you be an effective ally and advocate? MICHAEL: For me personally, my connection personally through my wife and also through my family and my boss. Colette is a pioneer. She's a Black woman in Boston who moved here not knowing anybody. And 30 years later, she's on The Power of 50 and 100 influential lists, but she did that through hard work. And she's worked much harder, I think, than she would have had to if she weren't a woman from Antigua who came here on her own. But ultimately, as an ally, it's my role; it's our role to step in between situations where there's inequity. So if there is a company, one of our companies, for instance, who's having a problem locking down real estate, (I think I use this in the article.), and they're saying, "Well, the real estate agent is telling us they can eliminate our lease at any time they prefer which I know is basically legal." I'll call them up and say, "Look, I'm with the fund. We're backing this company; we support them. What's the situation?" And unfortunately, most of the time, the outcome actually changes. So it's a matter of almost you got to be proactive, and you got to be intentional. You have to use your privilege in the best way that you can. So I think that's how you do it. And then, when it's time to shed a light on these companies, you take a step back, so it's not my role to go out there and promote myself. If anyone asks me, I'm always promoting the companies. So the best thing we can do is be advocates. You can be out front, but at the end of the day, it's about uplifting them, these companies in this case. CHAD: Yeah, that's great. Speaking of that, I was going to ask you, what are some of the companies that you have given the micro-grants to, and do you know how they use them? MICHAEL: Yeah, so we gave our grants to six companies. One is called MustWatch, and MustWatch is founded by Che, and Che, his family, is from Haiti. They are an app. You can actually find them on the App Store. But what they do is they allow you to log in, select which movies and television shows that you watch, and share them with your friends. And it sounds like a very simple concept, but there is actually nothing on the market that allows you to do this. And the idea is that you're collecting data while you're doing this as MustWatch. So at the end of the day, if you have a sample of like 20,000 users on the platform, you gain a lot of valuable insight and data. And that data can be useful for Nielsen or the television networks or movie production studios. I encourage people to sign up for MustWatch because if you spend as much time as I do looking for good movies, you're probably miserable. CHAD: [laughs] MICHAEL: [laughs] I spend so much time doing that. We also have a few online retailers. So we have B. Royal Boutique and So Zen Spa, both of them have doubled their revenue during COVID. They originally had stores. They pivoted during COVID, went online, and really were excellent when it comes to branding and marketing on social media and on other digital platforms. So they've been very successful. We have a company called Black Owned Bos., which is pretty well known here in Boston. They basically focus on organizing and running pop-up shops. And Jae'da, who's the head of the company, is just, I mean, she's a business mastermind. She's brilliant, always finding new ways to innovate. And then we have Our Village, which is focused on community development and housing. And finally, sySTEMic flow, which is a company that helps school districts, educators support Black women in STEM and STEAM fields. So we looked for companies that could pivot, basically. CHAD: And you mean in the face of the pandemic. MICHAEL: In the face of the pandemic, we looked for companies that had success and had a plan and also knew their audience. The main things that we look for…and I should say this too; our application process takes an average of seven minutes. And the way that I did that was I evaluated over 20 accelerator applications. I did a comparative analysis and identified the questions that were either irrelevant or unhelpful for us. And that gave us a very short application for our companies but one that's really efficient. And basically, what we're looking for is companies that have a good business model, have a very specific customer base and target market, and have a strong founder, and also has been undersupported. There are companies that we've identified for our next cohort that by this point in their development would have been venture funded in my experience, at least, had they not been people of color. Mid-Roll Ad I wanted to tell you all about something I've been working on quietly for the past year or so, and that's AgencyU. AgencyU is a membership-based program where I work one-on-one with a small group of agency founders and leaders toward their business goals. We do one-on-one coaching sessions and also monthly group meetings. We start with goal setting, advice, and problem-solving based on my experiences over the last 18 years of running thoughtbot. As we progress as a group, we all get to know each other more. And many of the AgencyU members are now working on client projects together and even referring work to each other. Whether you're struggling to grow an agency, taking it to the next level and having growing pains, or a solo founder who just needs someone to talk to, in my 18 years of leading and growing thoughtbot, I've seen and learned from a lot of different situations, and I'd be happy to work with you. Learn more and sign up today at thoughtbot.com/agencyu. That's A-G-E-N-C-Y, the letter U. CHAD: What has been the most surprising use of one of the grants? MICHAEL: So B. Royal used the grant money to lock down a store in Assembly Square in Somerville. We kind of anticipated they might do that. So Zen Spa they improved their website. MustWatch actually really surprised us. So they went out and got a valuation of their company and then basically worked with a crowdfunding platform called Netcapital to raise more capital. They had a very specific plan, and they had disclosed that plan to us. I just didn't anticipate they would act so quickly on it. And based on the fact that we had given them a grant and all this mentoring and support, their valuation actually went up. CHAD: That's a really smart use of the funds to propel that into a larger fundraise. That's really smart. MICHAEL: I agree. CHAD: So you do this in addition to a day job. [laughs] MICHAEL: I mean, they're both day jobs; it's just, yeah. CHAD: So you mentioned Colette Phillips, the person, [laughs] how about Colette Phillips Communications? So The All Inclusive Campaign it really is historic. The genesis of the campaign is that back in 2020, Colette and I applied for an RFP from the City of Boston; it was for a tourism recovery campaign. All of the major cities in the country got this grant money through regional tourism agencies, you know, like they're a special interest niche. And they went to the Feds, and they're like, "Look, we're suffering, travel is suffering, we need a grant," so all these grants went out. The City of Boston actually said, "Look, we want to focus on diverse tourism." So that was perfect for us. We applied, we got the grant. And we brought on Proverb, which is an incredible digital marketing agency and creative design agency, and the Greater Boston Convention & Visitors Bureau. It was the largest contract ever to go to a minority-owned company by the City of Boston, ever, and it was about 1.5 million. CHAD: Which in and of itself for what the City of Boston probably spends on things [laughs] is a little ridiculous that that's the biggest one, but … get beyond that, I guess. MICHAEL: It's insane. It's very upsetting. And it was a long time overdue. In this case, that contract or that RFP was really only supposed to last like one quarter. So all these regional tourism agencies they get their influx of money, a million dollars or a few 100,000. And then from there, they do the campaign, they move on. We are now three mayor's into this. We are four million dollars into this. We submitted the campaign to the city 60 days after they contracted with us; 84% of the contractors on the project are minority-owned companies. And in that 60 days before delivering the campaign, we actually never met in person. So we did this whole campaign virtually from the start. We came in under budget. We came in ahead of time. This is what happens sometimes when you let minority-owned companies take the lead. CHAD: Yeah, that's great. How do you do a campaign like this? I mean, this is why they came to you, the experts, but I think it's important that this message seem authentic and not pandering. MICHAEL: Yeah, Colette is a visionary. She's been talking about diversity and inclusion for like 20 years. There's an article that came out, I think, in 1992 where she was talking about the importance of diversity in the business community. And now it's like microfilm; you can't even find it digitally online. CHAD: [laughs] MICHAEL: She's years ahead of her time. And she's constantly innovating, and All Inclusive was her idea, and she branded it. I think it was a long time coming, basically. This is a culmination of a message and campaign that she's been running her whole life. CHAD: Yeah, I think that that's very powerful. And I think it comes across in the campaign. It seems authentic. I think it would be easy for it to not seem that way. And so yeah, it comes from that place of this was already a thing. It was already brewing. It wasn't just -- MICHAEL: Do you want to hear a story? CHAD: Yeah, I'd love it. MICHAEL: So, most of the media coverage for this campaign was exceptionally positive. There are a few reasons for that. We included all small, locally-owned businesses in the campaign. So you won't find celebrities, no athletes, or anything like that; we may do that later. We also invested...we took 200,000 of the contract, which this was not even supposed to be in there. We actually did ad buys with 19 different local newspapers. In some cases, these newspapers would have actually closed down if we had not done that, and that was just a byproduct of something we felt was important. But amidst all of that, she got invited to do an interview on Bloomberg on the local Bloomberg station. She's on the phone, and some guy who was on the other line, and I won't go into it too much, said, "You know, as a White man, I'm really offended. I don't feel represented in this campaign." [laughs] And she's like, "I've had enough of this," hangs up the phone. [laughs] And this is another part of allyship I think is...naturally, you know, I said, "Look, I'm taking care of this." I wrote a letter to Bloomberg. I said, "This is unacceptable. You need to take him to task." I don't know if he still works there anymore. But that's kind of the role. You have a Black woman who's a pioneer. She just released a campaign. The first thing you should be saying to her is "Congratulations," instead of saying that, all you can tell her is about how being a White man is like, I don't know, a disadvantage? Which is crazy. There are tons of White people in the campaign. I'm White; I'm in the campaign. CHAD: It's so foolish. I don't even want to have to explain it, but the campaign is literally called All Inclusive. MICHAEL: [laughs] Exactly, exactly. It covers everybody, I mean, literally. And it's like, I don't know what you want from us. CHAD: Yeah. And it's not even...like you go to the site it talks about here's what you can do with families. Here's what you can do with kids, kid-friendly activities. MICHAEL: This campaign was also research-based. So we spent 100,000 on research with this incredible company called Heart + Mind. They did a lot of research, and they did a lot of surveying. And the words that came back when describing Boston were unwelcoming, masculine; I think Tom Brady, Ben Affleck, crime, you know, just this kind of machismo unwelcoming environment. And it kind of confirmed some of the assumptions we had, but it was really surprising to see it in the data. So we said, "All right, this is what we're working with. We have to come up with a narrative that counters that because Boston is a majority-minority city, 23 neighborhoods, 60% of the population speaks two languages or more. That ethos is really not accurate. So hopefully, we're doing a good job. CHAD: So if folks want to help, we already said GK Fund is a non-profit. It's coming up to tax season [laughs], so at the very least, even if you don't...hopefully, you care about the cause, but if you just want that tax write-off, I suppose that's another reason to donate. MICHAEL: Absolutely. CHAD: So where can folks do that if they want to learn more and donate? MICHAEL: Visit www.thegkfund.org. CHAD: And are you looking for help in other ways beyond monetary? How can people get involved? MICHAEL: Absolutely. So we're looking for mentors so individuals who feel like they have experience or skills to lend to these companies, and we'll try to deploy these individuals in the best way possible. Obviously, we're looking for partnerships. So if you have a company that you feel has something to contribute or is willing to make a contribution, not monetarily but either with your products or with a discount, we also want to give that benefit to the companies as well. And there are a number of different ways. CHAD: That's great. And if folks want to follow along with you or get in touch directly with you, how can they do that? MICHAEL: You can feel free to follow me on Twitter. It's just @MichaelBenezra, all one word on Twitter. I got a lot of positive messages after the Boston Business Journal article came out and in LinkedIn as well. CHAD: Great. And you can subscribe to the show and find notes and a full transcript for this episode at giantrobots.fm. If you have questions or comments, email us at hosts@giantrobots.fm. You can find me on Twitter @cpytel. This podcast is brought to you by thoughtbot and produced and edited by Mandy Moore. Michael, thanks so much for joining me. I really appreciate it. MICHAEL: Yeah, thank you for having me. CHAD: And thank you for listening. See you next time. ANNOUNCER: This podcast was brought to you by thoughtbot. thoughtbot is your expert design and development partner. Let's make your product and team a success. Special Guest: Michael Benezra.

Guess what? This week, our cold hearts have melted and we've decided to release our new Patreon bonus episode with comedian Jackie Pirico on the regular feed. Is she evil? Or nice? Listen to find out. Enjoy! Happy Holidays, xo Chris, James and Michael For more exclusive bonus content just like this, consider supporting Evil Men on Patreon. Follow Evil Men on Twitter and Instagram. And rate and review us wherever possible! Brought to you By: The Sonar Network

It has been my lifelong goal to be the best dad I can possibly be. Through the strength of my father, I have picked up some great tips along the way. And while life throws curveballs, bumps, hills to climb and the fact that the word "no" should be removed from a child's vocabulary all dad's have been given the blessing of nurturing a child. We need to take that seriously! I know there are some who are listening today who are just starting out in their full-time career as a dads, and this episode is for you.How can you be a great dad? The power is in your hands but here are several tips I have picked up along the way.Blessings!Michael*For more strength in Life, Health or Fitness check out "THE GOOD LIFE" or find us socially on IG or FB and @ Mickayla Stoner Fitness.*

In this episode, Emil and Michael chat with Tyler Jahnke about how he persevered through a nightmare of a first deal to being a part of 100s of unit of real estate.   --- Transcript   Emil: Hey everyone. Welcome back to another episode of The Remote Real Estate Investor. My name is Emil Shour, and today I'm joined by my cohost,   Michael: Michael Albaum.   Emil: And we are interviewing Tyler Jahnke. Tyler has become a good friend of ours and is also one of the writers on the Roofstock blog. So you may be familiar with him on some of the content he's written there. And this was a really fun episode. We got to talk to Tyler about the story of his first rental property. He lives up in the Bay area and he talks about investing in the Midwest and some of the painful lessons he learned along the way of buying that first property and how he's grown to be a partner and owner of over a hundred units through syndication deals. All right, without further ado, let's hop into this episode.   Theme Song   Emil: Tyler. Welcome to the show, man. We're excited to have you.   Tyler: Thanks very much. I appreciate you reaching out and getting my attention and allowing me to hop on today and talk with you and Michael.   Michael: This is going to very much feel like every day on Twitter when we're always chatting about real estate investing stuff. Anyway, it's just on an audio format.   Tyler: A quick little plug for Twitter there, I guess, right? Like most of us I think, met on Twitter and that's been a great platform for both of us or all of us and engaging in and connecting with people so happy. We met there and happy to talk real estate as much as we want.   Emil: Yeah, it's funny. I've been on Twitter for years and I never realized there was this real estate investing and money, Twitter corner of Twitter. Like I always just used it for marketing and other stuff. And I was so stoked when I found this little community that's super engaged and loves talking and sharing best practices. So it's been fun, man.   Michael: It's funny. This is my first live Twitter interaction coming off Twitter. And I'm so glad to see Tyler and I were chatting before we started recording it. And his personality on Twitter matches his personality in real life, which is always great because sometimes you meet folks. It's like, wow, you're really well written. And I can't stand you as a person, not the case at all here, which is always nice.   Tyler: I'll be honest. I was a little worried thinking it just through like seeing you in person, it's like, how is he going to think I come across in reality versus someone who's behind a keyboard or a, you know, a mobile device typing 280 characters. I'm sure there's plenty of people out there that are completely different. And I was like, hopefully I come across similar, online as I do in person.   Michael: I think by the same thing, I don't want to catfish anybody.   Tyler: Yeah. Now I will mention the first thing I noticed about you and Michael was the longer hair. I'll say that.   Michael: For anyone who hasn't seen, the reason they have leveled, they let myself go with the head hair and facial hair department. I'm going out the quarantine cut on, call it.   Emil: Cool. So Tyler, before we hop into the good stuff what's going on in your world, what's new.   Tyler: Oh, that's I mean, that's a big question. So first things first I work full time still. I am not a full time real estate investor. That's something that I think some people maybe assume that I am. So I do work full time in a sales and business role out here in the Bay area, born and raised in Berkeley, California. My office is in as in San Francisco, clearly we're all working from home right now, but so, you know, a lot of my day is still consumed by that full time job. But my nights weekends are still very much real estate or whether that's analyzing deals, talking to partners, talking to investors and networking, engaging, and then doing a lot of content build out on my platform and then just, you know, talking real estate as much as I can on my nights and weekends. So that's kind of what my day looks like right now. It's, it's becoming somewhat repetitive, but I have enjoyed it. And I do try and get out on weekends and hike and see the outdoors a little bit.   Emil: Now that you've mentioned that you live in the Bay, my follow up question is how did you get into real estate investing? And why did you choose remote real estate investing? I think part of the, you answered with you live in the Bay area, but give us the back story.   Tyler: Yeah, I guess I'll tackle the question of how I got in first and then we'll go to why out of state. But so I started investing in 2016, so about three and a half years ago now I was working a good job that I enjoyed in an industry that I also enjoy and still enjoy. But I did see myself, you know, kind of the future Tyler down the line, probably having to work another 40 years and reaching that age of 65 and then maybe retiring. So I think in my late twenties, a little bit of self reflection and trying to figure out what I wanted to accomplish in life. And a lot of that had to do with time freedom, which I think a number of your listeners are probably also conscious of right now, if they're thinking about real estate. And so I had to try and figure out ways to bring an income outside of my W2 job and just try and accelerate my growth on the financial side.   So through business podcasts, through investing podcasts came along this topic and strategy of real estate, which is abundant and everywhere, but no one really thinks about it. I mean, when I say no one, the majority may not really think of it as an investing opportunity. And so, you know, I saw it as somewhat of a logical step and I guess, strategy just by the fact that you could bring in monthly recurring income through tenants, paying off your mortgage and insurance and taxes, and maybe even letting you cashflow a little bit. And then to answer your question on why out of state for me at the time, it was pretty obvious. I couldn't afford anything in the Bay area. And I also wanted that cashflow and it's very hard to cashflow property in Oakland when you're going to pay $750,000 for it. It's quite impossible. Now I'm not saying it's impossible, but there's definitely challenges there.   So, you know, jumping into, out of state investing made sense for me, it was definitely a little scary because you emotionally get attached to these investments. I think as a newbie and you're like, I want to see it in person. I want to touch the front door, but at the end of the day, it's not necessary. If you have the right team on the ground to help you out and really guide you along the way. And so long story short, why out of state, it was affordability and the cashflow potential.   Michael: So I want to know Tyler, how did you make that leap? Really, a lot of people call it a leap of faith jumping into this out-of-state market. Having never been there, maybe having never met your team on the ground, walk us through the mindset and the decision making that you went through to end up where you did.   Tyler: That's the important part is to make the actual leap. And I think I will admit early on, I was rather naive and I didn't have everything buttoned up from an education standpoint. I didn't really know how to properly run the numbers that actually worked for me. I'm not saying, you know, leap in uneducated. I think again, that helped me initially because I was naive in the challenges and maybe dangers of investing at a state. But now thinking back, you know, over the years, my advice to others that are in a position of, okay, I want to do this, but how do I take the next step? I think it can actually be seen as a quite simple process. If you are educated in a market that you want to invest in, if you know how to analyze property, and if you have, you know, the longterm vision of what real estate can do for you, I think that's enough confidence to make the next step.   If you know the market you want to invest in, you know how to analyze property, you have the vision, like it's just going to be a mental at that point. So I don't have the exact advice for people on how to make the next step, because it's completely mental. Once you get those three things down, a market analysis and a vision, once you have that, it's all mental. So it's just going to come down to the individual and some people do it. Some people don't and that's fine. It's just mindset and personality.   Michael: How did you find your first market? What did that look like?   Tyler: My very first property that I bought in closed in December of 2016, I went the turnkey route and I felt that the fact that I had a full time job and working 40 plus hours a week, I felt that the turnkey route would be the best option for me to at least dip my toe into real estate. I will say the turnkey route is not always the best method. If you don't understand the partners on the ground properly, like I found out later. So I went to Turkey about found the market in the Indianapolis area. So the Midwest, which had high cashflow potential good acquisition to price ratio and had some of the metrics of a cashflow market, like population growth, job growth with higher wages, diverse economy. This could be a whole separate topic. So I apologize if I'm jumping too far ahead on what to look for in a market.   Michael: This is great.   Tyler: But I'll say that I hooked up with a drinky company out in the Midwest thought I vetted them properly, picked up a property for $37,000 cash back in the day, which is like the cost of a somewhat nice car. But it actually, instead of depreciated quickly, it's actually an asset that would produce income. So yeah, first property turnkey out in Indianapolis.   Emil: I read your blog a bunch and I know you've talked about the experience of this first property and it's such a good one. And I'd love for you to share the story of, okay, you bought this property 37 [inaudible] on paper. It looks like it's going to cashflow nicely. I'll let you take the floor. Tell us about the story.   Tyler: Yeah, yeah, yeah. So this is the best and worst investment of my life. So best in a sense that it got me in the game, right? I'll keep preaching this, like getting the game, getting the game, getting the game, whether that's a good or bad investment on paper, it's kind of a start that snowball. So yeah, $37,000 cash worked with a turnkey company that I barely vetted. I hopped on the phone a couple of times they started sending me leads via email routinely.   Michael: Did you chat with any other turnkey companies or this was the one?   Tyler: You know, me, you know, I didn't talk to anyone else. So it was all, I put all my eggs in one basket and that's kind of also my personality too. I'm pretty quick to trust and that's a double edged sword, as we all know, I'm usually pretty optimistic and very trusting. So that's good and bad, good and bad. So anyways, I talked to this company, you know, I started getting leads. I started evaluating the properties and my simplistic formula of figuring out how to actually calculate cash flow back in the day. I remember, you know, the estimated rents at seven 50 a month for a property that costs $37,000 napkin math on that was basically okay. Let's give the property manager 10% and let's account for property taxes and insurance. But you know, in my eyes, seven 50 a month, taking away all those expenses, I could probably cash flow 300, three 25 a month. We'll call it, which I wouldn't even touch anyways. My plan wasn't to actually spend that cashflow. So I was like, okay, if I could get a few of these properties in the next five years, you know, now we're talking substantial numbers on the cashflow side.   So I acquired this property and then that's when I decided to fly out. So after I actually close on this property in December of 2016, I decided to fly out to Indianapolis in March of 17. I initially wasn't even going to do that, but my parents were like, Tyler, I think you might want to like meet the people you're working with and just see if that property exists. I was actually kind of reluctant, but now I kind of make it a routine to check on my markets annually. We'll call it pre COVID. So we closed on that property. It takes about two or three months to actually renovate. And it wasn't really a big rehab job. They refinished like the hardwood floors. They replaced a window. They did a little bit of painting.   Emil: The turn-key company is doing that for you?   Tyler: Correct, yes. So the turnkey company, I guess the term turn-key by definition means it should be easy. There are some good Turkey companies out there and there's bad ones. My advice is just to vet them properly, if you go that route. So it took a few months to really quote unquote renovate it. And there were some red flags that popped up initially. And those were some things that I've, you know, looking back I've learned from if red flags are popping up, that you're not happy with in terms of maybe lack of communication or miss deadlines and timelines, I kind of became ignorant or I guess I ignored them because I really wanted to just close on this property and become a real estate investor. And so I think emotion took over and in some points where I was like, you know, realistically, I should have questioned these red flags up front, but I didn't. Cause I was like, real estate is a thing I'm going to acquire 10 properties and become financially free.   So I was too focused on that end goal. Finally got that thing rented. We did have a tenant in there for about 11 months. They paid on time every month, seven 50 a month. I took out, you know, 10% for property management. I made sure I had some reserves for property taxes, insurance. And then I just kind of pocketed that cashflow fast forward to the, you know, as I mentioned that cashflow for 11 months, we'll fast forward to that 12th month. My buddy who's actually in the real estate space as well in the Indianapolis market. He randomly drove by my property just to check up on it. And it was like Tyler, there's a lockbox on the front door. And I'm like, what do you mean? There's a lock box in the front door? Like what, first of all, I was shocked and I trusted him, but I didn't know what that actually meant.   So that caused some alarms in my brain, I guess you could say. It was like at that moment I was like, is this real estate thing gonna actually work? Because that was my first real, real big hurdle. And I guess I had to think through from a business standpoint, what would the next step be? So I didn't mention anything to my turnkey provider. I actually kept that quiet to start with. I wanted to get some verification from others. So I then began the process of actually building another team on the ground out there, aside from the turnkey company I worked with. And that was kind of again, why I go back to like this being my best and worst investment. It forced me to overcome these challenges and build a new team on the ground.   Michael: So Tyler was this turnkey provider also managing the property for you?   Tyler: Yep. They did everything. They sourced the deal. They walked me through the closing process, set me up with insurance and insurance agent. They renovated it. They managed it from a property management standpoint.   Michael: One stop shop.   Tyler: A one stop shop, everything you could have in one box there. Okay. So anyways, I called a couple of property management companies had them drive out there, pay them a little bit money to help me out and just verify that it was in fact clearly that the lock box on the front door meant it was vacant. I don't know the whole story. Apparently the tenant had left without telling anyone and the property was vacant and I was never notified. And that was the last straw. So I fired the turnkey company, had another property manager, take it over. I know this story is kind of going on, on and on and on.   Michael: This is all great stuff.   Tyler: We're getting towards the end of that first property. So after having a new company take over management, after vetting a number of them, I really had to make sure that this next hire of a property management company would be right. So I was on the phone, every lunch at work and at night, just talking to people to try and figure out who the best property managers in Indianapolis were finally selected someone. They went out there, cleaned it up, took over management and they crafted a scope of work on what would be needed to get this thing rent ready. Cause my thought was okay, small little blip in the radar. Let's just get this thing cleaned up, get this thing rented again, get it back on the market and get a tenant in there and then start cash flowing again. And then I'll live my happy life. So they go in there, they craft the scope of work. First of all, I'll say the scope of work was probably a little more than I needed, but it was still a bill for $16,000. And I'm like, uh, wait, what? So, uh, so the property cost 37,000 up front. I need to put another 16 K into this thing to get this thing a rent ready. And I was like, there's no way I'm going to do that. Now along those, you know, the first 12 months of me owning that property too, I think I became a little bit more savvy. I actually, I learned a lot more after I had closed on real estate than I had. And so that's when I started really focusing more on the impact of location and obviously like the partners you work with. So my strategy in owning that first property had actually changed within those 12 months.   And I decided that buying in better neighborhoods with a little bit less risk and a different tenant profile would be the strategy I wanted to take. So ultimately I ended up selling that property. I did not put the 16 K into it. I did not think that that property would have a good longterm outlook. And I started buying in better neighborhoods. So long story short bought the property for 37,000, sold it for 41 a year later, took a year of cashflow minus closing expenses or closing costs. I probably netted, I think it was like 2% in a year. So I honestly call that a really big win on my part. I was like, if I could just break even on that first property, I think there's just so much knowledge and education and experience you get from that first property.   Emil: So why did you decide to keep going? This is, I feel like I've heard so many stories where people, something like this happens and they give up and they're like, ah, this real estate investing thing isn't for me or someone who's new has zero properties is hearing this and is like, I don't ever want to deal with this. Yeah. Why did you keep going?   Tyler: I'll give you a couple answers. Some you may want to hear some of you may not. The first answer you may not want to hear is I already had a second property under contract. So by default I had to keep going.   Michael: That's great.   Tyler: But so I was actually really confident after that first property, given all those circumstances and those challenges, I was like, I know what I did wrong. Like I bought in a bad neighborhood. I hired the wrong people. I just followed, you know, my napkin math. And I touched on this earlier. Like I became better at analyzing properties. So the deals would be better. And then again, like just buying in a better neighborhood with a different tenant class profile, that to me was important. I wanted someone who could afford rent and not be challenged by if their car broke down, that they have to decide between the car repair or rent.   I wanted, I guess, a little bit more security. So that's why I started buying in better neighborhoods. But I felt like, you know, after that first property round to the second property, I had learned so much in that first one, I could do it better and I could just get better every time. And so that was, it actually built confidence. And so, yeah, I went through some short term struggles and I think a lot of people will go through that short term struggle period. But if you really think that real estate is something that's going to be part of your life for 40 years, and it's a longterm strategy that one year of education and challenges will just amplify our growth, you know, as you move forward,   Emil: I love that.   Michael: Such a good story Tyler. I've got a couple of questions for you. And then 11 month period, when you were collecting rent and cashflow, did you think that you were a fricking genius that you had just got a dialed?   Tyler: Yeah.   Michael: Me too.   Tyler: Oh, I was smiling. Every check that came in, the first check that came in, I was traveling with my buddies in Vietnam and I remember waking up one morning and I'm on vacation. Right. I'm on vacation Vietnam. And I got a paycheck. I got a check that came in at like one in the morning and I was like, this is unbelievable. I need to keep buying these as soon as just rapidly. And so, yeah. And it's funny because I started off my journey in the content space by just posting on bigger pockets and I kind of posted my life experience and I love going back online and be like, Hey guys, just want to give you an update. I got my payment, my check came in and I'm good. So yeah, it was definitely all smiles for a solid 11 months until, you know.   Michael: Until it wasn't until it wasn't.   Tyler: And so that's what got me back to reality.   Michael: The learning process that you're talking about and the education process that you're talking about, it seems like that'll happen in month 12. Like that was a massive ramp up for you because for 11 months things were good. So you thought you had done everything right?   Tyler: My education prior to closing was not the greatest, but I really started ramping up the education process after I started closing. So that was, I got addicted to podcasts. I got addicted to bigger pockets. I got addicted to just consuming, consuming, consuming content in the real estate space. And that's why I had my second property already under contract. By the time, you know, all these challenges popped up. So I guess I would say I really started continuing that education process, you know, after I closed and I still do today, even though, you know, I've kind of grown in, in the investing space, but it's podcasts, it's books, it's websites, and it's talking to people like you guys.   Michael: I think that's such a big takeaway for everybody listening is, Hey, after you've accomplished the goal of purchasing that property, whether it's your first fifth, 10th, or whatever, don't stop being educated. Don't stop getting educated because I think too many folks sit on their laurels and think, well, great. I did it. I know how to do it now. Yeah. Well you did that deal. Maybe the next one's going to be slightly different. And so there are things you can learn in the interim that are gonna help make that next subsequent deal even better for you. So I love that.   Emil: I feel dumber now than when I first started. When I first started six months in same thing, I'm laughing, I'm getting checks. I'll just do this 10 times and I'm going to be rolling in dough. And then like reality hits and you learn more and then you're like, wow, I know nothing. The more you learn…   Michael: I think it's because we all started so similarly right? Buy one single family house, your purview is no one can see my hands, but they're very narrow right there. It's a very small scope. And then as we grow and expand and learn and educate ourselves, we realize there's this entire investing world out there that is comprised of so many different things. And we know so little about it. So I think that's a great point. And the old that just further goes to illustrate don't stop getting educated. Can't stop. Won't stop. Right.   Emil: Rockefeller records.   Michael: That's right. That's right. So I'm curious now, Tyler, you, you did that deal a couple of years ago, you know, what are you doing today? Where did you go from there?   Tyler: Yeah. So it's been a journey and I don't want to come across as any type of expert. I'll say that, you know, looking back at my timeline, I've been investing for three and a half years now. So started in my late twenties now in my early thirties, I think there's still a long, long, long ways to go. But I will say within that timeline of three and a half years, my strategies have definitely changed. And so, you know, after that first I learned about, you know, the importance of location and really building that team on the ground. So I bought a second property and other single family house I'm in a better neighborhood with a better team.   I then kind of tiptoed into we'll call it the journey of scaling, scaling up. And so I bought a duplex that was like huge for me. So I went from like a couple single families to a duplex that was me scaling up. I think from my standpoint, my strategy now has changed because like you mentioned earlier, Michael, the education process, there's some things I do now in the real estate space that I was not even aware of, you know, a few years ago. And so I tiptoed around and investing passively in larger multifamily complexes. That's how I started off in the multifamily space was literally, you know, I come in as almost like a silent partner, we'll call it limited partner, they'd say invest in my cash in these larger deals for some equity. And then through that process, learn more about the larger multifamily value of ad space.   And that's where I am now focusing on the value add, but multifamily space, the GP role in these larger apartment complexes. But my portfolio is kind of two prominent we'll call it. We had the cash flowing properties in the Midwest and then the work that my partners and I do in Phoenix on the value of ad side. And like I said, in three and a half years, I've learned so much. And like you said, a meal too, like it's such a massive world out there in real estate. There's so many different techniques and strategies that you can go down into some rabbit holes, but yeah, it's a combination of cash line properties and Midwest plus some value add deals with partners in the, in the, in the Southwest region.   Michael: For those of our listeners who don't know what is that LP GP thing called and what are those roles?   Tyler: The term is syndication, which has good and bad, I think connotations or I guess definitions, but it's really just, it's a partnership between two groups. The general partnership group is generally a group of individuals that are tasked with acquisition of a property lending up financing, building out the business plan, building up the strategy, managing the actual renovation and reposition, and then really making all the decisions on whether to refinance or exit or whatnot. The LP limited partner side is a bunch of investors that come into these deals with some capital and with the intention of really not being involved in the day to day, it's a passive investment. It's like any business that needs, that requires funding and you have the team that's managing everything and then the, like I keep saying this, the silent partners that come in with capital to help fund the project, that's the basic structure of what a syndication is, but it's almost like any type of startup even, or any type of business that needs capital to close. And then you execute a business plan and hopefully pay off, you know, yourself as well as your investors primarily   Emil: I know you're a part of a couple of different indications, your general partner in some where you're more active and your limited partner in some others. Right?   Tyler: Correct.   Emil: How did you decide to get into that? And which one did you start out with? I'm curious.   Tyler: I started out on the LP side after I bought my first two houses and then the duplex, I wanted to experience life, not as a landlord to put it bluntly. There's always going to be some stresses as being a landlord. You know, you're going to have the email from your property manager saying a pipe has burst and we need some money or there's a hole in the roof and we need some money. That's just part of being a landlord. And so I was like, well, you know, at that point in my life too, I was really trying to value my time to one of the biggest things I try and follow right now is kind of, there's a quote out there that says, like start with the end in mind. And I envisioned my life, you know, 40 years down the line where I am selfishly bringing in income without really much active work.   That's kind of what my ideal life looks like right now from a freedom standpoint. And so I was like, let's just try out what this passive investing really is. And I know passive is always going to be a loose term, but I felt that if I could hop into a deal passively and try and learn the business plan and a strategy of what value add is, and then tap into the power of multifamily, which is extremely powerful. We're pretty much doing what people call. Like, I call it the big BRRRR. We're finding a undervalued property, repositioning it through innovation and then bumping rents up that leads to additional cashflow plus increasing the value of the property. So I liked that strategy. So I wanted to kind of hop in there, learn from those people passively and then eventually get into those deals more on the active side events.   Michael: So in syndications, I've only done them locally, kind of with friends and family, never on a big scale, but when you were an LP on your first deal, and you mentioned several times that you learned from the GPS, were they happy to answer your questions as an LP? I mean, how did you go about learning this business as a quote unquote silent partner.   Tyler: It's not like a relationship where you automatically become, you know, the mentee and they take you under your wing. Really what I was just trying to figure out was to slowly get into the game. And that was to begin to just review what a, an offering memorandum looks like, what do these business strategies look like? What do the cost of renovation look like? What are the loan terms like? That was the very first step for me. And as an LP, you get to do that because you're reviewing all of the terms and strategies.   So that was a very, very, very first step of me in education. Now, to your point, Michael, there's no way that these GPS are like, yeah, I'll take, I mean, maybe there's some out there, but I wasn't gonna email them and call in and be like, Hey, can you just tell me exactly what to do and how to do it? They're not going to say yes to that. They have much more important things to do. So really it was just being exposed to the industry and the business plans. That was the very first step. Luckily, you know, after that, the second deal. So the first deal I did was in Louisville as an LP, second deal was in Phoenix, which is now with partners that I work with. So through networking, through connections, through some mutual friends, I was able to kind of position myself in a way where yes, I was an LP, but the GPs actually knew who I was.   And so that led to further opportunity down the line. I'm really just through connection and through building relationships. But yeah. So I think to answer your question, Michael, how do you learn as an LP? There's some you can pick up just by being exposed to the industry, but again, you're not going to have someone take you under your wing most likely   Michael: And hold your hand and say, this is..   Tyler: Exactly.   Michael: Okay. Yeah. Cool. Man, So, you know, I am also a multifamily value add guy. I've always done things on my own for the most part. What is it that you look for in these undervalued deals that are right for syndication? If you had to pick two or three things that like, yep, this is going to make a screaming deal. What are they?   Tyler: The first thing I will say is I am no master of acquisition. That's not my role, but luckily I have partners on the ground that are, you know, educated and know the market much better than I do. But really what you're looking for is, as you mentioned, is undervalued property. And that in the multifamily space can be something that maybe it's mismanaged. Maybe they have a lack of capital to make any renovations. So, you know, the properties that we're acquiring generally are occupied pretty well in our market, which is Phoenix, but they're outdated. And because of that, rents are lower than what they could command. So that's one area where value add is really, you can take advantage of is just an old dilapidated property that maybe mismanaged, maybe you're not even collecting rent properly. There's just so many different areas in where you can find that value add. So to answer your question, I mean, what we're looking for is a specific type of asset that is in need of a cash infusion because the amenities are not the greatest and can definitely attract a better tenant with a higher rent.   Now we're also kind of in areas and neighborhoods where there's actually a lot of class A stuff going up. And so we're, we're buying things that we think we can reposition to be just under class A, to kind of create a little bit of a subclass. So similar amenities, you know, the grant granite countertops, the under Mount sinks, new cabinets, washer, dryer in unit, the dog park, that, all that stuff, right. So we're building a property that's right under class a but more affordable. So we're kind of creating that subclass and that's, I think another way that we're protecting ourselves and being able to draw in that tenant and be able to bring in that rent that we've backed. So yeah. Undervalued property and then creating that subclass is what we do.   Michael: Love it. I do the exact same thing, just on a much smaller scale. That's great.   Tyler: Yeah.   Emil: So you've been on both sides, you acquire properties yourself, you've been part of syndications. Do you have a preference of which one you like, or do you kind of mix and match in both in you kind of see that happening in the future?   Tyler: Yeah. I see myself mixing and matching. Like I mentioned, I have kind of two prong attack of the cashflow, the immediate cashflow in the Midwest right now. And that portfolio is small and I still have some time to keep building that thing up. I, you know, I still am attracted to the immediate cash flow of those properties in the Midwest because the bigger deals are great, but they're a little bit more of a longterm play for me. If anyone is familiar with how this structure works, you know, you, as an LP, you get paid out quarterly as a GP. You know, the big pallet kind of comes at the end when you exit. So that side of my portfolio is more of a longterm play. And when I say longterm, we're talking five to seven years, which really isn't super long term. But I think having a combination of both is really a nice way to diversify having that cashflow from the Midwest or wherever your market is in individual properties that I own personally mixed with the passive income on a syndication and then a big pile. Hopefully once those properties are sold and you exit. So I think ideally I continue to keep attacking those two prongs, keep building those portfolios side-by-side and parallel.   Michael: So Tyler, something we talk a lot about in the restock Academy is about risk adjusted returns and that, you know, in the more risky areas we should anticipate and expect and really demand a higher return and the less risky areas say for investment, we could expect a lower return where you willing to give up a little on the cashflow or on the return side of things, making that transition over to a better neighborhood or a more expensive neighborhood.   Tyler: A hundred percent. Yeah. I don't think I had the specific data on what that would actually look like.   Michael: Sure.   Tyler: But to me, even just from an emotional standpoint, I was like, I'd rather have an investment in a neighborhood with better schools, less crime, you know, community amenities, a grocery store. Like I felt that I was a hundred percent willing to take less cash flow for a better neighborhood, but also on the flip side, generally in a better neighborhood, you might have better appreciation as well.  So it's almost like right to me. Yes. I wanted to get out of that CD class neighborhood, get into that B class, we'll call it on my personal portfolio. I'm already seeing a much better appreciation numbers on that side of things. And it just, there's a lot more comfort in, in, in knowing that you have a property in a, that's not in a war zone, it's not crime ridden. You know, it, it's a good suburban neighborhood with consistent cashflow and, and most importantly, a tenant that's going to pay on time. That to me was a lot more important than the amazing numbers on paper in that war zone. That would cause me more headaches.   Michael: Yeah. You bring up such a great point that, you know, on paper and mathematically and physically, sometimes those properties in the war zone pencil out really well and might even perform really well. But there's the mental health side of this business too. And, and I think that's so important so often gets overlooked of, yeah, I can make a killing over here, but I'm gonna make myself crazy and not sleep at night. And so we often say that there shouldn't be emotion when it comes to investing, but there is sometimes is. And that, you know, based on how it makes us how the investment makes us feel from an owner and operational standpoint, I think does need to get factored into the calculation   Tyler: A hundred percent. Yeah. I'm all on board with buying, you know, it's not the A-class stuff that, not the D class stuff somewhere in that middle, you know, BC area. That to me is the most safe investment, at least in my opinion.   Emil: Right. You see a lot of people, you know, they'll, they'll flash the similar situation, right. 35, 40 K home it's renting for basically the 2% rule. Right. So it will be running for seven to 800 and it's just like, it looks so good on paper, but there's all these other risk factors that you have to adjust for. And you have to have the appetite for like, dealing with messes more often than something in a better class neighborhood. So always important to consider that   Tyler: Nice little segue to there on like just evaluating cap rates too. Like people will flash, Oh, I got, I got a 12 cap, right? It's like that's numbers. But like, if you look at it from a perspective of risk versus reward, that's probably going to be a more risky investment than a six or seven cap, you know? So it's been interesting to kind of learn that through the years to that high return on paper, doesn't always mean a high return in real life.   Michael: Well, and also what's your time worth. If you've got to go spend 20 hours a week dealing with a 12 cap property, or you can spend two hours a month dealing with a six or seven cat property, you have the opportunity now to go buy more, you know, go buy two or three of those six caps and make us the same or even better returns. Yeah, absolutely. I think that's such a valid point.   Emil: So we've been ending a lot of these episodes. We used to quick fire questions. We've been transitioning into…   Tyler: Slow fire?   Emil: Think about this for five minutes before you answer. No, it was just a random question that we just kind of riff on.   Tyler: I'm all about that, man.   Emil: I know you travel a bunch. Where's the first place you're going to travel to once all the restrictions are done and like, we can start moving around again.   Tyler: I actually had a flight booked to Paris that I got super cheap and my buddy and I were going to go out there and explore the Dolomites in Northern Italy that is still in the back of our heads. And if, and when travel restrictions kind of open up, I think that's where we might go as the Dolomites in Northern Italy.   Michael: I was just there in January Tyler. And it's unbelievable.   Tyler: Yeah.   Michael: Unbelievable. You can go in the winter. I don't know if you're planning on going in winter or summer, but the ski, like the snow sports, they're the snowboarding skiing, snowshoeing is unbelievable.   Tyler: The plan was to go this summer actually, but just seeing photos of it is like, we were inspired to just find a way to get there. So that would be the first destination.   Emil: I'm looking at pictures now. Cause I had never even heard of it. And it is…   Tyler: I hadn't heard of it till recently as well, but yeah, the Dolomites.   Michael: They get, I think the most sun out of anywhere in Europe, in winter, they have the most like sunny Bluebird days and yeah, just don't have enough good things to say about it. Emil, where are you going to go?   Emil: Well, now that I have a kid makes traveling, you have to think a little bit more. You're like, Hmm, where can we go? That's kid friendly and things like that. Probably a surf trip. I'm thinking Costa Rica, Costa Rica is like one of the more family friendly areas that has really good surf. That's not too far from Southern California. So probably Costa Rica, friends. And I have been talking about doing a trip down there for a while.   Michael: Right on.   Pierre: Michael can we get your synopsis of Costa Rica since you live there as well too?   Tyler: We now have a travel podcast guys!   Emil: Hey this is The Remote Real Estate Investor.   Michael: Bait and switch everybody. Yeah that Costa Rica is awesome, man. It's a super, like you said, I know it's a super easy, but you've been there before, right?   Emil: Yeah, I went there like seven years ago with a buddy. Yeah. Different type of trip.   Michael: The surf is so killer. Yeah. You were also Nicaragua. We talked about that to you, right?   Emil: Yup. Nicaragua's surf is amazing.   Tyler: You've also mentioned Bali to me, Emil as well.   Emil: I sound really cool right now. Cause have you guys been there. I've been there, but yeah, Bali, I need to go back to Bali. It is like surf paradise and there's so many good waves and I will probably watch a video on YouTube three times a week of incredible waves there. And I'm just like drooling. But anyway…   Michael: Drooling at waves.   Emil: That's right. That's right. What about you, Michael? Where are you headed?   Michael: I think I have to go back to Portugal. I'm purchasing some investment property out there and sort of do some paperwork type stuff we need to get back out there.   Emil: No big deal. Just buying a property in another country.   Tyler: Are you going the Airbnb route on that.   Michael: Yeah. So it's the Airbnb it's like professionally managed, but actually we're applying for what's called the golden visa so we can get our permanent residency status and ultimately citizenship out there as well to be able to live and work and travel in the EU without needing…   Tyler: Awesome stuff.   Michael: Yeah. So we're pretty pumped on that.   Tyler: My buddies living in Portugal right now and he's just been working abroad for the last year. He did, he actually did Costa Rica for a while and then just flew to Portugal. And he's, he's actually writing a book right now about working from, uh, working abroad.   Michael: That's awesome.   Tyler: I'll connect you guys with him.   Michael: That would be great. That's something that I did last year too, is a lot of fun. I've actually been to Costa Rica, Latin American then all over Europe. Portugal also has amazing surf, has amazing, awesome waves. Pierre, where are you headed, man?   Pierre: I was thinking to go to Mexico, but I'm out of maple syrup. So I might have to go up to Canada.   Michael: Get up to Canada.   Pierre: Yeah.   Emil: Can't live without that maple syrup.   Pierre: No man.   Michael: It's a lifeblood.   Pierre: It really is.   Tyler: I mean, you even have a piece of bark on your wall back there, it's like yeah.   Emil: It's probably a good spot for us to end this one. Tell her before we let you go. Where is a good place that people can get in touch with you? Maybe ask you some questions.   Tyler: My website is jump in real estate.com. You can find my contact info. They're always happy to hop on a phone call or even just exchange emails with anyone really, really enjoy chatting with people like yourselves. And I'm sure your listeners as well. So I just love talking to real estate.   Michael: Awesome. And Tyler if someone wanted to be an LP and one of your syndications is your website the best place for them to get in touch with you regarding that type of stuff as well?   Tyler: Yeah, I would say that's probably the main route I'd want people to kind of route to me is the website. So jumpinrealestate.com. There's an ask Tyler tab. You can just find my contact info there and, or follow me on Twitter at jumpinRE very active on that, which I talked to Emil and Michael pretty much daily on.   Emil: Yes, follow Tyler on Twitter. Very good follow. Awesome man. Thanks again so much. Really appreciate you coming on.   Tyler: Thanks.   Michael: This was so awesome.   Tyler: Definitely. Thank you both.   Emil: All right, so that's our episode. Thanks again, everyone for tuning in. Before you go and make sure you subscribe to the podcast, you get an update every time we release a new episode and let us know what you think of the show. We're always looking for feedback, leave us a review. Let us know you think what you want to see more of maybe what you want to see less of and we'll catch you in next week's episode. Happy investing!  

In this Episode Tom, Michael and Emil share their systems that take the headache out of acquisitions and ownership to effectively scale up.  --- Transcript:   Tom: Greetings and welcome to the remote real estate investor. My name is Tom Schneider, and I'm here with Emil Shour and Michael Albaum. And today we're going to be talking about something that is near and dear to my heart. We're talking about building systems. We're talking about automation. We're talking about scaling. We're going to touch on these topics and a couple of specific strategies as it relates to acquisitions and ownership. All right, let's do it.   Tom: All right. Welcome back to The Remote Real Estate Investor. Before we get going today, we're going to do a quick introduction from the host a little bit about ourselves and our experience and background and all that good stuff. So, Michael, why don't you go ahead and lead us off?   Michael: Sure. So I'm Michael Albaum. I used to work in my past life as a professional fire protection engineer in the commercial property insurance industry. So everyone has to bear with me if I speak in math terms, cause I'm a reformed engineer. I've been an investor for the better part of a decade and started very traditionally with single families. And now I've found a, found my stride and niche with multifamily value, add projects out in the Midwest. And I'm also the head coach of the Roofstock Academy program and meal. Can you introduce us to yourself and your mustache?   Emil: Hey everybody. My name is Emil Shour. I work on the marketing team here at Roofstock. My fun fact is I actually bought a couple properties through Roofstock before I was ever working here. It was a big fan of what the company was doing and now lucky enough to get to help spread the word. And I own a couple single family rentals across the Southeast and Midwest.   Tom: And my name is Tom Schneider. I am the director of investor education here at Roofstock. My career has been focusing on putting technology process to scale and build systems. So this episode is particularly exciting for me is how I do this personally, with my investing. I've been in real estate investing for over the past 10 years, and I'm also a California broker.   Michael: Nice.   Emil: The only one of us who's licensed. Where do you have your license hung somewhere as a broker?   Tom: You can just hang it right around here.   Michael: Yeah. Hang it on yourself.   Tom: Hang it on myself.   Michael: The broker test. Isn't so much more work than just the agent test, right?   Tom: It is. They've made it harder when I got my broker's license, it wasn't quite as difficult, but they made the experience requirements a lot more difficult. It was kind of funny. I initially worked in acquisitions for one of the publicly traded rates and literally the day that I passed the broker test, the person who was leading our technology says, Hey Tom, we need a can-do guy to help build out a bunch of systems. And I was like, okay, cool. Let's do it. So I got my broker's license and then proceeded to never use it until I did use it when I bought my own house. So I guess it paid for itself there.   Emil: What is the difference between an agent and a broker?   Tom: I'll tell you, I should kind of have an idea on this. So an agent needs their license to be hung underneath the broker. The idea is a broker understands the business a little more and folks who are agents can eventually become a broker. If they wish to, they basically can operate on their own. So within California, you can apply for an agent or a broker. And the broker aspect of the test is a little bit harder and the requirements to get it is a little bit more difficult.   Emil: Got it. So a broker can do everything an agent can do, but an agent can't do everything a broker can do.   Tom: Yes. Yes, that's correct. That's a good way to put it.   Michael: Getting ready for my broker tests.   Emil: Awesome. I've already learned something on this episode!   Tom: Early and often, baby early and often. All right. We'll jump into some system stuff. So we have a variety of different things and we're going to have a different one of the hosts take the lead in talking about. So we're going to start with acquisitions. And Emil, why don't you lead us off on some systems, some practical systems that folks can do on their own.   Emil: It might be a little obvious, but I still think it's worth stating. Set up automated filters and alerts on the places you look for properties. If you're on Roofstock. If you guys are familiar with stock is our marketplace where people can buy and sell single family rental properties. You can go and filter by whatever meets your criteria and save that filter. So you get notifications when new properties hit the site that meet that filter requirement, same thing on other sites like Zillow or Redfin or realtor.com, wherever you're, once you've figured out your buy box. And I'll talk about that in a second. Defining it, plugging it in as a filter so you get automatic notifications cause you want to be on top of those listings, right? When they hit the site, right? It's a lot more effective than just constantly going on them and checking your listings. Even though I do that all the time anyways,   Michael: I don't know about you guys, but I constantly get notifications from Zillow and Redfin about new properties that have hit the market, but I didn't save a filter even, you know, I searched there twice or three times and now I was like, Oh great. You're super hungry for properties in that market. So I'm just getting blasted by these emails. Yeah.   Emil: Every time I look@realtor.com, like I was curious the other day about like, what do multifamily in Bakersfield sell for? And now I've just, I've been getting Bakersfield filter notifications from realtor.com. It's like, man,   Tom: What's cool about these websites and the filters, a little pro tip is you can get really granular with your filters and set up multiple filters. So what I'll do is on my inbox that I have all set up multiple inboxes and I'll set up a filter within my I'm gonna, we're gonna do filters on filters. This is a very layered,   Michael: Filter-ception   Tom: Yeah. Very meta. So within my inbox, shout out Gmail, just kidding   Emil: @Gmail, let us know if you want to sponsor us.   Michael: Yeah. I've never heard of this Gmail, but this Tom Schneider guy talked about it.   Tom: Anywho, I set up like a master folder for like incoming property leads. Right. Then within that I'll set up additional folders for each different type of either region or property type. So as new listings that meet my criteria are hitting. I have them in a nice clean folder, so, Oh, great. A new Florida property. That's a duplex in this area and I have a special folder for that. What I'll also do is oftentimes timing can be pretty important and moving quickly, instead of setting up a filter that comes just once a week or once a month, since I have this infrastructure within my Google Gmail, shout out again, I'll have it actually doing real time. So I'm not getting pinged in my main inbox if I'm working on some other stuff, but I have a way to see immediately based on whatever that criteria it's hitting that inbox. So again, the super simple paraphrase, but this isn't that complicated. I have a bunch of different inboxes within my Gmail. And then within the, my buying platforms, I'll set up many filters and many alerts and many immediate alerts. So it'll hit right into my Gmail and I'll know at that time, all right, this one looks pretty good and I can move pretty quickly. And I don't have that issue of, Oh, Property. It's already pending. Like I'm not passively looking for it. It's proactively hitting me as soon as it hits the market and I can act and jumped on it. So that was my extra tidbit on that piece of mill,   Michael: That description Tom was amazing. It gave me such a visual of kind of how you operate. And it made me reflect about how I operate. And you, I'm picturing this nice, neat cubby with nice section organizers. And mind's like just a fricking melted pizza, but it's just crap everywhere. It's, I'm so jealous. I want to be like you and I grow up and have these systems, but in place, I love that.   Tom: That's why we make a great team, Michael. That's why we make great team   Michael: Coffee-man, and melted pizza.   Emil: Oh yeah. I'm not surprised Tom is like the most organized out of all of us internally. And I'm not surprised when it comes to acquisitions. You're equally as organized with the pick and choose you pick and choose. There's definitely lots of messages. So one thing, if you're going to one of the sites we mentioned, and you're not sure how you should set your criteria, just know that it's okay to start a little wider. And then as you've looked at more and more listings, I think you'll get better at defining your buy box. I know we talk about it a lot and we say, okay, build your buy box. And sometimes it's hard to just like, know what to choose. Right. I kind of started larger. For example, I chose a couple of different markets, couple of different properties, size, like a bigger property size.   Tom: I like it. You feel that you need to shoot with a sniper. I keep using these weapon analogies, but it's okay if you're not sure to start with like a broader spray and then work your way down as you refine what you're looking for. But I'd say it's better to keep it an open, an open range, and then, then shrink that down.   Michael: Nick it down.   Emil: Yup, exactly. And also because sometimes whoever uploaded the listing, sometimes they don't include that information. Right? So if you have like really, really specific defined criteria, you may miss something where whoever listed at the seller or the agent or whatever, just didn't submit that information. It doesn't hit the filter. I've noticed that on a couple of things.   Michael:   And just a pro tip for everybody listening to, if your budget is a hundred grand on the high end, set your filter up to one 20 to include properties that are listed above that because you might offer a 100K and get it. Versus if you set your filter criteria right at your end budget, you might never have seen those properties.   Emil: Yeah great tip, go like 10, 20% above what you are actually planning on spending.   Michael: It also gives you an idea of what the next tier of property looks like. So if you did want to ultimately spend more, no. What would that buy you?   Tom: One last piece of advice on building a bike box is to think about how many properties do you practically want to evaluate at a given time? And yeah, you can control this with your buybacks by how targeted it is. So if I have a lot of time and I want to look at a lot of product properties, I'm going to have a really wide buy box. If I don't have a lot of time right now to evaluate properties, I'm going to tighten my buybacks down a little bit. So one way to think about it is to work backwards about what your kind of capacity is for evaluating effectively.   Emil: It's also, I think when you're first starting out, I think it's okay to, again, to nail this point of going a little broader, I think with time and experience and having different property types, you'll start to get an idea of like, this is the exact property I want in this exact area.   Tom: Awesome. Michael, do you wanna jump on your next acquisition system?   Michael: Yeah, absolutely. So, so much of this, in addition to searching, can be done socially kind of quote unquote. And so just talking to everybody who's willing to listen and maybe even some of those who aren't, about what it is that you're looking for. So just in everyday conversations, talk to friends, family members, people in your network about what it is you're doing and what it is you're looking to do because so many eyes are going to be better than, than just one set. So if someone then comes across a property just in their everyday life and thinks, Oh, well, I remember Tom mentioning that he was kind of looking for something like this. That can be a great deal funnel for you as well. Property managers can also be a fantastic, fantastic source of deals for you, which is pretty automatic. You just tell them, Hey, this is what I'm looking for. You, you set your filter, so to speak with them and any property that comes across their radar. Oh, Hey. Yeah. I remember, you know, Emil, I kind of managed this property for him. And he's looking for something like this. It becomes so easy. And so automatic that it's one of those things you can just kind of say it and continue saying it and then forget it. There's not a whole lot of nurturing that has to be done with those types of things, other than some, you know, reminders. And don't be the person that, Hey, have you found any properties yet? Have you found any properties? Just put it out into the universe and just kind of let it, let it bake for a bit and see.   Tom: It's like The Secret. You guys remember that book?   Pierre: I'm still waiting for that check in the mail.   Tom: It's coming! Wasn't it The Secret and then The Answer as a followup or something.   Emil: Yeah.   Tom: Incredible. Incredible marketing.   Michael: I didn't read that one. What's The Secret about?   Pierre: It's the laws attraction.   Michael: Uh, okay. Okay.   Pierre: It's when you focus on something for long enough and eventually it comes to you, essentially.   Emil: That's right. You don't have to actually do anything. Just think about it every day. Hope for it every morning, but no action required. Just think about it.   Michael: Million dollars, Million dollars! So it's interesting. So for the Academy book club, we just did Think and Grow Rich. And I thought that, you know, that was such a great title by Napoleon Hill and we read it and I thought it was really awesome and talked about a lot of kind of high level things, mindset type stuff. And it was talked about very similar type stuff. And it was, it was interesting. They're all talking about, you know, if we stand around here and talk about blue cars, we'll probably go out and see a bunch more blue cars. And it's not so much that there are more blue cars on the road. It's just that now we're cognizant of that thing. It's kind of front of mind. So it appears more often for us.   Tom: Yeah. I love that example, Michael, cause not all systems are digital or not all systems are technology, but it's, it's leveraging the people side of your network of funneling in deals through that. So at the end of the day, like a lot of real estate is a people business and nurturing that and building a system that you want and funneling them in deals is excellent.   Michael: All the real estate meetups that I went to, um, pre COVID, they all talk about they'll usually start or end with the needs and wants section. So people talk about, okay, this is what I need or is it “have and wants”   Tom: Maybe it's a “give and a take”, I think I know what you are talking about.   Michael: Yeah. You announced to the group, what it is that you have to offer to the group and then what it is that you're looking for from the group or from in general, until people say I have money and I'm looking for a deal or whatever. And so it's that those are great opportunities as well. And so again, just kind of reiterating, put it out to the world, don't be embarrassed by it. Don't be shy about it. Just make it known what it is you're looking for. Cause it's tough to help people if they haven't told you what it is that they're looking for.   Tom: Awesome. Great example. All right. So I'll touch on the last acquisition related systems slash tip slash ways to scale. And this is a special perk that we have within Roofstock Academy is that members can actually export the listings on Roofstock into Excel. And whenever you can do things evaluating a lot of deals at once, like doing it in Excel, that's a great way to do it. So I guess that the main theme is, you know, try to batch processes together. And in this particular example of being able to download all the listings in Excel, batch that whole evaluation of the whole inventory, you know, in one run where, okay, I'm filtering down to these particular property types or, Oh, I'm filtering down for this particular return. So being able to, if you can get a spreadsheet of what you're evaluating or any kind of way, being able to batch it together, do it saves time.   Michael: And for anybody that's really intimidated by Excel because I know it can often seem very intimidating. There are some really great free courses on YouTube and there are also paid courses. If you want to get more in depth with it, about how to use Excel and maybe how to do some of that batch sorting because it's a really powerful tool. So I guess we're plugging Excel and Gmail in this episode.   Emil: Shout to Google and Microsoft!   Tom: Let's continue on. We're going to go into ownership now and Emil why don't you lead us off.   Emil: Cool. All right. So the first one we're gonna be talking about is cash flow automation. So the first thing I do and you guys let me know if you do this as well. I set up auto pay on all my mortgages. I don't want to think about, did I pay this mortgage? I have to mail a check. I auto pay everything just to make it super easy. Especially when you have multiple properties automating. It is like, step number one. You guys do that as well.   Michael: Yeah, definitely. Absolutely.   Tom: Do you also impound your insurance and property taxes when you pay your mortgage payment?   Emil: I do. I know a lot of people won't because they want that capital and would rather use it throughout the year versus giving it to your lender, to hold it to whatever you like to be able to use that capital. I just don't want to have to think about like, okay, I need to come up with X amount to pay my property tax and insurance. It's kind of like duping yourself into thinking you're richer than you are.   Michael: I don't, I don't use the impound accounts. I will, if they'll give me a better rate for the mortgage. And then as soon as the loan closes, I cancel the escrow account and just pay it myself.   Tom: Sneaky move Michael.   Michael: It's something I'm considering doing just from like a meal mentioned ease of operations. It's just one less thing to think about. So it can be great either way.   Emil: Why do you not impound it?   Michael: For the exact reason you mentioned there are significant funds that are going to be paid to property taxes and insurance on an annual basis. And so I'd rather have that kind of, well, that one time hit is kind of a bummer. I'm able to use that cash. I mean, it's a significant amount such that it's usable on a monthly basis to do other stuff with. And so I just know in the back of my mind that, okay, come this time of year, I've got this big, big property tax bill that's going to be due.   Emil: Yeah. I wonder if there is something there in terms of like at a certain scale, it's a lot more money to be working with versus like, let's say you have one to five properties just for ease and it's not that much extra capital that you'd be able to do something with.   Michael: Yeah, no, that's a good point. I mean, I think everyone should think about it for themselves because even at that five property level, one to five, your property tax bill could be, you know, $25,000 if we're talking about.   Emil: Yeah, that's true. Yeah. Good point.   Tom: Just to clarify impounding your taxes insurance is if you haven't deduced this or don't already know this, it's when you pay your mortgage payment, the mortgage company will also collect a percentage of the annual taxes.   Michael: They'll take one 12th of the annual tax bill, one 12th of the annual insurance bill with your mortgage payment on a monthly basis. So that you're paying equal payments every month. You're not getting hit with your tax bill or insurance bill just at one time.   Tom: And then the mortgage company will just pay it for you. So you don't have to think about it. So, boom, that's another system. So that's a good question about, you know, do you use that money in the meantime, if you don't have to pay it for 12 months, but that could be another potential system. Alright. Emil, I broke your flow.   Emil: Finishing up there. My favorite thing is when they audit your account and you have an excess balance and they send you like a check for a couple of hundred bucks and you're like, Ooh, it's like a Christmas bonus or something. Hanukkah bonus baby. For me,   Tom: I think I might've mentioned this on another podcast. I like it, but it pisses me off. Cause I'm like, oh geez, what check am I missing? Yeah, it makes me think like, okay, this is great having this check. But I'm like, like honestly concerned that like I may have missed something in the mail because man, there's just so much junk mail as a real estate investor. The wholesalers that email you all kinds of things and like just general, getting a lot of mail. I just get really concerned that I see a check here. That's awesome. But what checks am I not seeing? Because they're buried in between a Serina and Lilly or whatever, a  catalog, that's like five pounds and 500 pages. Anyways, go ahead, please continue your answer.   Emil: No, please continue your rant. I want to hear that.   Tom: I got to build it up a little bit. I got to build it up a little bit.   Michael: Tell us more about what other junk mail you received.   Tom: We Buy Ugly Houses Houses. So many of those. Yeah. If there's any wholesalers listening, I want off your mailing lists.   Emil: Okay. So the next one, this one's probably obvious a lot of people, setting up ACH auto payment from your property manager. So they collect your rent checks. I don't even know if any property managers do this, but like sending you a check in the mail. I imagine most people already set up you raising your hand, Michael. Cause do you do that?   Michael: I used to get paper checks because my property manager was pretty old school and I said, okay, please, please, please, please, please, please, please. Can we do this and other way? Yeah, this is just not awesome anymore.   Emil: I mean, so that should be like, even part of your PM property management vetting, right? Like, do you do, do you have an online portal where you ACH payments to me? So just make sure you set that up. If it's an option, most property managers in 2020, you will have that.   Emil: Maybe Michael went to one that was established in 1925 or something.   Michael: 1833    Tom: Is this is the one in Alaska?   Michael: No, it's actually properties that I've since sold, but out in Missouri kind, of rural Missouri. And so just to expand upon this a little bit is I think we've talked about in another episode, but my property manager, there was only willing to use a certain bank or the local bank branch wasn't anything that we had locally or that I use. So they would go to this bank deposit, the rent check and then would cut me a check to my bank. It was just a whole pain in the butt kind of thing. So what we've automated is now they'll deposit the rent check and then those rent checks we'll get bill paid from that bank to my local bank where I actually do my banking and then from there and get distributed. And so if you can automate as many of those processes as possible, it becomes much easier. So ACH transfer a potentially from multiple bank accounts to multiple bank accounts,   Tom: Are you're hiding something Michael? I'm just kidding.   Michael: I don't know. You ever been to the Cayman islands?   Tom: That's interesting that a local property manager had a preferred bank that they worked with and yeah, yeah.   Michael: They're just like no Wells Fargo or B of A or union bank out there. So they're like, this is what we use. It's like cool, pony express it over to me.   Emil: Carrier pigeon that's right. So the last one in this section, we recommend I do this. I have a separate bank account for all real estate stuff. It just makes things easier, especially come tax time. I also just like having it separate cause I try to treat real estate investing like a business to have its own checking account checking account. I use Chase, it's free to set up another checking account and it's just much easier to track things going in and out and it'll make your CPA's life easier. Do you guys do that as well?   Michael: I was going to ask if you guys have separate accounts for every property?   Tom: You know, it's funny, I just got off a Roofstock Academy coaching session before we started recording this episode and we were just jumping into it with a member exactly on this topic. I don't, I use just one account for all properties. It's just, I don't know, easier. And I don't understand necessarily see the value. Not that it's a lot of overhead to have different bank accounts because you can set them up for free on so many different banks, but I just use one for all the rental properties and yourself, Michael,   Tom: I have one account per LLC. And so I've got LLCs that own multiple properties. So all that was kind of funnel into that one. Yeah. What about you, Emil?   Emil? I'm just one checking account where everything funnels into nice. Just for ease. Makes it easy.   Pierre: What would be one of the benefits of setting up an individual bank account for each property?   Tom: The benefit of setting up, if you were to set up a different bank account for each property, you know, what I like about it at a portfolio level is I just have a really tight grip on cashflow within that portfolio. If I was to do it at an individual property, man, it would be just so clear if I'm making money or losing money. You know, we have these assumptions that we use when we are acquiring properties, but ultimately, you know, when the rubber hits the road, you hope to hit those or even exceed them. But you know, by having an individual bank account for that property, you have a really immediate, transparent view into, is this property performing to how I was projecting it with the cashflow.   Michael: I was going to say, it's a really good question Pierre. I'm glad you asked it. So because I only have the one bank account set up, I think I'm echoing Tom's viewpoints and opinions that, yeah, it's very easy to see what the actual numbers are, but I found that I just keep an Excel file, very detailed document of, Hey, anytime there's an expense on a given property, I log it the date, the expense, and then the dollar amount. And so that for me, suffices as a very similar type of scenario without the headache, I would argue of having 10 different property accounts searching through which one has what I've got it all in a file for me, that's worked really, really well over the years.   Emil: And your property manager, a lot of them you'll have a portal where you'll be able to see all your rent, all the management fees they've taken, they handle a lot of the smaller maintenance. So you'll see those expenses as well. So you also have your property manager, you can lean on, that's going to keep track off a lot of this stuff. The only other thing to track outside of that would be your payments to your lender and then property taxes and insurance.   Michael: There's all kinds of miscellaneous stuff that you'll likely have to pay outside of that. So like business licenses, if you're required in that state or LLC fees, franchise tax fees in, you know, wherever you live and wherever it's registered, just misc miscellaneous stuff. And I just attach that to each property and whatever it's paid for, you know, even might have to pay a contractor, something if they're that's outside the scope of what your property manager is doing. And so having a place to document all of that, I find it to be very, very, helpful.   Emil: Yup. I also keep a detailed Excel. I don't do it every month. I do it like bi-annually.   Michael: Do you do it when you incur the expense or you do it as a reconciliation, every, you know, twice a year,   Emil: The latter I do reconciliation. It's probably not the best, but I don't know.   Pierre: Yeah. I mean, we're talking about automation,   Emil: We're telling you what to aim for. We're not necessarily saying we all do this all the time.   Michael: Do, as I say, not as I do.   Emil: Exactly. And you know, you don't have to be perfect in all these areas. We're giving people just different ideas, you know, what makes sense to automate.   Pierre: Cool   Michael: It's one of those too like, we all have bad habits that we've fallen into over the years. And now in hindsight, we'd say, man, I wish I had formed this better habit. So here's what I would do differently. And it's so hard to break those bad habits. Like it's so hard.   Tom: Getting the grove for sure.   Michael: Yup. Very true.   Emil: One other thing, we don't have it here, but I want to talk about it as well. This kind of goes back to acquisition automation, but, it goes back to the concept of paying yourself first. So a lot of us, you know, we have a full time job or we have W2, whatever it is, make sure you set up like an automatic percentage that every paycheck coming in is going towards your investing. So right now, like my process is 20% of every paycheck automatically gets taken out of my checking, put into a separate investing account. And I highly recommend people who are listening, check out a website called I will teach you to be rich by Ramit Satie he has this awesome guide. If you look up, I will teach you to be rich, personal finance guide. It shows you how to automate all this stuff, like having separate accounts for different things you're saving up for. I found that super easy and like a really good way to separate your money and like have kind of different categories and use them for separate things. So I have a separate investing savings account that automatically, you know, income coming in goes into that. So that's another automation thing I do.   Michael: Piggybacking off that a meal I've also automated paying myself first from the rental amount every month. So when we do our analyses, we see, okay, we've got the mortgage payment, property taxes, all these other expenses that may or may not actually occur on a monthly basis, but we modeled them that way. So it makes the cash flow easier to understand. And so your property is going to collect rent. They're going to take their fee and are going to give you the rest. Well, now that's a huge chunk of change, but we've still got to pay some of these other expenses. And so we all have calculated on a monthly basis what our cash flow should be. And so I will automatically set up that deduction amount from my property bank account, going to my personal bank account, if I'm planning on using that cashflow for everyday life stuff. So if it's a hundred bucks a month, I just receive rent on the 10th or whatever of the month. And then I automatically have a hundred dollars transfer into my personal account. Everything else stays in the property account to then pay all those other expenses for. And at the end of the year, you had a good year. You might have some extra dollars left over and you can pay yourself again. Or if you had a bad year, you might need to put some additional money back into that. But it's a really easy way to just start collecting money from your properties without overdoing it.   Tom: I like it. So the next operational system I'll jump on, has to do with documentation. So if you're an active investor, you will be regularly buying new properties. You will be regularly refinancing had a good episode, I guess it would be two weeks ago. Once this episode is launched on ways to take out equity, anywho, when you are going through that exercise, you're going to need the same documents again and again and again, you're going to need a copy of the current lease. You're gonna need a certificate of insurance. You're gonna need a sample mortgage payment. And what I like to do with this is to streamline this process is set up a folder structure that is secure. There's a couple of different platforms out there, Dropbox, maybe even Google drive, but you know, in a secure folder online, I'll have my relevant documents in there.And then I can use sharing functionality to give it specifically to my lender or specifically to my CPA. That way I'm not needing to constantly track down these documents that I'm going to need again and again and again, and I can safely share it with whoever needs it. So the main takeaway for this system, I guess you can call it that is, you know, don't sleep on it, just have that document structure set up a do it once and do it right and do it early and then have that available for whenever you go through one of these maneuvers, be it refinancing or taking on a new loan or going through tax time.   Michael: It's so valuable. I know for my first property, I didn't have these systems really set up in place. I thought I did and then came tax time and I was like, Oh my God. So this is going to take so long to figure this out and go back and collect all these things. So, you know, it's one of those things. It's tough to know what you're looking for until you know what to look for. So ask somebody, ask, you know, ask your CPA, ask your tax professional. Hey, I'm investing in real estate. What things you're going to need from you at the end of the year, they're going to tell you, okay, we need your 1098. We're gonna need all your expenses, property tax, receipts, all these types of things. So that way you can start that ahead of time developing and building these good habits and systems. It makes it so much easier. Come tax time.   Emil: I don't have anything else that neither does my mustache. Good job guys. Excellent.   Tom: I actually thought of this while you were talking about it. So I love the concept of paying yourself first, right? And with paying yourself first, when you get your paycheck, it's pretty straight forward, right? You take the first 10%, 20%, whatever, and either save it or spend it. However, I like to think about this with your day. So paying yourself first, the first 10% of your day, how are you guys going to pay yourself first with the first 10% of your day? And you're not allowed to say surfing,   Emil: I'll go one level up then and just say exercising. I think exercising for me has become as equally as important for my mental wellbeing for the day as it is physical. So for me, that's how I pay myself first to start the day, right?   Tom: What are you doing for exercise?   Michael: Surfing!   Emil: I wish more surfing. Having a small child will put a dent in your surfing ability and it's summer, so the waves were a little slower. I will do. I'll either go for a run or I will do a combination of like pushups pull ups. Or I also use this thing called the seven minute workout app. It's literally a seven minute workout. I don't do long workouts. I don't like, I don't know. I used to spend more time working out, but for me, it's just a matter of like doing it almost daily to just start the day right. Whether it's seven minutes or 30 minutes.   Michael: Classic Emil fashion, he stole my answer. But that's why I went first because you're going to try to take that out. So not surfing, but I like to do kite surfing and I also work out. Do you exercise in the morning? I find that getting my blood pumping helps kind of burn off that haziness in the morning. But since the meal took that already, I really liked journaling in the morning. Just even for a few minutes, a few paragraphs, just kind of what I'm thinking about. What's going on personally in my life and what my goals are. I read that book think and grow rich. And that reaffirm that journaling is a super powerful tool. I've always known it, but again, it's one of those bad habits that it's hard to break into if you're not used to doing it. So starting slow and just trying to get my thoughts out on paper outside of myself, I find it to be helpful and worthwhile. What about you Tom?   Tom: So the first 10% of my day has gotten a lot earlier with a small child. So, you know, it's, it's now like the, you know, late five's early 6:00 AM is the first 10% of my day, but excellent partnership with my wife helping out. Well, she has the lion's share for sure, but on the extra early days, all right. I'm digressing. Okay. Going on a walk. So, I mean, I guess this is exercise. Sure. Why not? So getting the baby early morning, throwing him in a little jogger or the stroller walking around the street in the morning when like everything's still quiet and the sun's just creeping up over the Hills and the fog is kind of lifting journal in my head. I dunno. So like walking around in the early morning when nothing else is going on, I know that's a fine first 10% of the day way to pay yourself first.   Michael: As the only person without a baby, just a PSA, you know, you probably shouldn't throw babies into or at anything whether it be a jogger or cribs.   Tom: Oh, they're, they're pretty durable, but yeah, for sure,   Emil: They are very durable.   Pierre: Antifragile.   Emil: Antifragile.   Tom: Antifragile! Yes, they get stronger with it. Yeah. How about yourself Pierre? Your first 10% of the day?   Pierre: I like to save my working out for the end of the day so I can have a break between my work day and the evening. So the morning is a good time for me to read.   Emil: I used to read a lot in the morning, baby killed that.   Tom: Got anything good? Any good books going?   Pierre: I'm a little bit behind with the book club, but I'm reading the book that Michael chose for the RSA book club, Never Split the Difference.   Emil: Great book.   Pierre: And this morning I read the ebook that email sent me and the article on how to write better titles for the podcast.   Emil: Got to keep the audience clicking.   Michael: Yeah, that's great. Speaking of our audience, if anybody has any thoughts, suggestions, insights, hot topics they want to hear about. Please feel free to let us know at eshour@roofstock.com, malbaum@roofstoo.com, or tom@roofstock.com.   Emil: Or hit us up on Twitter. I'm @emilshour, Michael you're @albaummichael. and Tom you are.   Tom: I am not positive… I'm @tscnheido   Michael: Freaky deaky Tom   Tom: Yea, created like whatever, 15 years ago, something like that.   Emil: I like it.   Michael: Skater dude, 27 with an eight.   Tom: Exactly. Awesome guys. Well, thank you so much for listening today. To our episode, we hope that you got some value out of it. If you liked it, please don't be shy. Please rate us. Please subscribe as a meal set. And like Michael and Emil said, reach out to us. We love to hear your feedback on future content to do and to keep driving. So, alright, happy investing.   Emil: Happy, investing.   Michael: Happy investing.    

If you work in Kubernetes, cloud native, or any other fast-moving ecosystem, you might have found that keeping up to date with new developments can be incredibly challenging. We think this as well, and so we decided to make today’s episode a tribute to that challenge, as well as a space for sharing the best resources and practices we can think of to help manage it. Of course, there are audiences in this space who require information at various levels of depth, and fortunately the resources to suit each one exist. We get into the many different places we go in order to receive information at each part of the spectrum, such as SIG meetings on YouTube, our favorite Twitter authorities, the KubeWeekly blog, and the most helpful books out there. Another big talking point is the idea of habits or practices that can be helpful in consuming all this information, whether it be waiting for the release notes of a new version, tapping into different TLDR summaries of a topic, streaming videos, or actively writing posts as a way of clarifying and integrating newly learned concepts. In the end, there is no easy way, and passionate as you may be about staying in tune, burnout is a real possibility. So whether you’re just scratching the cloud native surface or up to your eyeballs in base code, join us for today’s conversation because you’re bound to find some use in the resources we share. Follow us: https://twitter.com/thepodlets Website: https://thepodlets.io Feeback: info@thepodlets.io https://github.com/vmware-tanzu/thepodlets/issues Hosts: Carlisia Campos Josh Rosso Duffie Cooley Olive Power Michael Gasch Key Points From This Episode: Audiences and different levels of depth that our guests/hosts follow Kubernetes at. What ‘keeping up’ means: merely following news, or actually grasping every new concept? The impossibility of truly keeping up with Kubernetes as it becomes ever more complex. Patterns used to keep up with new developments: the TWKD website, release notes, etc. Twitter’s helpful provision of information, from opinions to tech content, all in one place. How helpful Cindy Sridharan is on Twitter in her orientation toward distributed systems. The active side of keeping up such as writing posts and helping newcomers. More helpful Twitter accounts such as InfoSec. How books provide one source of deep information as opposed to the noise on Twitter. Books: Programming Kubernetes; Managing Kubernetes; Kubernetes Best Practices. Another great resource for seeing Kubernetes in action: the KubeWeeky blog. A call to watch the SIG playlists on the Kubernetes YouTube channel. Tooling: tab management and Michael’s self-built Twitter searcher. Live streaming and CTF live code demonstrations as another resource. How to keep a team updated using platforms like Slack and Zoom. The importance of organizing shared content on Slack. Challenges around not knowing the most important thing to focus on. Cognitive divergence and the temptation of escaping the isolation of coding by socializing. The idea that not seeing keeping up to date as being a personal sacrifice is dangerous. Using multiple different TLDR summaries to cement a concept in one’s brain. Incentives for users rather than developers of projects to share their experiences. The importance of showing appreciation for free resources in keeping motivation up. Quotes: “An audience I haven’t mentioned is the audience that basically just throws up their hands and walks away because there’s just too much to keep track of, right?” — @mauilion [0:05:15] “Maybe it’s because I’m lazy, I don’t know? But I wait until 1.17 drops, then I go to the release notes and really kind of ingest it because I’ve just struggled so much to kind of keep up with the day to day, ‘We merged this, we didn’t merge this,’ and so on.” — @joshrosso [0:10:18] “If you find value in being up to date with these things, just figure out – there are so many resources out there that address these different audiences and figure out what the right measure for you is. You don’t have to go deep on the code on everything.” — @mauilion [0:27:57] “Actually putting the right content in the right channel, at least from a higher level, helps me decide whether I want to like look at that channel today, and stuff that should be in the channel is not kind of in a conversation channel.” — @opowero [0:32:21] “When I see something that is going to give me the fundamentals, like I have other priorities now, I sort of always want to consume that to learn the fundamentals, because I think in the long term phase of, but then I neglect physically what I need to know to do in the moment.” — @carlisia [0:33:39] “Just do nothing, because our brain needs that. We need to not be listening, not be reading, just nothing. Just sit and look at the ceiling. Our brain needs that. Ideally, look at nature, like look outside, look at the air, go for a walk. We need that, because that recharges the brain.” — @carlisia [0:42:38] “Just consuming and keeping up, that doesn’t necessarily mean you don’t give back.” — @embano1 [0:49:32] Links Mentioned in Today’s Episode: Chris Short — https://chrisshort.net/ Last Week in Kubernetes Development — http://lwkd.info/ 1.17 Release Notes — https://kubernetes.io/docs/setup/release/notes/ Release Notes Filter Page — https://relnotes.k8s.io/ Cindy Sridharan on Twitter — https://twitter.com/copyconstruct InfoSec on Twitter — https://twitter.com/infosec?lang=en Programming Kubernetes on Amazon —https://www.amazon.com/Programming-Kubernetes-Developing-Cloud-Native-Applications/dp/1492047104 Managing Kubernetes on Amazon — https://www.amazon.com/Managing-Kubernetes-Operating-Clusters-World/dp/149203391X Brendan Burns on Twitter — https://twitter.com/brendandburns Kubernetes Best Practices on Amazon — https://www.amazon.com/Kubernetes-Best-Practices-Blueprints-Applications-ebook/dp/B081J62KLW/ KubeWeekly — https://kubeweekly.io/ Kubernetes SIG playlists on YouTube — https://www.youtube.com/channel/UCZ2bu0qutTOM0tHYa_jkIwg/playlists Twitch — https://www.twitch.tv/ Honeycomb — https://www.honeycomb.io/ KubeKon EU 2019 — https://events19.linuxfoundation.org/events/kubecon-cloudnativecon-europe-2019/ Aaron Crickenberger on LinkedIn — https://www.linkedin.com/in/spiffxp/ Stephen Augustus on LinkedIn — https://www.linkedin.com/in/stephenaugustus Office Hours — https://github.com/kubernetes/community/blob/master/events/office-hours.md Transcript: EPISODE 17[INTRODUCTION][0:00:08.7] ANNOUNCER: Welcome to The Podlets Podcast, a weekly show that explores Cloud Native one buzzword at a time. Each week, experts in the field will discuss and contrast distributed systems concepts, practices, tradeoffs and lessons learned to help you on your cloud native journey. This space moves fast and we shouldn’t reinvent the wheel. If you’re an engineer, operator or technically minded decision maker, this podcast is for you.[EPISODE][0:00:41.5] DC: Good afternoon everybody and welcome to The Podlets. In this episode, we’re going to talk about, you know, one of the more challenging things that we all have to do, just kind of keep up with cloud native and how we each approach that and what we do. Today, I have a number of cohosts with me, I have Olive Power.[0:00:56.6] OP: Hi.[0:00:57.4] DC: Carlisia Campos.[0:00:58.6] CC: Hi everybody.[0:00:59.9] DC: Josh Rosso.[0:01:01.3] JR: Hey all.[0:01:02.8] DC: And Michael.[0:01:01.1] MICHAEL: Hey, hello.[0:01:04.8] DC: This episode, we’re going to do something a little different than we normally do. In most of our episodes, we try to remain somewhat objective around the problem and the potential solutions for it, rather than prescribing a particular solution. In this episode, however, since we’re talking about how we keep up with all of the crazy things that happen in such a fast ecosystem, we’re going to probably provide quite a number of examples or resources that you yourself could use to drive and to try and keep up to date with what’s happening out there.Be sure to check out the notes after the episode is over at thepodlets.io and you will find a link to the episodes up at the top part, click down to this episode, and check out the notes. There will be tons of resources. Let’s get started.One of the things I think about that’s interesting about keeping up with something like, you know, a Kubernetes or a fast-moving project, regardless of what that project is, whether it’s Kubernetes or, you know, for a while, it was the Mesos that I was following or OpenStack or a number have been big infrastructure projects that have been very fast moving over time and I think what’s interesting is I find that there’s multiple audiences that we kind of address when we think about what it means to ‘keep up,’ right?Keeping up with something like a project is interesting because I feel like there’s an audience that it’s actually very interested in what’s happening with the design goals or the code base of the project, and there’s an audience that is very specific to wanting to understand at a high level – like, “Give me the State of the World report like every month or so just so I can understand generally what’s happening with the project, like is it thriving? Is it starting to kind of wane? Are there big projects that it’s taking on?”And then there’s like, then I feel like there’s an audience somewhere in the middle there where they really want to see people using the project and understand, and know how to learn from those people who are using it so that they can elevate their own use of that project. They’re not particularly interested in the codebase per se but they do want to understand, are they exploring this project at a depth that makes sense for themselves? What do you all think about that?[0:03:02.0] CC: I think one thing that I want to mention is that this episode, it’s not so much about on-boarding people onto Kubernetes and the Kubernetes ecosystem. We are going to have an episode soon to talk specifically about that. How you get going, like get started. I think Duffy mentioned this so we’re going to be talking about how we all keep up with things. Definitely, there are different audiences, even when we’re talking about keeping up.[0:03:32.6] JR: Yeah, I think what’s funny about your audience descriptions, Duffy, is I feel like I’ve actually slid between those audiences a bit, right? It’s funny, back in the day, Kubernetes like one-four, one-five days, I feel like I was much more like, “What’s going on in the code?” Like trying to keep track of like how things are progressing.Now my role is a lot more focused with working with customers and standing up cube and like making a production ready. I feel like I’m a lot more, kind of reactive and more interested to see like, what features have become stable and impact me, you know what I mean? I’m far less in the weeds than I used to be. It’s a super interesting thing.[0:04:08.3] OP: Yeah, I tend to – for my role, I tend to definitely fall into the number three first which is the kind of general keeping an eye on things. Like when you see like interesting articles pop up that maybe have been linked internally because somebody said, “Oh, check out this article. It’s really interesting.”Then you find that you kind of click through five or six articles similar but then you can kind of flip to that kind of like, “Oh, I’m kind of learning lots of good stuff generally about things that folks are doing.” To actually kind of having to figure out some particular solution for one of my customers and so having to go quite deep into that particular feature.You kind of go – I kind of found myself going right in and then back out, right in, going back out depending on kind of where I am on a particular day of the week. It’s kind of a bit tricky. My brain sometimes doesn’t kind of deal with that sort of deep concentration into one particular topic and then back out again. It’s not easy.I find it quite tough actually some of the time.[0:05:05.0] DC: Yeah, I think we can all agree on that. Keeping track of everything is – it’s why the episode, right? How do we even approach it? It seems – I feel like, an audience I haven’t mentioned is the audience that basically just throws up their hands and walks away because there’s just too much to keep track of, right? I feel like we are all that at some point, you know?I get that.[0:05:26.4] OP: That’s why we have Christmas holidays, right? To kind of refresh the brain.[0:05:31.4] CC: Yeah, I maybe purposefully or maybe not even – not trying to keep up because it is too much, it is a lot, and what I’m trying to do is, go deeper on the things that I already, like sort of know. And things that I am working with on a day to day basis. I only really need to know, I feel like, I really only need to know – because I’m not working directly with customers.My scope is very well defined and I feel that I really only need to know whenever there’s a new Kubernetes release. I need to know what the release is. We usually – every once in a while, we update our project to the – we bump up the Kubernetes release that we are working against and in general, yeah, it’s like if things come my way, if it’s interesting, I’ll take a look, but mostly, I feel like I work in a spiral.If I’m doing codes related to controllers and there’s a conference talk about controllers then okay, let me take a look at this to maybe learn how to design this thing better, implement in a better way if I know more about it. If I’m doing, looking at CRDs, same thing. I really like conference talks for education but that’s not so much keeping up with what’s new. Are we talking about educating ourselves with things that we don’t know about?Things that we don’t know about. Or are we talking about just news?[0:07:15.6] JR: I think it’s everything. That’s a great question. One of my other questions when we were starting to talk about this was like, what is keeping up even mean, right? I mean, does it mean, where do you find resources that are interesting that keep you interested in the project or are you looking for resources that just kind of keep you up to date with what’s changing? It’s a great question.[0:07:36.2] MICHAEL: Actually, there was some problem that I faced when I edit the links that I wanted to share in the show. I started writing the links and then I realized, “Well, most of the stuff is not keeping up with news, it’s actually understanding the technology,” because I cannot keep up.What does help me in understanding specific areas, when I need to dig into them and I think back five or four years into early days of Kubernetes, it was easy to catch up by the time because it was just about Kubernetes. Later right, it became this platform. We realized that it actually this platform thing. Then we extended Kubernetes and then we realized there are CICD-related stuff and operations and monitoring and so the whole ecosystem grew. The landscape grew so much that today, it’s impossible to keep up, right?I think I’m interested in all those patterns that you have developed over the years that help you to manage this, let’s say complexity or stream of information.[0:08:33.9] DC: Yeah, I agree. This year, I was thinking about putting up a talk with Chris Short, it was actually last year. That was about kind of on the same topic of keeping up with it. In that, I kind of did a little research into how that happens and I feel like some of the interesting stuff that came out of that was that there are certain patterns that a project might take on that make it easier or more approachable to, you know, stay in contact with what’s happening.If we take Kubernetes as an example, there are a number of websites I think that pretty much everybody here kind of follows to some degree, that helps, sort of, kind of, address those different audiences that we were talking about.One of the ones that I’ve actually been really impressed with is LWKD which stands for Last Week in Kubernetes Development, and as you can imagine, this is really kind of focused on, kind of – I wouldn’t say it’s like super deep on the development but it is watching for things that are changing, that are interesting to the people who are curating that particular blog post, right?They’ll have things in there like, you know, code freezes coming up on this date, IPV6, IPV4, duel stack is merging, they’ll have like some of the big mile markers that are happening in a particular release and where they are in time as it relates to that release. I think if that’s a great pattern and I think that – it’s a very narrow audience, right? It would really only be interesting to people who are interested in, or who are caught up in the code base, or just trying to understand like, maybe I want a preview of what the release notes might look like, so I might just like look for like a weekly kind of thing.[0:10:03.4] JR: Yeah, speaking of the release notes, right? It’s funny. I do get to look at Last Week in Kubernetes development every now and then. It’s an awesome resource but I’ve gotten to the point where the release notes are probably my most important thing for staying up to date.Maybe it’s because I’m lazy, I don’t know, but I wait till 1.17 drops, then I go to the release notes and really kind of ingest it because I’ve just struggled so much to kind of keep up with the day to day, “We merged this, we didn’t merge this,” and so on. That has been a huge help for me, you know, day to day, week to week, month to month.[0:10:37.0] MICHAEL: Well, what was also helpful just on the release notes that the new filter webpage that they put out in 1.15, starting 1.15. Have you all seen that?[0:10:44.4] JR: I’ve never heard of it.[0:10:45.4] DC: Rel dot, whatever it is. Rel dot –[0:10:47.7] MICHAEL: Yeah, if you can share it Duffy, that’s super useful. Especially like if you want to compare releases and features added and –[0:10:55.2] DC: I’ll have to dig it up as well. I don’t remember exactly what –[0:10:56.7] CC: I’m sorry, say? Which one is that again?[0:10:59.1] MICHAEL: The real notes. I’ll put it in the hackMD.[0:11:02.8] DC: Yeah relnotes.k8s.io which is an interesting one because it’s sort of like a comparison engine that allows you to kind of compare what it would have featured like how to feature relates to different versions of stuff.[0:11:14.4] CC: That’s great. I cannot encourage enough for the listeners to look at the show notes because we have a little document here that we – can I? The resources are amazing. There are so many things that I have never even heard about and sound great – is – I want to go to this whole entire list. Definitely check it out. We might not have time to mention every single thing. I don’t want people to miss on all the goodness that’s been put together.[0:11:48.7] DC: Agreed, and again, if you’re looking for those notes, you just go to the podlets.io. Click on ‘episodes’ at the right? And then look for this episode and you’ll find that it’s there.[0:11:58.0] CC: I can see that a lot of the content in those notes are like Twitter feeds. Speaking personally, I’m not sure I’m at the stage yet where I learn a lot about Twitter feeds in terms of technical content. Do you guys find that it’s more around people’s thoughts around certain things so thought-provoking things around Kubernetes and the ecosystem rather than actual technical content. I mean, that’s my experience so far.But looking at those Twitter feeds, maybe I guess I might need to follow some of those feeds. What do you all think?[0:12:30.0] MICHAEL: Do you mean the tweets are from those like learn [inaudible 0:12:32] or the person to be tweets?[0:12:35.3] OP: You’ve listed some of there, Michael, and some sort of.[0:12:37.6] MICHAEL: I just wanted to get some clarity. The reason I listed so many Twitter accounts there is because Twitter is my only kind of newsfeed if you will. I used Feedly and RSS and others before and emails and threads. But then I just got overwhelmed and I had this feeling of missing out on all of those times.That’s why I said, “Okay, let’s just use Twitter.” To your question, most of these accounts are people who have been in the Kubernetes space for very long, either running Kubernetes, developing on Kubernetes, having opinions about Kubernetes.Opinions in general on topics related to cloud native because we didn’t want to make the search just about Kubernetes. Most of these people, I really appreciate their thoughts and some of them also just a retweet things that they see which I missed somewhere else and not necessarily just opinions. I think It’s a good mix of these accounts, providing options, some guidance, and also just news that I miss out on because not being on the other channels.[0:13:35.6] OP: Yeah, I agree because sometimes you can kind of read – I tend to require a lot of sort of blog posts and sort of web posts which, you know, without realizing it can be kind of opinionated and then, you know, it’s nice to then see some Twitter feeds that kind of actually just kind of give like a couple of words, a kind of a different view which sometimes makes me think “Okay, I understand that topic from a certain article that I’ve read, it’s just really nice to hear a kind of a different take on it through Twitter.”[0:14:03.0] CC: I think some of the accounts, like fewer of the accounts – and there are a bunch of things that – there are listed accounts here that I didn’t know before so I’ll check them out. I think fewer of the accounts are providing technical content, for example, Cindy Sridharan, not pronouncing it correctly but Cindy is great, she puts out a lot of technical content and a lot of technical opinion and observations that is really good to consume. I wish I had time to just read her blog posts and Twitter alone.She’s very oriented towards distributed systems in general, so she’s not even specific just Kubernetes. Most of the accounts are very opinionated and the benefit for me is that sometimes I catch people talking about something that I didn’t even know was a thing. It’s like, “Oh, this is a thing I should know about for the work that I do,” and like Michael was saying, you know, sometimes I catch retweets that I didn’t catch before and I just – I’m not checking out places, I’m not checking – hash tagging Reddit.I rely on Twitter and the people who I follow to – if there is a blog post that sounds important, I just trust that somebody would, that I’m going to see it multiple times until like, “Okay, this is content that is related to something and I’m working on, that I want to get better at.” Then I’ll go and look at it. My sources are mainly Twitter and YouTube and it’s funny because I love blog posts but it’s like I haven’t been reading them because it takes a long time to read a blogpost.I give preference to video because I can just listen while I’m doing stuff. I sort of stopped reading blog post which is sad. I also want to start writing posts because it’s so helpful for me to engrain the things that I’m learning and hopefully it will be helpful to other people too. But in any case, go Duffy.[0:16:02.8] DC: A number of people that I follow – I have been cultivating my feed pretty carefully, trying to get a broad perspective of technical stuff that’s happening. But also I’ve been trying to develop my persona on Twitter a bit more, right? I’m actually trying to build my audience there. What’s interesting there is I’ve been trying to – to that end, what I’ve been doing is like trying to amplify voices that I think aren’t heard enough out there, right?If I see an article by somebody who is just coming into Kubernetes. or just coming into distributed systems and they’ve taken an effort to really lay out something that they found really interesting about pretty much anything, right? I’m like, “Okay, that’s pretty awesome,” and I’ll try to amplify that, right? Sometimes I even get involved or I’ll, not directly in public on Twitter but I’ll offer to help edit or help provide whatever our guidance I can provide around that sort of stuff.If I see people like having a difficult time with a particular project or something like that, I’ll reach out privately and say, “Hey, can I help you with it so you can go out there and do a great job,” you know? That is something I love to do. I think your point about like not necessarily going at Twitter for the deep knowledge stuff but more just like making sure that you have a broad enough awareness of what’s happening in different ecosystems that you’re not surprised by the things when the things change, right?A couple of other people that I follow are Akira Asuta, I can’t say enough about that person. They are amazing, they have been doing like, incredibly deep security stuff as it relates to containerization and stuff like that for quite a while. I’m always like, learning brand new things to me when following folks like that. I’ve been kind of getting more interested in InfoSec Twitter lately, learning how people kind of approach that problem.Also some of the bias arounds that which has been pretty interesting. Both the bias against people who are in InfoSec which seems weird to me. Also, how InfoSec approaches a problem, like do they put it like a learning experience or they approach it like an attack experience.It’s been kind of fascinating to get in there.[0:18:08.1] OP: You know, I kind of use Twitter as well for some of this stuff but you know, books are kind of a resource as well but in my head, kind of like at the opposite scale. You know, I obviously don’t read as many books as I read twitter feeds, right? It’s just kind of like, with Twitter, you can kind of digest the whole of the stuff and with books, it’s kind of like – I tend to be trying – because I know, I’m only going to read – like I’m only going to read maybe one/two books a year.I’ve kind of like – as I said before, blog posts seem to take up my reading time and books kind of tend to be for like on airplanes and stuff. So if – they’re just kind of two opposite resources for me but I find actually, the content of books are probably stuff that I digest a bit more because you know, it’s kind of like, I don’t know, back to the old days. It’s kind of a physical thing on hand and I can kind of read it and digest it a bit more than the kind of throwaway stuff that kind of keeps on Twitter.Because to be honest, I don’t know what’s on Twitter. Who is kind of a person to listen to or who is not or who is – I just try and form my own opinions and then, again, it kind of gets a bit overwhelming, because it’s a lot of content just streaming through continuously, whereas a book, it’s kind of like just one source of information that is kind of like a bit more personal that I can digest a bit more.[0:19:18.1] JR: Any particular book recommendation in 2019, Olive, that you found particularly interesting?[0:19:23.5] OP: I’m still reading, and it’s on the list for the episode notes actually, Programming Kubernetes. I just want to kind of get into that sort of CRD sort of mindset a bit. I think that’s kind of an area that’s interesting and an area that a lot of people will want to use in their organizations, right, because it’s going to do some of the extensibility to Kubernetes that’s just not there out of the box and everybody wants something that’s not out of the box or always in my experience.[0:19:47.4] MICHAEL: I found the Managing Kubernetes, I think was it, by – from Brendan Burns and some other folks which was just released I think in the end of last year. Super deep and that is kind of the opposite to the Programming Kubernetes, because I like that as well. That is more geared towards understanding architecture and operations.Operational concepts –[0:20:05.0] OP: They’re probably the two books I’ve read.[0:20:08.4] MICHAEL: Okay.[0:20:08.9] OP: One a year, remember?[0:20:11.4] MICHAEL: Yeah.[0:20:14.6] OP: Prolific reading.[0:20:19.6] CC: I think if you know what you need to learn about cloud native or Kubernetes, there’s amazing books out there, and if you are still exploring Kubernetes and trying to learn, I cannot recommend this book enough. If you are watching this on YouTube, you’ll see the cover. It’s called Kubernetes Best Practices because it’s about Kubernetes best practices but what they did simultaneously and maybe they didn’t even realize is just they gave a map for the entire thing.You go, “Oh, these are all the elements in Kubernetes.” Of course, it’s saying, “Okay, this is the best way to go about setting the stuff up,” and this is relatively thin but I just think that going through this book, you get really fast overview of the elements in Kubernetes. Then you can go to other books like Managing Kubernetes to go deep and understand all of the knobs and switches.[0:21:24.6] DC: I want to bring it back to the patterns that we see successful projects. Projects that you think are approachable but, you know, projects that are out there that make it easy for you to kind of stay – or easier at least to stay up to date with them, what some of those patterns are that you think are useful for projects.We’re talking about like having a couple of different entry points from kind of a weekly report mechanism, we’ve talked about the one that LWKD is, I don’t think we got to talk about KubeWeekly which is actually a weekly blog that is actually curated by a lot of the CNCF ambassadors. KubeWeekly is also broken up in different sections, so like sometimes they’ll just talk about – but they’re actually going out actively and trying to find articles of people using Kubernetes and then trying to post those.If you’re interested in understanding how people are actually out there using it, then that’s a great place to go find articles that are kind of related to that. What are some other patterns that we see that are out there that are useful for books?[0:22:27.6] DC: One that I really like. Kubernetes, for everyone listening has this notion of special interest groups, SIGs oftentimes. They’re focused on certain areas of the project. There’s some for networking and storage and life cycles of clusters and what’s amazing, I try to watch them somewhat weekly, I don’t always succeed.They’re all on YouTube and if you go to the Kubernetes project YouTube, there’s playlists for every SIG. A lot of times I’m doing work relating to life cycles of clusters. I’ll open up the cluster life cycle playlist and I’ll just watch the weekly meetings. While it doesn’t always pertain to completely to me, it lets me understand kind of where the developers and contributor’s heads are at and where they’re kind of headed with a lot of different things.There’s a link to that as well if anyone wants to check it out.[0:23:15.9] MICHAEL: Exactly, to add to that. If you don’t have the time to watch the videos, the meeting notes that these gentlemen and women put together are amazing. Usually, I just scroll through and if it’s something to triggers, I go into the episode and watch it.[0:23:28.7] OP: I almost feel like we should talk about tooling to handle all of this stuff, for example, right now, I think I have 200 tabs opened. I just started learning about some chrome extensions to manage tabs. I haven’t started really using them but I need. I don’t have a good system. My system is open a video that I’m pretty sure I want to watch and just get to that tab eventually until something happens in my chrome goes bust and I lose everything.I wanted to mention that when we say watch YouTube, some things you don’t need to sit there and actually watch, you can just listen to it and if you pay for the five bucks for YouTube premium – I don’t get a commission you people, but I’m just saying, for me, it’s so helpful. I can just turn off you know, put my phone on my pocket and keep listening to it without having to have the phone open and on the whole time. It’s very handy.It’s just like listening to a podcast. I also listen to podcasts lots of days.[0:24:35.1] MICHAEL: For tooling, since I’m just mostly on Twitter and by the time I was using or starting to use Twitter, they didn’t have this bookmark function, so I was basically abusing likes or favorites at the time, I think, to bookmark. What I realized later, my bookmarks grew, well, my likes grew.I wanted to go back and find something but that through the Twitter search was just impossible. I blew the tiny little go tool, kind of my first exercise there to just parse my likes and then use JQ because it’s all JSON to query and manipulate the stuff. I almost use it every day because I was like, that was a talk or blog post about scheduling and just correct for scheduling and the likes.I’m sure there’s a better tool or way of doing that but for me, that’s mine too. Because that’s my workflow.[0:25:27.6] DC: Both of the two blogs that you mentioned both KubeWeekly and LWKD, they both have the ability to take – you can submit stories to them. If you come across things that are interesting and you’d like to put that up on an aggregator somewhere, this is one of the ways to kind of solve that problem because at least if it gets cleared up on an aggregator, you know that you go back to the aggregator to see it, so that helps.Some other ones I’ve seen out there, I’ve seen people, I’ve seen a number of interesting startups now, starting to kind of like put out a podcast or – and I have started to see a number of people like you know, engaging with Twitch and also doing things like what we do with TJK.io which is like have sort of some kind of a weekly thing where you are just hacking on stuff live and just exploring it whether that is related to – if you think of about TJK is we’re going to do without being related necessarily to anything that we are doing at VMware just anything to do with the community but obviously if you are working for one of the small companies like Honeycomb or some other company.A smaller kind of startup, you can really just get people more aware of that because for some reason people love to watch others code. They love to understand how people go through that, what are their thought process is and I find it awesome as well. I think it is amazing to me how big a draw that is, you know?[0:26:41.1] OP: And is there lots of them out there Duffy? Is that kind of an easy searchable thing or is it like how do you know those things are going on?[0:26:48.4] DC: Oddly enough Twitter, most of the time, yeah. I mean, most of the time I see that kind of stuff happening on Twitter, like somebody will like – I will scope with this or a number of other people will say, “Hey, I am going to do a live stream during this period of time on this,” and I have actually seen a number of people doing live streams on CTFs, which are capture the flags. That one’s really been fascinating to me because it has been how do people think about approaching the security of an application.Like where do they look for weak spots and how do you determine, how do you approach that kind of a problem, which is fascinating. So yeah, I think it is important to remember that like you know, you are not the only one trying to keep up to date with all of this stuff, right? The one thing we all have said pretty consistently here is that it is a lot, and it is not just Kubernetes, right? Like any fast moving project. It could be your favorite Ruby module that has 200 contributors, right?It doesn’t matter what it is, it is a lot to keep a track of, and it represents some of that cognitive overheads that you have to think about. That is a lot to take on. Even if it is overwhelming, if you find value in being up to date with these things, just figure out – there are so many resources out there that address these different audiences and figure out what the right measure for you is. You don’t have to go deep on the code on everything.Sometimes it might be better to just try and find a source of information that gives you a high enough of a view. Maybe you are looking at the blog posts that come out on Kubernetes.io every release and you are just looking at the release notes and if you just read the release notes every release, that is already miles ahead of what I have seen a lot of folks out there when they are starting to ask me questions about how do you keep up to date.[0:28:35.9] JR: I’m curious, we have been talking a lot about keeping up as an individual. Do you all have strategies for how you help, let’s say your overall team, keep up with all the things that are going on? To give an example, Duffy, Olive and myself, at least at one point, were on the same team and we’d go out to disparate customers and see all of these different new things that they are trying to do or new projects that they are using.So we’d have to think about how do we get together and share that internally to make sure we are bringing the whole team along with what is going on in the ecosystem especially from a customer perspective. I know one of the ways that we do that is having demos and things of that nature that we share weekly. Are there other strategies that you all use with your teams to kind of share interesting information and news?[0:29:25.5] M: So what we do is mostly the way we share in our team, and we are a small team. We use Slack. We pre-filter in terms of like if there is stuff that I think is valuable for me and probably not for the whole team – obviously we are not going to share, but I think if it is related to something that the team has or to come grant and then I will share on Slack but we don’t have any formal way. I know people use some reports, weekly reports, or other platforms to distribute but we just use Slack.[0:29:53.0] DC: I think one of the things – one of the patters that we had at [inaudible 0:29:54] that I thought was actually super helpful was that we would engage a conversation. “I learned a cool new thing about whatever today,” and so we would say, “I am going to – ” and then we would start a Zoom call around that and then people could join if they wanted to, to be a part of the live discussion or not, and if they didn’t, they would still be able to see a recorded Zoom pop up in the channel later on.So even if your time zones don’t line up, like I know it is 2 AM or 3 AM or something like that for Olive right now, you can still go back to those recorded sessions and you’ll just see it on your daily Slack stuff. You would be able to see, “Oh there was a conversation about whether you should deploy Kubernetes crossed availibility zones or not. I would like to go see that,” and see what the inputs were, and so that can be helpful.[0:30:42.5] JR: Yeah, that is a super interesting observation. It is almost like remote-first teams that are used to these processes of recording everything and putting it in a Google doc. They are more equipped for that information sharing perhaps than like the water cooler conversations you’d have in the office.[0:30:58.5] OP: And on the Slack or any of the communication tool, we have different channels because we are all in lots of channels and to have channels dedicated to a particular subject is absolutely the way to go because otherwise in my previous company that seem to be kind of one main channel that all the architect used to discussed everything on and you know sometimes you join and you’re like, “What is everybody talking about?”There would be literally about a hundred messages on some sort of theme that I have never heard of. So you come away from that thinking that, “That is the main channel. Where is the bit – is there messages in the middle that I missed that were just normal discussions as opposed to in around the technical stuff,” and so it made me a bit sad, right? I would be like, “I haven’t understood something and there is a whole load of stuff on this channel that I don’t understand.”But it is the kind of central channel for everyone. So I think you end up then start looking up things that they are discussing and then realizing actually that is not really anything related to what I need to know about today or next week. It might be something for the future but I’ve got other stuff to focus on. So my point is that those communication channels for me sometimes can make me feel a little bit behind the curve or very much sort of reactive in trying to jump on things that are actually not really anything to do with me for me now and wasting my time slightly and kind of messing with my head a little bit in that like, “I really need to try and focus out stuff,” and actually putting the right content in the right channel, at least from a higher level, helps me decide whether I want to like look at that channel today, and stuff that should be in the channel is not kind of in a conversation channel. So organization of where that content is, is important to me.[0:32:37.6] CC: I am so in the same page with you Olive. That is the way my brain works as well. I want to have multiple channels, like if we are talking about Slack or any chat tool, but some people have such aversion to multiple channels. They really have a hard time dealing with too many – like testing their threshold of what they think is too many channels. So I am always mindful too, like it has to work for everybody but if it was up to me, there will be one channel per topic. So I know where to focus on.But you said something that is so interesting. How do we even just – like you were saying in the context of channel, multiple channels, and I go, if I need to pay attention to this this week as oppose to like, I don’t need to look at this until some time in the future. How do we even decide what we focus on that is useful for us in the moment versus it would be good for me to know but I don’t need to know right now.I am super bad at this. When I see something that is going to give me the fundamentals, like I have other priorities now, I sort of always want to consume that to learn the fundamentals because I think in the long term phase of, but then I neglect physically what I need to know to do in the moment and I am trying to sort of fish there and get focused on in the moment things. Anybody else have a hard time?[0:34:04.5] DC: You are not alone on that, yeah.[0:34:06.7] CC: It is terrible.[0:34:08.3] MICHAEL: Something that I wish I would do more often as like being a good citizen is like when you read a lot, probably 90% of my time is not writing but reading, maybe even more and then I share and then on Twitter, the tweet for them the most successful ones in terms of retweets or likes are the ones where I do like TLDR’s or some screen captures like too long to read. Where people don’t have the time, they might want to read the article but they don’t have the time.But if you put in like a TLDR like either a tweet or a thread on it, a lot of people would jump onto it because they can just easily capture it and they can still read the full article if they want but that is something that I learned and it is pretty – what is the right word? Helpful to my followers and the community but I just don’t do it that often unfortunately. If I am writing, summarizing, writing, I kind of remember. That is how the brain works. It is a nice side effect.[0:35:04.9] DC: I was saying, this is definitely one of those things where you can be the change you want to see if you, you know?[0:35:08.6] M: Yeah, I know.[0:35:10.0] DC: This is awesome. I would also say that what you just raised Carlisia is like a super valid point. I mean like not everybody’s brain works the same way, right? There are people who are neuro-divergent. There are people who think very linearly and they are very comfortable with that and there are people who don’t. So it is a struggle I think regardless of how your brain is wired to understand to how to prioritize the attention you will give any given subject.In some cases, your brain is not wired – your brain is almost wired against that whole idea, like you are just not set up for success when it comes to figuring out how to prioritize your attention.[0:35:49.0] CC: You hit the nail on the head. We are so set up for failure in that department because there are so many interesting conversations and you want to hop in and you want to be a part of the conversation and part of the group and socialize. Our work is so isolating to really put our heads down and just work, it can be so isolating. So it is great to participate in conversations out there even if it is for only via Twitter. I mean, obviously we are very biased towards Twitter here in this group.But I am not even this on Twitter so just keep that in mind that we are cognizant of that but in any case, I don’t know what the answer is but what I am trying always to cut down on that, those social activities that seem so appealing. I don’t know how to do that from working out.[0:36:43.9] JR: I am in the same boat. 2020, I am hoping to let more of that go and to your point, it is not that there is no value in it. It is just, I don’t know, I am not deriving the same amount of quality out of it because I am so just multiplexed all over the place, right? So we’ll see how it goes.[0:36:59.9] CC: Oh if any listener has opinions and obviously it seems that all of us are helpless in that department. Share with us, please.[0:37:12.5] DC: It is a tricky one. I think it is also interesting because I find that when we talk about things like work-life balance, we think of the idea of maybe work-life balance is that when you come at the end of the day and you go home and you don’t think about work, right? Sometimes we think that work-life balance means that you have a certain amount of time off that you can actually spend with your family and your friends or your community, what have you, and not be engaging on multiple fronts.Just be that – have that be your focus, but when it comes to things like keeping up, when it comes to things like learning or elevating your education and stuff, it seems like, for the most part, and this is just my own assumption, I am curious how you all feel about this, that we don’t – that that doesn’t enter into it, right? Your personal time is totally on the table when it comes to how do you keep up with these things. We don’t even think about it that way, right?I know I personally don’t. I definitely have to do more and cut back on the amount of time that I spend reading. I am right there with Michael on 90% of my time when my eyes are open, they are either reading or staring up on the sky while I try to think about what I am going to write next. You know one way or the other it is like that is what I am doing.[0:38:24.0] CC: Yeah.[0:38:25.1] MICHAEL: I noticed last year on my Twitter feed, more people than the years before will complain about like personal burn out. I saw a pattern, like reading those people’s tweets, I saw a pattern there. It wasn’t really like a spiral and then they realized and they shot down like deleted Twitter from their phones or any messaging and other stuff, and I think I am at the point where I also need to do that when it comes to vacation PDO, or whatever.Because I am just like, as you said Duffy, my free time is on the table when it comes to Twitter and catching up and keeping up because work-life balance in my mind is not work but what is not work for like – Kubernetes is exciting, adding in all the space, like what is not work there? I need to really get better at that because I think I might end in the same spiral of just soaking in more until I just –[0:39:17.7] CC: Yeah and like Josh said, it is not that there isn’t a value. Obviously we derive a huge value, that is why we’re on it, but you have to weigh things and what are your goals and is that the best way to your goals from where you are right now, and maybe you know, Twitter you use for a while, ramp up your knowledge, ramp up the connections because it is great for making connections, and then you step back and focus on something else, then to go on a cycle.This is how I am thinking now. It is just like what Olive was saying, you know, books are great, blog posts are great, and I absolutely agree with that. It is just that I don’t have even the time and when I have the time, I would be reading code and I would be reading things all day long, it is just really tiring for me at the end of the day to sit down and read more. I want to invest in learning how to speed read to solve that problem because I read a lot of books and blog posts. So something on my list.[0:40:22.8] DC: One of the biggest tips on speed reading I ever learned is that frequently when you read you think of saying the word and if you can get out of that habit, if you get out of the habit of saying the word even with your mouth or you just get out of that habit that will already increase the quickness of what you read.[0:40:39.5] CC: That is so interesting.[0:40:41.4] DC: Yeah, that is a trippy one.[0:40:43.1] CC: Because I think being bilingual, I totally like – that really helps me understand things, by saying the words.[0:40:52.9] DC: I think the point that we are all working around here is, there is a great panel that came out at KubeCon EU in 2019 was put on by Aaron Crickenberger, Esther McNaMara, Steven Augustus, these folks are all very high output people. I mean, they do a lot of stuff especially with regard to community and so they put on a panel that was talking about burn out and self-care and I think that it is definitely worth checking that one out.And actually also thinking about what keeping up means to you and making sure that you are measuring that against your ability to sustain, is incredibly important, right? I feel like keeping up is one of those subjects where we end up – it is almost insidious in its way to – it is a thing that we can just do all the time. We can just spend all of our time, any free moment that you have, you are sitting on the bus, you are trying to keep up with things.And because that happens so much, I feel like that is sort of one of the ways that we can feel burnt out as you are seeing today. We can feel like we did a lot of things but there was no real result to it and keep in mind that that’s part of it, right? Like when you are thinking about how we are keeping up with it, make sure that the value to your time is still something that you have some cognizance about, that you have some thought about, like is it worth it to me to just spend this six hours reading everything, right?Or would it be better for me to spend some amount of time just not reading, you know? Like doing something else, you know? Like bake a cake for crying out loud, you know?[0:42:29.5] CC: Something that a lot of times we don’t allow ourselves to do and I decided to speak for everybody I am sorry, I just do nothing, because our brain needs that. We need to not be listening, not be reading, just nothing. Just sit and look at the ceiling, our brain needs that. Ideally, look at nature, like look outside, look at the air, go for a walk. We need that, because that recharges the brain. Anyway, one thing also that I want to bring up, maybe we can mention real quick because we are coming up at the top of the hour.How do people, projects, how do we really help the users of those projects to be up to date with what they are doing?[0:43:18.4] DC: Well yeah I mean this is the different patterns that we are talking about. So I think the blog posts help. I like the idea of having blogs that are targeted towards different audiences. I like the idea of having an aggregate here for putting up a big project. I mean obviously Kubernetes is such a huge ecosystem that if you have things like KubeWeekly and I know that there are actually quite a number of things out there that try and do this.But if we can kind of agree on one like KubeWeekly I think is a pretty good one because it is actually run by the CNCF. So it kind of falls within that sort of governance as a model but having an aggregator where you can actually produce content or curate content as it relates to your project that’s helpful, and then office-hours I think is also helpful to Josh’s point. I mean office-hours and SIG hours are very similar things. I mean like office-hours there like how to developers think about what’s happening with the space.This is an opportunity for you as an end user to show up and ask questions, those sorts of patterns I think all are incredibly helpful as a project to figure out there to those things.[0:44:17.8] OP: Yeah, I know summary articles or the sort of TLDRs that Michael mentioned earlier, I think I need more of those things in my life because I do a lot of reading, because I think my brain is a bit weird in that I need to read something about five or six different times from five or six different articles for it to sort of frame in my head.So what I am trying to – like for 2020, I have almost tried to do this, is like if I think somebody knows all about this and it would save me reading those five, six, seven articles and if that person has the time, I try and sort of reach out to them and say, “Listen, have you got 20 minutes or so to explain this topic to me? Can I ask you questions about it?” It just saves me, saves my eyes reading the screen, and it just saves me time. I just need a TLDR summary of a project or a feature or something just so I can know what it is all about in my head and talk fairly sort of confidently about it.If I need to get in front and down under the weeds then there is more reading to kind of do for me maybe the coding on the technical side, but sometimes I can’t figure out what this feature sort of means and what is its use case in the real world and I have to read through lots of articles and sometimes kind of vendor specific ones and they’ve got a different slant than maybe an independent one and trying to marry those bits up my head is a bit hard for me and there is sort of wealth of information.So if you are interested in a topic and there is hundreds of articles and you start reading four or five and they are all slightly different, eventually you figure out that – you are confident and I understand what that product is about but it has taken a long time to get there and it is taken a lot of reading time. So TLDRs is like really work and I think as Josh mentioned before, we have this thing internally where we do bench demos.And that is like a TLDR and a show and tell really quickly, like, “This is what this does and this is why we need to know about it and this is why our customers needs to know about it, the end,” you know? And that’s really, really useful because that just saves a whole bunch of people a whole bunch of time figuring out A, whether they need to know about it and B, actually now understanding that product or feature at the end of the five, 10 minutes which is what they typically are. So they are very useful short snippets of information. Maybe we are back to Twitter.[0:46:37.8] JR: Similar to the idea of giving a demo Olive, you made me think of something and that is that I think one of the ways that I keep up with the space is actually through writing along with reading and I think the notion of like – and this admittedly takes up time and the whole quality of life conversation comes in but using writing to help develop your thoughts and kind of aggregate all of these crazy inputs and try to be somewhat concise, which I know I struggle with, around something I’ve learned.It’s helped me a ton and then that asset kind of becomes reusable to share with other people the thing that you wrote. So for people listening to this I guess maybe a call to action for 2020 if that is your style as well, consider starting to write yourself and becoming a resource, right? Because even if you are new to this space, you’d be amazed at just how writing from your perspective can help other people.[0:47:26.3] DC: I think another one that I actually have been impressed with lately is that a number of consumer companies like people out there like Lyft and companies like that have actually started to surface engineering blogs around how they are using technology and how they are using technology to solve things, which I think, as a service provider, as somebody who is involved in the community of Kubernetes, I find those to be incredibly valuable because I get to actually see how those things are doing.I mean at the same time, I see things like – we talked about KubeCon, which is a convention that they have every year. Obviously the project is large enough to support it but there is actually an incentive if you are a consumer of that project to go and talk about how you are using it, right? It is incentivized in that it is more likely your talk will be accepted if you are a consumer of the product than somebody building it, right? We hear from people building it all the time.I love that idea of incentivizing people who are using this thing get out there and talk about it or share their ideas about it or how they are using it, what problems did it solve for them. That is critical I think.[0:48:31.0] CC: Can I also make a suggestion – is to not so much following on the thread that we are talking about just now but kind of on the general thread of this episode. If you have resources that you do use to keep up with things, stop this recording right now and go and give them a like, give them a follow, give them a thumbs up, show somehow appreciation because what Duffy said just now, he was saying, “Oh it is so helpful when I read a blog post.”But people who are writing, they want to know that. So give them some indication, it counts a lot. It takes a lot of effort to sit down and write something or produce a podcast and if you take any, derive any benefit from it, show appreciation. It motivates people to keep doing it.[0:49:26.4] DC: Yeah, agreed.[0:49:27.9] M: I think that is a great bind maybe to close off this episode because it reiterates that just consuming and keeping up that doesn’t necessarily mean you don’t give back, right? So this is a way of giving back, which is really important to keep that flow and creativeness.[0:49:41.8] CC: I go through a lot of YouTube videos and sometimes I just play one after the other but sometimes, you know, I have been making a point of going back and liking it. Liking the ones that I like – obviously I don’t like everything. I mean things that I don’t like I don’t listen in but you know what I mean? It takes no effort but just so people know, “OK, you did a good job here.” By the way, go to iTunes and rate us. So we will know that you liked it and it will help people find our show, our podcast, and if you are watching us on YouTube, give us a like.[0:50:16.1] DC: All right, well unless anybody has any final thoughts, that is what we wanted to cover this session. So thank you all very, very much and I look forward to seeing you next week.[0:50:25.3] M: Bye-bye.[0:50:26.3] CC: Thank you so much.[0:50:27.4] OP: Bye.[0:50:28.1] JR: Bye.[END OF EPISODE][0:50:28.7] ANNOUNCER: Thank you for listening to The Podlets Cloud Native Podcast. Find us on Twitter at https://twitter.com/ThePodlets and on the http://thepodlets.io/ website, where you'll find transcripts and show notes. We'll be back next week. Stay tuned by subscribing.[END]See omnystudio.com/listener for privacy information.

We talk a lot about the business use cases of XR on this podcast, but any good business comes with a great fitness plan or exercise room. XR is no different, and VRdōjō founder Michael Eichenseer runs Alan through a few of the cardiovascular benefits to the technology. And that’s just the first six minutes! Many other topics are touched on in this episode – virtual writing spaces, remote assistance, spatial learning, his own XR makerspace, and more. Alan: Welcome to the show, Michael, how are you doing? Pretty good. How are you? Fantastic. Thank you so much for joining me on the show today. It’s going to be a really exciting one. Let’s tell everybody at home. What is your vision for virtual augmented reality? Was the best virtual reality or a AR experience is what is the best thing that you have done? And explain to the listeners why that is so. Michael: For me, it’s definitely the fitness aspect of VR. As a gamer, I definitely enjoy the fact that I can play a game, not be sitting the entire time, and afterwards, I’ve burnt 500 calories, and feel really good about it the next day. The research coming out in XR in reducing pain and increasing motivation, to me, is fascinating. Alan: There was a lot of medical use cases coming up in pain reduction, using virtual reality for pre-surgical — and also perisurgical — where you’re wearing a headset to distract you. I know one of the things that blows my mind is, my daughter, she’s 10 and she is terrified of needles. Like, we’re talking blood-curdling screams from the nurse’s office. The next time she goes, we’re gonna use VR to try to distract her while they take blood, because it’s a stressful thing. And when somebody goes into a surgery, being able to decrease their stress; it’s hard to measure the success outcomes, but at the same time, just being able to calm them is something that I think VR does really naturally. You talked about exercising in VR. Give us some examples of some of the ways people are using VR to exercise. Michael: The boxing games are pretty popular, and I definitely have to mention Beat Saber. That’s probably the top one at the moment. Alan: Basically, you have two lightsabers in your hands, and you’ve got to swipe up and down, and left and right, with your left and right hand, and dodge out of the way of things. It is incredible. Michael: It’s dancing. Alan: Dancing and disco, and it’s so good. Michael: Yes, it’s really good. You kind of lose track of time. I think that’s why it’s good that it’s based on music; the song ends and you’re like, “oh, back to reality a little bit.”. Alan: Yeah, there’s a guy who was playing, he lost 45 pounds playing Beat Saber. Michael: Yes. I’ve actually met a 68-year-old retiree who logs into VR every morning at 5:00 a.m., just to warm up for the day. Alan: That’s incredible. What does he play? What does he do? Michael: Back when I met him, we were playing a game called Smash Box Arena. It’s a multiplayer game, kind of dodgeball. It’s defunct now, but there’s a lot of other games like that. I think Rec Room is probably the number one out there, where you can hop in — it’s a free game — and it’s cross-platform and you see people in there at all times of the day. Alan: I’ve played paintball in there. I

We talk a lot about the business use cases of XR on this podcast, but any good business comes with a great fitness plan or exercise room. XR is no different, and VRdōjō founder Michael Eichenseer runs Alan through a few of the cardiovascular benefits to the technology. And that’s just the first six minutes! Many other topics are touched on in this episode – virtual writing spaces, remote assistance, spatial learning, his own XR makerspace, and more. Alan: Welcome to the show, Michael, how are you doing? Pretty good. How are you? Fantastic. Thank you so much for joining me on the show today. It’s going to be a really exciting one. Let’s tell everybody at home. What is your vision for virtual augmented reality? Was the best virtual reality or a AR experience is what is the best thing that you have done? And explain to the listeners why that is so. Michael: For me, it’s definitely the fitness aspect of VR. As a gamer, I definitely enjoy the fact that I can play a game, not be sitting the entire time, and afterwards, I’ve burnt 500 calories, and feel really good about it the next day. The research coming out in XR in reducing pain and increasing motivation, to me, is fascinating. Alan: There was a lot of medical use cases coming up in pain reduction, using virtual reality for pre-surgical — and also perisurgical — where you’re wearing a headset to distract you. I know one of the things that blows my mind is, my daughter, she’s 10 and she is terrified of needles. Like, we’re talking blood-curdling screams from the nurse’s office. The next time she goes, we’re gonna use VR to try to distract her while they take blood, because it’s a stressful thing. And when somebody goes into a surgery, being able to decrease their stress; it’s hard to measure the success outcomes, but at the same time, just being able to calm them is something that I think VR does really naturally. You talked about exercising in VR. Give us some examples of some of the ways people are using VR to exercise. Michael: The boxing games are pretty popular, and I definitely have to mention Beat Saber. That’s probably the top one at the moment. Alan: Basically, you have two lightsabers in your hands, and you’ve got to swipe up and down, and left and right, with your left and right hand, and dodge out of the way of things. It is incredible. Michael: It’s dancing. Alan: Dancing and disco, and it’s so good. Michael: Yes, it’s really good. You kind of lose track of time. I think that’s why it’s good that it’s based on music; the song ends and you’re like, “oh, back to reality a little bit.”. Alan: Yeah, there’s a guy who was playing, he lost 45 pounds playing Beat Saber. Michael: Yes. I’ve actually met a 68-year-old retiree who logs into VR every morning at 5:00 a.m., just to warm up for the day. Alan: That’s incredible. What does he play? What does he do? Michael: Back when I met him, we were playing a game called Smash Box Arena. It’s a multiplayer game, kind of dodgeball. It’s defunct now, but there’s a lot of other games like that. I think Rec Room is probably the number one out there, where you can hop in — it’s a free game — and it’s cross-platform and you see people in there at all times of the day. Alan: I’ve played paintball in there. I

Each of the Great Feasts of the Church is followed by a commemoration of some holy one who figures in the events of the Feast. So, today we commemorate the Holy Archangel Gabriel, who brought the glad news of the conception of Christ to Mary, the Theotokos. The Prologue gives the following teaching:   "The herald of the incarnation of the Son of God, he is one of the seven great angels who stand before the throne of God. He revealed to Zacharias the birth of the Forerunner, and said of himself: 'I am Gabriel that stand in the presence of God' (Lk. 1:19). His name, Gabriel, signifies 'man of God'. Speaking about the Annunciation, the holy Fathers comment that an angel with such a name was sent to signify who He was, and of what nature He was, who would be born of the most pure Virgin. He would be the Man of God, the Man-God, the strong and mighty God. Others have found that it was this same Gabriel who announced the conception of the Virgin Mary to Joachim and Anna, and that it was he who taught Moses in the wilderness to write the Book of Genesis. The holy Fathers consider that Gabriel belongs to the foremost and highest order of the heavenly powers, the seraphim, since the seraphim stand closest to God. And so he is one of the seven seraphim closest to God. The names of these seven are: Michael, Gabriel, Raphael, Uriel, Selathiel, Jegudiel and Barachiel. Some would add Jeremiel to this number. Each has his own particular service, but all are equal in honour. Why did God not send Michael? For the reason that Michael's service is the suppression of the enemies of God's truth, while Gabriel's is the annunciation of the salvation of the human race."

July 2018 Podcast James Cordier and Michael Gross Michael: Hello everybody. This is Michael Gross of OptionSellers.com. I am here for your July Podcast. This month’s podcast will be in audio format. I’m here with head trader James Cordier. James, welcome to the show. James: Thank you very much, Michael. Always happy. Michael: Great. The topic of this month’s podcast is Fast Cash from Selling Options in Over-Bought or Over-Sold Markets. James, as you and I know, we’re not really in the business of looking for fast cash, but we’re more in the business of long-term investments. Every once in a while, when you’re selling options, there comes certain opportunities where there might be a place to sell the option and you see that time decay in just the first 30-60 days. Often times that can be when markets get to an extreme, like some markets we’re seeing now. Wouldn’t you agree with that? James: Michael, it’s interesting, we are very long-term investors. When we’re looking at seasonal positions or headlines that create a slightly shorter-term opportunity, then we do look at things like timing and certainly all the headlines going on right now with trade are probably offering some really good opportunities of the slightly shorter variety and we’re looking forward to taking advantage of those over the next 10 days or so. Michael: Great. I know, as you and I have been discussing, as are most investors right now, the big topic is trade tensions with China. I don’t know if we call it a trade war yet, but certainly having got some investors attention and pushing the stock market around. Maybe talk a little bit about how that’s affecting commodities right now. James: Michael, if this doesn’t turn into a trade war, this is the most well played game that I’ve ever seen between the U.S. and China. I mean, we are right to the brink of what could be quite a significant trade policy coming down the pike. It is definitely worrying some investors that are looking at certain parts of the global economy. Uncertainty is always not welcome. Anyone who is looking at investing for their company or inventories or what have you, when they see uncertainty they usually hold back and that is probably going to be swelling some economic growth globally if this doesn’t come to a head here in the next week or two. Michael: Okay. As most of you listeners know, as far as being an option seller, it doesn’t really matter to you which way the market or prices are moving, especially when you’re trading different uncorrelated commodities. Often times, situations like this can create opportunities and that’s what we’re going to talk a little bit about today. James, would you like to go ahead and move into our feature markets? James: Michael, certainly. Natural gas is one of the markets that are very near and dear to our hearts. In the very heart of winter and the very heart of summer, which is coming up relatively soon, we did take positions in natural gas much earlier this year, trying to sell put premium. We were fairly successful doing that. Generally, the market bottoms in winter and rallies into spring and the natural gas market did that. Right now, we are looking at a seasonality for natural gas. It has had a very nice rally over the last 3 months or so and basically a lot of headlines talk about the need for natural gas in summer for cooling homes and cooling businesses, of course. We think that’s quite overplayed. Generally speaking, when it’s extremely cold in the U.S. or throughout Europe, demand for natural gas does spike and that is real. As far as buying natural gas for summer cooling, I don’t think the numbers dive exactly. It takes approximately 25% of the natural gas to cool a home in the summer as it does to heat a home in the winter so, generally speaking, when natural gas rallies because the warmer temperatures are ahead, that’s usually something you want to fade. Of course, at that time, inventories are usually being built in a very big way. So, we’re looking at selling natural gas calls over the next 2-4 weeks to take advantage of that seasonal position. Michael: Yeah, you make a good point there, James. The seasonal tendency for natural gas used to get a little bit of a spike in summer and, yeah, you can but it seems like the tendency over the last 5-10 years seems to be more of, as they build that inventory into spring and summer as those supplies rise, it tends to just kind of overlook the summer demand for just the reason you mentioned. Now we’re seeing a seasonal where the seasonal prices tend to start declining in June and keep going right through fall so it appears they’re following that pattern right now. Now, we’re not at a particularly high level of natural gas supplies right now. From what I’m seeing we’re a little bit under where we typically are this time of year. Is that what you’re seeing as well? James: We are. Natural gas supplies in the U.S. are under the 5-year average and they’re below levels from last year, not a great amount, but what a lot of market participants are looking at is all the drilling all around the U.S. Of course, the bi-product of that is natural gas. A lot of investors and a lot of the analysts in natural gas feel that $3 natural gas is probably a fairly decent price considering that drillers are getting it for free as a bi-product. So, it used to be that natural gas was produced in the Gulf of Mexico in Louisiana, and when you had demand shocks it really moved the market a great deal. The beauty of option selling is that some of that volatility is still in the market even though we’re now producing natural gas all over the country. We have just massive fines in Oklahoma, Arizona, and Kansas, the Dakotas, Pennsylvania, Ohio. The supply is always going to be there for natural gas right now and taking advantage of small swings, up and down, during the year should be fruitful for selling options and that’s why we think selling calls over the next few weeks is probably going to be a very good idea. Michael: You know, James, you made several good points there. In talking about the seasonal tendency, when we go back to where you were talking about selling puts in the spring when we recommended that in the newsletter, prices have rallied almost 10% since that point. Now, with supplies building, as you said, it can start putting a little bit more pressure on the price of natural gas, at least that is what you’re expecting. We’re going back to Fast Cash from Selling Options in Over-Bought Markets… I think two points, and maybe you can hit on both of them, one is natural gas, as of at least a couple days ago, hit a pretty good level where it was and looked pretty over-bought, especially for this time of year when you have a seasonal. Technically, the market is over-bought, that tends to push those option premiums up higher to where they get to an over-valued level at some point, especially with a little jolt like that. Also, natural gas is probably one of the markets that would be least affected by any type of Chinese trade tariff. Would you agree with that? James: Michael, the natural gas market that we trade here in the United States is purely a domestic market right now. It’s not coffee, it’s not steel, it’s not sugar. Those are all world traded markets and the natural gas market is probably 99% influenced by the supply and demand that happens within the 50 states. Of all the markets that we follow, several won’t be affected by the tariffs and natural gas is definitely the bull’s-eye of the one that will probably deem what goes on with tariffs probably be the least of all of them that we follow. Michael: Okay. So, we’re here at the beginning of a potential seasonal downturn here, at least that’s what we might be looking for. When you talk about this, and for those of you listening, natural gas is the feature market in our upcoming July newsletter, which you can keep an eye out for. It should be out on or before the 1st of July in your mailbox or e-mail box. James, in that, you’re recommending taking a look at selling call strikes at the $4 or above level. Right now natural gas is under $3, so we’re looking at strikes at least 25% above the current market. So, you’re not really calling a top right here, what you’re saying is, “Hey, it’s a 3, it’s not going to go to 4, especially at a time of year where supplies are building.” James: Michael, it certainly does look like an opportunity. The natural gas market has risen off the lows that we spoke of earlier this year and the ones you just mentioned recently. Natural gas was down to $2.50 and $2.55 earlier this year. Right now it’s approximately $3 so it has had a decent rally. We’re looking at strikes at $4, $4.50, and $5 and we think that the time to probably jump into those positions is really soon. We have had a nice rally in natural gas. A lot of it is based off of the hot temperatures that we’ve had in the Midwest and the Northeast recently. I’m looking at the 14-28 day forecast and it cools off quite a bit. While I don’t make that big of a deal over the temperatures exactly, a lot of traders do. That’s why I think we got this rally and we really like selling it here right about this level that we’re at right now. Michael: We go back to what we’re talking about here… The Fast Cash in Over-Bought Markets. Even if you’re going out deeper out-of-the-money contracts, which you recommend going out to December and maybe even March contracts, if we do get a typical seasonal move, which there’s no guarantee that happens, but if the price does and we get a pretty decent price drop over the next 30-45 days, I’m guessing what the market is still looking a little bit over-bought, you could see some pretty significant decay in those options. Is that what you’re looking at as well? James: It is. The decay on these options that we’re considering would probably, if in fact natural gas does have a slight decline going into the 3rd and 4th quarter, we would expect these options to lose a great deal of their value well before the winter timeframe. So, we are probably anticipating decent decay where these options might start out at $600, might have a value of maybe $100-$200 before we even reach the winter season. As far as our looking at the market, that’s a relatively short position for us and we think the decay in selling these options over the next 60-90 days could be very good. Michael: Okay, good. And again, those of you interested in taking a look at this market and what James is describing here, you will want to take a look at the July Newsletter. It is in the premium sniper column there. James, let’s move into our second market, which is the soybean market. If you want to talk about a market affected by or potentially affected by a Chinese trading tariff, this would certainly be it. You have soybeans just off the rumors since President Trump announced he wanted to have another potential tariff on some Chinese products up to the tune of, I believe, it’s 200 billion… is that correct? James: That’s the latest that I’ve heard on the wire today, yes. Michael: Okay. If that has stoked fears that China is going to retaliate and put tariffs on U.S. products. Soybeans, one of the main markets that a lot of investors fear may be in the cross hairs because we export a lot of soybeans to China. Soybeans have declined sharply on these fears just in the last few weeks. That and the fact that planting has gone nearly perfectly in the Midwest. Right now, the weather is ideal so we’re looking at fundamentals but we’re also going to be looking at this China pressure, but you’re thinking they might have pressed, over-pressed, on the downside right now. James: Michael, it’s so interesting the gamesmanship taking place out of China right now is just being played to perfection. We certainly have the ability to see China import soybeans from other locations, of course, Argentina and Brazil. I think we spoke of that earlier this year. What’s so interesting is the amount of livestock that has to be fed both corn and soybeans. That will not change, but the brinkmanship coming out of China right now is excellent. I can’t believe I’m going to mention this, but here I go. There are elections coming up in the United States and with China playing the tariff card on soybeans and watching those markets just absolutely fall out of bed, that is going to certainly be a bit of an irritant to the Midwest and the great plains in the United States right before elections. Don’t think that these farming states don’t know that. We just saw soybeans fall practically 20% in value with corn and soybeans over the last 30 days on these tariff scares. The fact that soybeans are a global market and there’s only so many to go around, while we were bearish soybeans earlier this year, it really looks like that might be overdone on the downside. If this is simply brinksmanship and this is simply bargaining going on, this fall in soybeans, the fall in price is probably just about run its course. We were just pushing $11 on soybeans. Now they’re in the high $8’s. We think that this might be a good place to look at selling puts in the next week or two. Michael: You know, James, just to point out in your feature article in the Spring, you suggested investors selling calls in soybeans based on, one, the seasonality and, two, what you mention and you hit it right on the head, there was no guarantee China was going to put tariffs on U.S. soybeans but if they did or if people believe they were going to that would just be an added bonus for the trade and really sink soybean prices. It looks like you hit it right on the head. That is exactly what happened right in the middle of seasonality where soybean prices tend to decline anyways because when they wrap up harvest, that anxiety goes out of the market, prices tend to decline. They don’t tend to decline as much as they did this year and that looks like it’s right off that China fear, just like you said. You’re talking about the elections, there’s a possible factor that could mitigate that, but we’re also looking at the core fundamentals where we have ending stocks this year 385 million bushels projected for 18-19, next year. It’s not high but it’s substantially lower than we’ve been for the last couple of years. So, when you look at the longer-term fundamentals, we’re not that bearish. I think you’re right. It looks like the market probably overreacted here. If they would slap tariffs on do you think that would bring another leg down or do you think we may have already priced that, at least for the most part? James: Michael, this is truly speculation on my part, but I think all the leaders around the world agree that major tariffs that are being discussed right now are going to simply be detrimental to a lot of the economies. When you look at the locations like Japan and Europe, which are starting to slow already, so many of these nations and their economies are certainly in need of a strong U.S. economy and a strong Chinese economy. Without those they slow down. I’m starting to think that this is simply negotiating to hopefully get a better deal, I think, is what the administration is thinking. We really like the idea that soybeans are going to be in very good demand later this year. As livestock feeding continues, that has certainly not changed at all. As far as I can tell, we’re going to have record demand for soybeans this year and the beginning of next and this very steep fall-off is probably going to be a good selling opportunity for puts. In other words, taking a bullish position from these very low levels coming up quite soon. Michael: Yeah, that’s a great point, as well. Record global demand for soybeans this year and the market tends to be discounting that because it’s been all wrapped up in this China story. When you have record demand you have very little room for any type of weather error or weather problem developing. Right now, this market is pricing in a perfect harvest, it’s pricing in perfect weather, and they are just sinking the price. In addition to what you’re saying as far as maybe this whole China thing is a little bit overblown, I think the core fundamentals here are enough to prop it up at least from the levels it has been to the last couple of days. Just looks like a market that, when we’re talking about over-sold markets, this looks like an extreme example of that. James: You know, what we started out saying is headlines can often create slightly shorter-term opportunities. The headline right now with the potential tariff is certainly one of those. Record demand, that’s not about to change. The demand for production of livestock throughout Asia, that’s not changing, that’s only growing. Many metals and other soft commodities, these can be transfixed into using something else. Coffee supplies, we can use coffee supplies from 20 years ago. It winds up at Starbucks and McDonald’s and such. Cocoa supplies can be used from 15 years ago. Sugar can be stored for a decade. That’s not the case with soybeans and feeding livestock and, thus, there really is no alternative for corn and soybeans. That’s why we think these headlines are probably going to be an opportunity to be selling puts here pretty soon. Michael: Okay. One final point I wanted to hit on the soybean market, and you made this in your article this week on the soybean market, which is on the blog. If you’re listening and you’d like to read the article and James’ suggested trade, you can see that at www.OptionSellers.com/Blog. It is our soybean feature market this week. The point you made, James, is even if China slaps a tariff on U.S. soybeans, they still need the beans so they’re just going to have to go to Brazil or somewhere else, Argentina, to buy their soybeans. So, they’re still getting the soybeans there, the U.S. beans get cheaper and they become more attractive to other importers and it’s really just a shift of who’s buying from who, but on the overall global stage it doesn’t really have that big of an impact on soybean supply and demand. I think that’s a great point you made. James: Michael, that’s exactly right. Whether the soybeans from Argentina and Brazil and soybeans from the United States go to Europe, it really doesn’t matter. We’re still talking about the same global supply and the same global demand. At the end of the day, it really doesn’t matter which soybeans are going to what part of the world. It’s a supply factor and it’s a global market. I think that’s an excellent point that you made, as well. Michael: So, as far as the trade goes now, we’re talking about again Fast Cash from Option in an Over-Sold Market. As we said, this market definitely fits the definition of over-sold and I’m not necessarily calling a low there but you’re willing to go $1-$1.50 below the current price and sell puts. As far as a trading strategy goes, what are you looking at there? James: Michael, as long as the market is still considering record demand and they certainly are, that part hasn’t changed, as long as the U.S. is now going to be the main grocery supporter for soybeans as Argentina and Brazil runs out, we’re looking at selling puts and soybeans at levels that the market hasn’t traded in years. We’re looking at selling soybean puts around $7.80-$8 a bushel. We think that the market’s going to probably be in the low $9 to mid $9 level later on this year. That would be putting these puts out-of-the-money by 20-25% and I think that’s a really safe basket, if you will, for us to be outside of the money. As far as soybeans falling down to $8 or $7.80, that would be a real eye opener. That would really set up a long-term position to sell puts then even lower. We don’t think that’s going to happen and we really like the opportunity that we think it coming up at selling puts around the $8 level. Michael: As far as fast time decay, maybe and maybe not, but I’m of the opinion, and you tell me if you agree, that this market has gone so far in ignoring the weather, which has been ideal, but if you get one little weather blip this summer in Indiana or Illinois, I think the market is so oversold that you could easily see a $0.50-$1 rally in soybeans over a period of just a couple weeks. You know what it can get like in the summer. If that’s the case, you could get a pretty fast decay on these, as well. James: Michael, you mentioned just a short time ago that we have near ideal conditions in the Midwest, the growing regions of the United States. We will have a week or two of hot weather coming to Indiana or Ohio or Iowa this July and August and that’s all it takes. They show this ring of fire on weather maps later this summer and up go soybeans, probably $0.50 a bushel. Shortly after that, if in fact that happens, I think you’d see really rapid decay on the puts that we’re looking at selling at this $8 level. Michael: Of course, if you’re an option seller and you are selling puts down at the $7.80-$8 level that James is talking about, all these things we’re talking about don’t need to happen. The only thing you need to happen is for the price to stay above your strike. So, any of these scenarios could play out and, as an option seller, you still take the premium. So, that’s really why we sell options in the first place. There’s many ways to make money with it, there’s only one thing that can happen for you to lose and I know that’s why we started selling options in the first place, James. James: Michael, we’ve often said the market can go up, down, or sideways, just as long as it doesn’t exceed your strike price and, of course, there are a lot of books talking about how often they do expire worthless. You do keep the premium, you’re the house, and from time to time someone leaves the casino with a smile on their face, but often it’s upside down from that price. Michael: Of course, those of you listening, if you’d like to read more about our strategies, the strategy we recommend for selling options in commodities as an overall investment approach, you’ll want to pick up a copy of our book, The Complete Guide to Option Selling. It’s now in its third edition through McGraw-Hill. You can get it on our website at www.OptionSellers.com/Book. You’ll get it at a discount there, a lower price than you’ll get it on Amazon or at the bookstore. James, I think that’s it for this month. I think we’ve covered quite a lot of ground. If you’re and investor and you’re looking at these markets, certainly follow up on our blog where you’ll see the written parts of these or the newsletter. Take them on your own merit. We will be incorporating these into our trading plan for our managed portfolios this month. Speaking of managed portfolios, our waiting list is now out to September; however, we are still booking consultations through July and August for those September openings. So, if you are interested or thinking about opening an account, now is the time you’ll want to book your consultation. We’ll have those interviews and we’ll see if you match the profile for a client. James, as far as one final parting comment here, as far as this volatility goes that’s coming from the Chinese trade tariff worries, does that make it a better or a worse time to be selling options? James: Michael, once or twice a year inevitably there are headlines that create volatility. A couple years ago it was the talk of the Brexit, there was Switzerland leaving the Euro currency, it was 2 years ago the surprise election results. These headlines seem to come around once or twice a year and a lot of investors feel that while that type of uncertainty is something I don’t want to invest in, but that plays into our hands perfectly. The fundamentals of the markets that we follow change very in small fashion, you know, 1%-2% moves in commodities, but to listen to headlines it’s like the markets are moving a great deal. That plays right into our hands. We sell options so far out in time and so far out in price. We love headlines like this and tariff talks with China is just the second one for this year and we really enjoy having headlines like this. It causes uncertainty, it causes high premiums, and that is something that has been feeding us for the last several years. One or two headlines like this every year or two is just fine with me. Michael: All right. I hope everybody got something out of this month’s podcast that you can use or help you decide if option selling is a good strategy for you and your overall portfolio. Again, if you would like to book one of our remaining consultations in July or August, you can call the office at the main number… 800-346-1949 and speak with Rosemary. If you are calling from overseas, that number is 813-472-5760. You can also e-mail an inquiry at office@optionsellers.com. You’ll be able to hear this podcast on our blog but you can also subscribe to our YouTube channel and/or iTunes and hear it there. James, thank you for all your insights this month. James: Michael, it’s my pleasure. Michael: For everybody listening, have a great month of option selling. We will talk to you in 30 days. Thank you.

Listen Here: iTunes | Overcast | PlayerFM Keep up with the North Star Podcast. My guest today is Michael Nielsen a scientist, writer and computer programmer who works as a research fellow at Y Combinator Research. Michael has written on various topics from quantum teleportation, geometric complexity and the future of science. Michael is the most original thinker I have discovered in a long time when it comes to artificial intelligence, augmenting human intelligence, reinventing explanation and using new media to enable new ways of thinking. Michael has pushed my mind towards new and unexpected places. This conversation gets a little wonky at times, but as you know, the best conversations are difficult. They are challenging because they venture into new, unexplored territory and that's exactly what we did here today.  Michael and I explored the history of tools and jump back to the invention of language, the defining feature of human collaboration and communication. We explore the future of data visualization and talk about the history of the spreadsheet as a tool for human thought.  “Before writing and mathematics, you have the invention of language which is the most significant event in some ways. That’s probably the defining feature of the human species as compared to other species.” LINKS Find Michael Online Michael’s Website Michael’s Twitter Michael’s Free Ebook: Neural Networks and Deep Learning Reinventing Discovery: The New Era of Networked Science Quantum Computation and Quantum Information Mentioned In the Show 2:12 Michael’s Essay Extreme Thinking 21:48 Photoshop 21:49 Microsoft Word 24:02 The David Bowie Exhibit 28:08 Google AI’s Deep Dream Images 29:26 Alpha Go 30:26 Brian Eno’s Infamous Airport Music 33:41 Listen to Speed of Life by Dirty South Books Mentioned 46:06 Zen and The Art of Motorcycle Maintenance by Robert M. Pirsig 54:12 Cat’s Cradle by Kurt Vonnegut People Mentioned 13:27 Rembrandt Van Rijn’s Artwork 15:01 Monet’s Gallery 15:02 Pierre Auguste Renoir’s Impressionist Art 15:05 Picasso’s Paintings 15:18 Paul Cezanne’s Post-Impressionist Art 25:40 David Brooke’s NYT Column 35:19 Franco of Cologne 56:58 Alan Kay’s Ted Talk on the future of education 57:04 Doug Engelbart 58:35 Karl Schroeder 01:02:06 Elon Musk’s Mars-bound company, SpaceX 01:04:25 Alex Tabarrok Show Topics 4:01 Michael’s North Star, which drives the direction of his research 5:32 Michael talks about how he sets his long-term goals and how he’s propelled by ideas he’s excited to see in the world. 7:13 The invention of language. Michael discusses human biology and how it’s easier to learn a language than writing or mathematics.  9:28 Michael talks about humanity’s ability to bootstrap itself. Examples include maps, planes, and photography  17:33 Limitations in media due to consolidation and the small number of communication platforms available to us  18:30 How self-driving cars and smartphones highlight the strange intersection where artificial intelligence meets human interaction and the possibilities that exist as technology improves 21:45 Why does Photoshop improve your editing skills, while Microsoft Word doesn’t improve your writing skills? 27:07 Michael’s opinion on how Artificial Intelligence can help people be more creative “Really good AI systems are going to depend upon building and currently depend on building very good models of different parts of the world, to the extent that we can then build tools to actually look in and see what those models are telling us about the world.”  30:22 The intersection of algorithms and creativity. Are algorithms the musicians of the future? 36:51 The emerging ability to create interactive visual representations of spreadsheets that are used in media, internally in companies, elections and more. “I’m interested in the shift from having media be predominantly static to dynamic, which the New York Times is a perfect example of. They can tell stories on newyorktimes.com that they can’t tell in the newspaper that gets delivered to your doorstep.” 45:42 The strategies Michael uses to successfully trail blaze uncharted territory and how they emulate building a sculpture   53:30 Michael’s learning and information consumption process, inspired by the idea that you are what you pretend to be 56:44 The foundation of Michael’s worldview. The people and ideas that have shaped and inspired Michael.  01:02:26 Michael’s hypothesis for the 21st century project involving blockchain and cryptocurrencies and their ability to make implementing marketplaces easier than ever before “The key point is that some of these cryptocurrencies actually, potentially, make it very easy to implement marketplaces. It’s plausible to me that the 21st century [project] turns out to be about [marketplaces]. It’s about inventing new types of markets, which really means inventing new types of collective action.” Host David Perell and Guest Michael Nielsen TRANSCRIPT Hello and welcome to the North Star. I'm your host, David Perell, the founder of North Star Media, and this is the North Star podcast. This show is a deep dive into the stories, habits, ideas, strategies, and rituals that guide fulfilled people and create enormous success for them, and while the guests are diverse, they share profound similarities. They're guided by purpose, live with intense joy, learn passionately, and see the world with a unique lens. With each episode, we get to jump into their minds, soak up their hard-earned wisdom and apply it to our lives. My guest today is Michael Nielson, a scientist, writer, and computer programmer, who works as a research fellow at Y Combinator Research. Michael's written on various topics from quantum teleportation to geometric complexity to the future of science, and now Michael is the most original thinker I've discovered in a long time. When it comes to artificial intelligence to augmenting human intelligence, reinventing explanation, or using new media to enable new ways of thinking, Michael has pushed my mind towards new and unexpected places. Now, this conversation gets a little wonky at times, but as you know, the best conversations are difficult. They're challenging because they venture into new, unexplored territory and that's exactly what we did here today. Michael and I explored the history of tools. This is an extension of human thought and we jump back to the invention of language, the defining feature of human collaboration and communication. We explore the future of data visualization and talk about the history of this spreadsheet as a tool for human thought. Here's my conversation with Michael Nielson. DAVID: Michael Nielson, welcome to the North Star Podcast. MICHAEL: Thank you, David. DAVID: So tell me a little bit about yourself and what you do. MICHAEL: So day to day, I'm a researcher at Y Combinator Research. I'm basically a reformed theoretical physicist. My original background is doing quantum computing work. And then I've moved around a bit over the years. I've worked on open science, I've worked on artificial intelligence and most of my current work is around tools for thought. DAVID: So you wrote an essay which I really enjoyed called Extreme Thinking. And in it, you said that one of the single most important principle of learning is having a strong sense of purpose and a strong sense of meaning. So let's be in there. What is that for you? MICHAEL: Okay. You've done your background. Haven't thought about that essay in years. God knows how long ago I wrote it. Having a strong sense of purpose. What did I actually mean? Let me kind of reboot my own thinking. It's, it's kind of the banal point of view. How much you want something really matters. There's this lovely interview with the physicist Richard Feynman, where he's asked about this Indian mathematical prodigy Ramanujan. A movie was made about Ramanujan’s mathematical prowess a couple of years ago. He was kind of this great genius. And a Feynman was asked what made Ramanujan so good. And the interview was expecting him to say something about how bright this guy was or whatever. And Feynman said instead, that it was desire. It was just that love of mathematics was at the heart of it. And he couldn't stop thinking about it and he was thinking about it. He was doing in many ways, I guess the hard things. It's very difficult to do the hard things that actually block you unless you have such a strong desire that you're willing to go through those things. Of course, I think you see that in all people who get really good at something, whether it be sort of a, just a skill like playing the violin or something, which is much more complicated. DAVID: So what is it for you? What is that sort of, I hate to say I want to just throw that out here, that North Star, so to speak, of what drives you in your research? MICHAEL: Research is funny. You go through these sort of down periods in which you don't necessarily have something driving you on. That used to really bother me early in my career. That was sort of a need to always be moving. But now I think that it's actually important to allow yourself to do that. That's actually how you find the problems, which really get, get you excited. If you don't sort of take those pauses, then you're not gonna find something that's really worth working on. I haven't actually answered your question. I think I know I've jumped to that other point because that's one thing that really matters to me and it was something that was hard to learn. DAVID: So one thing that I've been thinking a lot about recently is you sort of see it in companies. You see it in countries like Singapore, companies like Amazon and then something like the Long Now Foundation with like the 10,000-year clock. And I'm wondering to you in terms of learning, there's always sort of a tension between short-term learning and long-term learning. Like short-term learning so often is maybe trying to learn something that feels a little bit richer. So for me, that's reading, whereas maybe for a long-term learning project there are things I'd like to learn like Python. I'd like to learn some other things like that. And I'm wondering, do you set long-term learning goals for yourself or how would you think about that trade off? MICHAEL: I try to sit long-time learning goals to myself, in many ways against my better judgment. It's funny like you're very disconnected from you a year from now or five years from now, or 10 years from now. I can't remember, but Eisenhower or Bonaparte or somebody like that said that the planning is invaluable or planning plans are overrated, but planning is invaluable. And I think that's true. And this is the right sort of attitude to take towards these long-term lending goals. Sure. It's a great idea to decide that you're going out. Actually, I wouldn't say it was a great idea to say that you're going to learn python, I might say. However, there was a great idea to learn python if you had some project that you desperately wanted to do that it required you to learn python, then it's worth doing, otherwise stay away from python. I certainly favor, coupling learning stuff to projects that you're excited to actually see in the world. But also, then you may give stuff up, you don't become a master of python and instead you spend whatever, a hundred hours or so learning about it for this project that takes you a few hundred hours, and if you want to do a successor project which involves it, more of it. Great, you'll become better. And if you don't, well you move onto something else. DAVID: Right. Well now I want to dive into the thing that I'm most excited to talk to you about today and that's tools that extend human thought. And so let's start with the history of that. We'll go back sort of the history of tools and there's had great Walter Ong quote about how there are no new thoughts without new technologies. And maybe we can start there with maybe the invention of writing, the invention of mathematics and then work through that and work to where you see the future of human thought going with new technologies. MICHAEL: Actually, I mean before writing and mathematics, you have the invention of language, which is almost certainly the most significant single event in some ways. The history of the planet suddenly, you know, that's probably the defining feature of the human species as compared to other species. Um, I say invention, but it's not even really invention. There's certainly a lot of evidence to suggest that language is in some important sense built into our biology. Not the details of language. Um, but this second language acquisition device, it seems like every human is relatively very set to receive language. The actual details depend on the culture we grow up on. Obviously, you don't grow up speaking French if you were born in San Francisco and unless you were in a French-speaking household, some very interesting process of evolution going on there where you have something which is fundamentally a technology in some sense languages, humans, a human invention. It's something that's constructed. It's culturally carried. Um, it, there's all these connections between different words. There's almost sort of a graph of connections between the words if you like, or all sorts of interesting associations. So in that sense, it's a technology, something that's been constructed, but it's also something which has been over time built into our biology. Now if you look at later technologies of thought things like say mathematics, those are much, much later. That hasn't been the same sort of period of time. Those don't seem to be built into our biology in quite the same way. There's actually some hints of that we have some intrinsic sense of number and there's some sort of interesting experiments that suggest that we were built to do certain rudimentary kinds of mathematical reasoning but there's no, you know, section of the brain which specializes sort of from birth in solving quadratic equations, much less doing algebraic geometry or whatever, you know, super advanced. So it becomes this cultural thing over the last few thousand years, this kind of amazing process whereby we've started to bootstrap ourselves. If you think about something like say the invention of maps, which really has changed the way people relate to the environment. Initially, they were very rudimentary things. Um, and people just kept having new ideas for making maps more and more powerful as tools for thought. Okay. I can give you an example. You know, a very simple thing, if you've ever been to say the underground in London or most other subway systems around the world. It was actually the underground when this first happened, if you look at the map of the underground, I mean it's a very complicated map, but you can get pretty good at reasoning about how to get from one place to another. And if you look at maps prior to, I think it was 1936, in fact, the maps were much more complicated. And the reason was that mapmakers up to that point had the idea that where the stations were shown on the map had to correspond to the geography of London. Exactly. And then somebody involved in producing the underground map had just a brilliant insight that actually people don't care. They care about the connections between the stations and they want to know about the lines and they want some rough idea of the geography, but they're quite happy for it to be very rough indeed and he was able to dramatically simplify that map by simply doing away with any notion of exact geography. DAVID: Well, it's funny because I noticed the exact same thing in New York and so often you have insights when you see two things coming together. So I was on the subway coming home one day and I was looking at the map and I always thought that Manhattan was way smaller than Brooklyn, but on the subway map, Manhattan is actually the same size as Brooklyn. And in Manhattan where the majority of the subway action is, it takes up a disproportionate share of the New York City subway map. And then I went home to go read Power Broker, which is a book about Robert Moses building the highways and they had to scale map. And what I saw was that Brooklyn was way, way bigger than Manhattan. And from predominantly looking at subway maps. Actually, my topological geographical understanding of New York was flawed and I think exactly to your point. MICHAEL: It's interesting. When you think about what's going on there and what it is, is some person or a small group of people is thinking very hard about how to represent their understanding of the city and then the building, tools, sort of a technological tool of thought that actually then saves millions or in the case of a New York subway or the London underground, hundreds of millions or billions of people, mostly just seconds, sometimes, probably minutes. Like those maps would be substantially more complicated sort of every single day. So it's only a small difference. I mean, and it's just one invention, right? But, you know, our culture is of course accumulated thousands or millions of these inventions. DAVID: One of my other favorite ones from being a kid was I would always go on airplanes and I'd look at the route map and it would always show that the airplanes would fly over the North Pole, but on two-dimensional space that was never clear to me. And I remember being with my dad one night, we bought a globe and we took a rubber band and we stretched why it was actually shorter to fly over the North Pole, say if you're going from New York to India. And that was one of the first times in my life that I actually didn't realize it at the time, but understood exactly what I think you're trying to get at there. How about photography? Because that's another one that I think is really striking, vivid from the horse to slow motion to time lapses. MICHAEL: Photography I think is interesting in this vein in two separate ways. One is actually what it did to painting, which is of course painters have been getting more and more interested in being more and more realistic. And honestly, by the beginning of the 19th century, I think painting was pretty boring. Yeah, if you go back to say the 16th and 17th centuries, you have people who are already just astoundingly good at depicting things in a realistic fashion. To my mind, Rembrandt is probably still the best portrait painter in some sense to ever live. DAVID: And is that because he was the best at painting something that looked real? MICHAEL: I think he did something better than that. He did this very clever thing, you know, you will see a photograph or a picture of somebody and you'll say, oh, that really looks like them. And I think actually most of the time we, our minds almost construct this kind of composite image that we think of as what David looks like or what our mother looks like or whatever. But actually moment to moment, they mostly don't look like that. They mostly, you know, their faces a little bit more drawn or it's, you know, the skin color is a little bit different. And my guess, my theory of Rembrandt, is that he may have actually been very, very good at figuring out almost what that image was and actually capturing that. So, yeah, I mean this is purely hypothetical. I have no real reason to believe it, but I think it's why I responded so strongly to his paintings. DAVID: And then what happened? So after Rembrandt, what changed? MICHAEL: So like I said, you mean you keep going for a sort of another 200 years, people just keep getting more and more realistic in some sense. You have all the great landscape painters and then you have this catastrophe where photography comes along and all of a sudden you're being able to paint in a more and more realistic fashion. It doesn't seem like such a hot thing to be doing anymore. And if for some painters, I think this was a bit of a disaster, a bit of dose. I said of this modern wave, you start to see through people like Monet and Renoir. But then I think Picasso, for me anyway, was really the pivotal figure in realizing that actually what art could become, is the invention of completely new ways of seeing. And he starts to play inspired by Cezanne and others in really interesting ways with the construction of figures and such. Showing things from multiple angles in one painting and different points of view. And he just plays with hundreds of ideas along these lines, through all of his painting and how we see and what we see in how we actually construct reality in their heads from the images that we see. And he did so much of that. It really became something that I think a lot of artists, I'm not an artist or a sophisticated art theory person, but it became something that other people realized was actually an extraordinarily interesting thing to be doing. And much of the most interesting modern art is really a descendant of that understanding that it's a useful thing to be doing. A really interesting thing to be doing rather than becoming more and more realistic is actually finding more and more interesting ways of seeing and being able to represent the world. DAVID: So I think that the quote is attributed to Marshall McLuhan, but I have heard that Winston Churchill said it. And first, we shape our tools and then our tools shape us. And that seems to be sort of the foundation of a lot of the things that you're saying. MICHAEL: Yeah, that's absolutely right. I mean, on the other side, you also have, to your original question about photography. Photographers have gradually started to realize that they could shape how they saw nature. Ansel Adams and people like this, you know. Just what an eye. And understanding his tools so verbally he's not just capturing what you see. He's constructing stuff in really, really interesting ways. DAVID: And how about moving forward in terms of your work, thinking about where we are now to thinking about the future of technology. For example, one thing that frustrates me a bit as a podcast host is, you know, we just had this conversation about art and it's the limits of the audio medium to not be able to show the paintings of Rembrandt and Cezanne that we just alluded to. So as you think about jumping off of that, as you think about where we are now in terms of media to moving forward, what are some of the challenges that you see and the issues that you're grappling with? MICHAEL: One thing for sure, which I think inhibits a lot of exploration. We're trapped in a relatively small number of platforms. The web is this amazing thing as our phones, iOS and whatnot, but they're also pretty limited and that bothers me a little bit. Basically when you sort of narrow down to just a few platforms which have captured almost all of the attention, that's quite limiting. People also, they tend not to make their own hardware. They don't do these kinds of these kinds of things. If that were to change, I think that would certainly be exciting. Something that I think is very, very interesting over the next few years, artificial intelligence has gotten to the point now where we can do a pretty good job in understanding what's actually going on inside a room. Like we can set up sufficient cameras. If you think about something like self-driving cars, essentially what they're doing is they're building up a complete model of the environment and if that model is not pretty darned good, then you can't do self-driving cars, you need to know where the pedestrians are and where the signs are and all these kinds of things and if there's an obstruction and that technology when brought into, you know, the whole of the rest of the world means that you're pretty good at passing out. You know what's inside the room. Oh, there's a chair over there, there's a dog which is moving in that direction, there's a person, there’s a baby and sort of understanding all those actions and ideally starting to understand all the gestures which people are making as well. So we're in this very strange state right at the moment. Where the way we talk to computers is we have these tiny little rectangles and we talk to them through basically a square inch or so of sort of skin, which is our eyes. And then we, you know, we tap away with our fingers and the whole of the rest of our body and our existence is completely uncoupled from that. We've effectively reduced ourselves to our fingers and our eyes. We a couple to it only through the whatever, 100 square inches, couple hundred square inches of our screens or less if you're on a phone and everything else in the environment is gone. But we're actually at a point where we're nearly able to do an understanding of all of that sufficiently well that actually other modes of interaction will become possible. I don't think we're quite there yet, but we're pretty close. And you start to think about, something like one of my favorite sport is tennis. You think about what a tennis player can do with their body or you think about what a dancer can do with their body. It's just extraordinary. And all of that mode of being human and sort of understanding we can build up antibodies is completely shut out from the computing experience at the moment. And I think over the next sort of five to ten years that will start to reenter and then in the decades hence, it will just seem strange that it was ever shut out. DAVID: So help me understand this. So when you mean by start to reenter, do mean that we'll be able to control computers with other parts of our bodies or that we'll be spending less time maybe typing on keyboards. Help me flesh this out. MICHAEL: I just mean that at the moment. As you speak to David, you are waving your arms around and all sorts of interesting ways and there is no computer system which is aware of it, what your computer system is aware of. You're doing this recording. That's it. And even that, it doesn't understand in any sort of significant way. Once you've gained the ability to understand the environment. Lots of interesting things become possible. The obvious example, which everybody immediately understands is that self driving cars become possible. There's this sort of enormous capacity. But I think it's certainly reasonably likely that much more than that will become possible over the next 10 to 20 years. As your computer system becomes completely aware of your environment or as aware as you're willing to allow it to be. DAVID: You made a really interesting analogy in one of your essays about the difference between Photoshop and Microsoft Word. That was really fascinating to me because I know both programs pretty well. But to know Microsoft word doesn't necessarily mean that I'm a better writer. It actually doesn't mean that at all. But to know Photoshop well probably makes me pretty good at image manipulation. I'm sure there's more there, but if you could walk me through your thought process as you were thinking through that. I think that's really interesting. MICHAEL: So it's really about a difference in the type of tools which are built into the program. So in Photoshop, which I should say, I don't know that well, I know Word pretty well. I've certainly spent a lot more time in it than I have ever spent in Photoshop. But in Photoshop, you do have these very interesting tools which have been built in, which really condense an enormous amount of understanding of ideas like layers or an idea, different brushes, these kinds of ideas. There's just a tremendous amount of understanding which has been built in there. When I watch friends who are really good with these kinds of programs, what they can do with layers is just amazing. They understand all these kind of clever screening techniques. It seems like such a simple idea and yet they're able to do these things that let you do astonishing things just with sort of three or four apparently very simple operations. So in that sense, there are some very deep ideas about image manipulation, which had been built directly into Photoshop. By contrast, there's not really very many deep ideas about writing built into Microsoft Word. If you talk to writers about how they go about their actual craft and you say, well, you know, what heuristics do use to write stories and whatnot. Most of the ideas which they use aren't, you know, they don't correspond directly to any set of tools inside Word. Probably the one exception is ideas, like outlining. There are some tools which have been built into word and that's maybe an example where in fact Word does help the writer a little bit, but I don't think to nearly the same extent as Photoshop seems to. DAVID: I went to an awesome exhibit for David Bowie and one of the things that David but we did when he was writing songs was he had this word manipulator which would just throw him like 20, 30 words and the point wasn't that he would use those words. The point was that by getting words, his mind would then go to different places and so often when you're in my experience and clearly his, when you're trying to create something, it helps to just be thrown raw material at you rather than the perennial, oh my goodness, I'm looking at a white screen with like this clicking thing that is just terrifying, Word doesn't help you in that way. MICHAEL: So an example of something which does operate a little bit in that way, it was a Ph.D. thesis was somebody wrote at MIT about what was called the Remembrance Agent. And what it would do, it was a plugin essentially for a text editor that it would, look at what you are currently writing and it would search through your hard disk for documents that seemed like they might actually be relevant. Just kind of prompt you with what you're writing. Seems like it might be related to this or this or this or this or this. And to be perfectly honest, it didn't actually work all that well. I think mostly because the underlying machine learning algorithms it used weren't very clever. It's defunct now as far as I know. I tried to get it to run on my machine or a year or two ago and I couldn't get it running. It was still an interesting thing to do. It had exactly this same kind of the belly sort of experience. Even if they weren't terribly relevant. You kind of couldn't understand why on earth you are being shown it. It's still jogged your mind in an interesting way. DAVID: Yeah. I get a lot of help out of that. Actually, I’ll put this example. So David Brooks, you know the columnist for the New York Times. When he writes, what he does is he gets all of his notes and he just puts his notes on the floor and he literally crawls all around and tries to piece the notes together and so he's not even writing. He's just organizing ideas and it must really help him as it helps me to just have raw material and just organize it all in the same place. MICHAEL: There's a great British humorist, PG Boathouse, he supposedly wrote on I think it was the three by five-inch cards. He'd write a paragraph on each one, but he had supposedly a very complicated system in his office, well not complicated at all, but it must have looked amazing where he would basically paste the cards to the wall and as the quality of each paragraph rose, he would move the paragraph up the wall and I think the idea was something like once it got to the end, it was a lion or something, every paragraph in the book had to get above that line and at that point it was ready to go. DAVID: So I've been thinking a lot about sort of so often in normal media we take AI sort of on one side and art on another side. But I think that so many of the really interesting things that will emerge out of this as the collaboration between the two. And you've written a bit about art and AI, so how can maybe art or artificial intelligence help people be more creative in this way? MICHAEL: I think we still don't know the answer to the question, unfortunately. The hoped-for answer the answer that might turn out to be true. Real AI systems are going to build up very good models of different parts of the world, maybe better than any human has of those parts of the world. It might be the case, I don't know. It might be the case that something like the Google translate system, maybe in some sense that system already knows some facts about translation that would be pretty difficult to track down in any individual human mind and sort of so much about translation in some significant ways. I'm just speculating here. But if you can start to interrogate that understanding, it becomes a really useful sort of a prosthetic for human beings. If you've seen any of these amazing, well I guess probably the classics, the deep dream images that came out of Google brain a couple of years ago. Basically, you take ordinary images and you're sort of running them backwards through a neural net somehow. You're sort of seeing something about how the neural net sees that image. You get these very beautiful images as a result. There's something strange going on and sort of revealing about your own way of seeing the world. And at the same time, it's based on some structure which this neural net has discovered inside these images which is not ordinarily directly accessible to you. It's showing you that structure. So sort of I think the right way to think about this is that really good AI systems are going to depend upon building and do currently depend on building very good models of different parts of the world and to the extent that we can then build tools to actually look in and see what those models are telling us about the world, we can learn interesting new things which are useful for us. I think the conventional way, certainly the science fiction way to think about AI is that we're going to give it commands and it's going to do stuff. How you shut the whatever it is, the door or so on and so forth, and there was certainly will be a certain amount of that. Or with AlphaGo what is the best move to take now, but actually in some sense, with something like AlphaGo, it's probably more interesting to be able to look into it and see what it's understanding is of the board position than it is to ask what's the best move to be taken. A colleague showed me a go program, a prototype, what it would do. It was a very simple kind of a thing, but it would help train beginners. I think it was Go, but by essentially colorizing different parts of the board according to whether they were good or bad moves to be taking in its estimation. If you're a sophisticated player, it probably wasn't terribly helpful, but if you're just a beginner, there's an interesting kind of a conditioning going on there. At least potentially a which lets you start to see. You get a feeling for immediate feedback from. And all that's happening there is that you're seeing a little bit into one of these machine learning algorithms and that's maybe helping you see the world in a slightly different way. DAVID: As I was preparing for this podcast, you've liked a lot to Brian Eno and his work. So I spent as much time reading Brian Eno, which I'm super happy that I went down those rabbit holes. But one of the things that he said that was really interesting, so he's one of the fathers of ambient music and he said that a lot of art and especially music, there will sort of be algorithms where you sort of create an algorithm that to the listener might even sound better than what a human would produce. And he said two things that were interesting. The first one is that you create an algorithm and then a bunch of different musical forms could flower out of that algorithm. And then also said that often the art that algorithms create is more appealing to the viewer. But it takes some time to get there. And had the creator just followed their intuition. They probably would have never gotten there. MICHAEL: It certainly seems like it might be true. And that's the whole sort of interesting thing with that kind of computer-generated music is to, I think the creators of it often don't know where they're gonna end up. To be honest, I think my favorite music is all still by human composers. I do enjoy performances by people who live code. There's something really spectacular about that. So there are people who, they will set up the computer and hook it up to speakers and they will hook the text editor up to a projector and they'll have essentially usually a modified form of the programming language list a or people use a few different systems I guess. And they will write a program which producers music onstage and they'll just do it in real time and you know, it starts out sounding terrible of course. And that lasts for about 20 seconds and by about sort of 30 or 40 seconds in, already it's approaching the limits of complex, interesting music and I think even if you don't really have a clue what they're doing as they program, there's still something really hypnotic and interesting about watching them actually go through this process of creating music sort of both before your eyes and before your ears. It's a really interesting creative experience and sometimes quite beautiful. I think I suspect that if I just heard one of those pieces separately, I probably wouldn't do so much for me, but actually having a done in real time and sort of seeing the process of creation, it really changes the experience and makes it very, very interesting. And sometimes, I mean, sometimes it's just beautiful. That's the good moment, right? When clearly the person doing it has something beautiful happen. You feel something beautiful happen and everybody else around you feel something beautiful and spontaneous. It's just happened. That's quite a remarkable experience. Something really interesting is happening with the computer. It's not something that was anticipated by the creator. It arose out of an interaction between them and their machine. And it is actually beautiful. DAVID: Absolutely. Sort of on a similar vein, there's a song called Speed of Life by Dirty South. So I really liked electronic music, but what he does is he constructs a symphony, but he goes one layer at a time. It's about eight and a half minute song and he just goes layer after layer, after layer, after layer. And what's really cool about listening to it is you appreciate the depth of a piece of music that you would never be able to appreciate if you didn't have that. And also by being able to listen to it over and over again. Because before we had recording, you would only hear a certain piece of music live and one time. And so there are new forms that are bursting out of now because we listen to songs so often. MICHAEL: It's interesting to think, there's a sort of a history to that as well. If you go back, essentially modern systems for recording music, if you go back much more than a thousand years. And we didn't really have them. There's a multi-thousand-year history of recorded music. But a lot of the early technology was lost and it wasn't until sort of I think the eighth, ninth century that people started to do it again. But we didn't get all the way to button sheet music overnight. There was a whole lot of different inventions. For instance, the early representations didn't show absolute pitch. They didn't show the duration of the note. Those were ideas that had to be invented. So in I think it was 1026, somebody introduced the idea of actually showing a scale where you can have absolute pitch. And then a century or two after that, Franco of Cologne had the idea of representing duration. And so they said like tiny little things, but then you start to think about, well, what does that mean for the ability to compose music? It means now that actually, you can start to compose pieces, which for many, many, many different instruments. So you start to get the ability to have orchestral music. So you go from being able to basically you have to kind of instruct small groups of players that's the best you can hope to do and get them to practice together and whatever. So maybe you can do something like a piece for a relatively small number of people, but it's very hard to do something for an 80 piece orchestra. Right? So all of a sudden that kind of amazing orchestral music I think becomes possible. And then, you know, we're sort of in version 2.0 of that now where of course you can lay a thousand tracks on top of one another if you want. You get ideas like micropolyphony. And these things where you look at the score and it's just incredible, there are 10,000 notes in 10 seconds. DAVID: Well, to your point I was at a tea house in Berkeley on Monday right by UC Berkeley's campus and the people next to me, they were debating the musical notes that they were looking at but not listening to the music and it was evident that they both had such a clear ability to listen to music without even listening to it, that they could write the notes together and have this discussion and it was somebody who doesn't know so much about music. It was really impressive. MICHAEL: That sounds like a very interesting conversation. DAVID: I think it was. So one thing that I'm interested in and that sort of have this dream of, is I have a lot of friends in New York who do data visualization and sort of two things parallel. I have this vision of like remember the Harry Potter book where the newspaper comes alive and it becomes like a rich dynamic medium. So I have that compared with some immersive world that you can walk through and be able to like touch and move around data and I actually think there's some cool opportunities there and whatnot. But in terms of thinking about the future of being able to visualize numbers and the way that things change and whatnot. MICHAEL: I think it's a really complicated question like it actually needs to be broken down. So one thing, for example, I think it's one of the most interesting things you can do with computers. Lots of people never really get much experience playing with models and yet it's possible to do this. Now, basically, you can start to build very simple models. The example that a lot of people do get that they didn't use to get, is spreadsheets. So, you can sort of create a spreadsheet that is a simple model of your company or some organization or a country or of whatever. And the interesting thing about the spreadsheet is really that you can play with it. And it sort of, it's reactive in this interesting way. Anybody who spends as much time with spreadsheets is they start to build up hypotheses, oh, what would happen if I changed this number over here? How would it affect my bottom line? How would it affect the GDP of the country? How would it affect this? How would it affect that? And you know, as you kind of use it, you start to introduce, you start to make your model more complicated. If you're modeling some kind of a factory yet maybe you start to say, well, what would be the effect if a carbon tax was introduced? So you introduce some new column into the spreadsheet or maybe several extra columns into the spreadsheet and you start to ask questions, well, what would the structure of the carbon tax be? What would help you know, all these sorts of what if questions. And you start very incrementally to build up models. So this experience, of course, so many people take for granted. It was not an experience that almost anybody in the world had say 20 or 30 years ago. Well, spreadsheets data about 1980 or so, but this is certainly an experience that was extremely rare prior to 1980 and it's become a relatively common, but it hasn't made its way out into mass media. We don't as part of our everyday lives or the great majority of people don't have this experience of just exploring models. And I think it's one of the most interesting things which particularly the New York Times and to some extent some of the other newsrooms have done is they've started in a small way to build these models into the news reading experience. So, in particular, the data visualization team at the New York Times, people like Amanda Cox and others have done this really interesting thing where you start to get some of these models. You might have seen, for example, in the last few elections. They've built this very interesting model showing basically if you can sort of make choices about how different states will vote. So if such and such votes for Trump, what are Hillary's chances of winning the election. And you may have seen they have this sort of amazing interactive visualization of it where you can just go through and you can sort of look at the key swing states, what happens if Pennsylvania votes for so and so what happens if Florida does? And that's an example where they've built an enormous amount of sort of pulling information into this model and then you can play with it to build up some sort of understanding. And I mean, it's a very simple example. I certainly think that you know, normatively, we're not there yet. We don't actually have a shared understanding. There's very little shared language even around these models. You think about something like a map. A map is an incredibly sophisticated object, which however we will start learning from a very young age. And so we're actually really good at parsing them. We know if somebody shows us a map, how to engage, how to interpret it, how to use it. And if somebody just came from another planet, actually they need to learn all those things. How do you represent a road? How do you represent a shop on a map? How do you represent this or that, why do we know that up is north like that's a convention. All those kinds of things actually need to be learned and we learned them when we were small. With these kinds of things which the Times and other media outlets are trying to do, we lack all of that collective knowledge and so they're having to start from scratch and I think that over a couple of generations actually, they'll start to evolve a lot of conventions and people will start to take it for granted. But in a lot of contexts actually you're not just going to be given a narrative, you know, just going to be told sort of how some columnist thinks the world is. Instead, you'll actually expect to be given some kind of a model which you can play with. You can start to ask questions and sort of run your own hypotheses in much the same way as somebody who runs a business might actually set up a spreadsheet to model their business and ask interesting questions. It's not perfect. The model is certainly that the map is not the territory as they say, but it is nonetheless a different way of engaging rather than just having some expert tell you, oh, the world is this way. DAVID: I'm interested in sort of the shift from having media be predominantly static to dynamic, which the New York Times is a perfect example. They can tell stories on Newyorktimes.com that they can't tell in the newspaper that gets delivered to your doorstep. But what's really cool about spreadsheets that you're talking about is like when I use Excel, being able to go from numbers, so then different graphs and have the exact same data set, but some ways of visualizing that data totally clicked for me and sometimes nothing happens. MICHAEL: Sure. Yeah. And we're still in the early days of that too. There's so much sort of about literacy there. And I think so much about literacy is really about opportunity. People have been complaining essentially forever that the kids of today are not literate enough. But of course, once you actually provide people with the opportunity and a good reason to want to do something, then they can become very literate very quickly. I think basically going back to the rise of social media sort of 10 or 15 years ago, so Facebook around whatever, 2006, 2007 twitter a little bit later, and then all the other platforms which have come along since. They reward being a good writer. So all of a sudden a whole lot of people who normally wouldn't have necessarily been good writers are significantly more likely to become good writers. It depends on the platform. Certainly, Facebook is a relatively visual medium. Twitter probably helps. I think twitter and text messaging probably are actually good. Certainly, you're rewarded for being able to condense an awful lot into a small period. People complain that it's not good English, whatever that is. But I think I'm more interested in whether something is a virtuosic English than I am and whether or not it's grammatically correct. People are astonishingly good at that, but the same thing needs to start to happen with these kinds of models and with data visualizations and things like that. At the moment, you know, you have this priestly caste that makes a few of them and that's an interesting thing to be able to do, but it's not really part of the everyday experience of most people. It's an interesting question whether or not that's gonna change as it going to in the province of some small group of people, or will it actually become something that people just expect to be able to do? Spreadsheets are super interesting in that regard. They actually did. I think if you've talked to somebody in 1960 and said that by 2018, tens of millions of people around the world would be building sophisticated mathematical models as just part of their everyday life. It would've seemed absolutely ludicrous. But actually, that kind of model of literacy has become relatively common. I don't know whether we'll get to 8 billion people though. I think we probably will. DAVID: So when I was in high school I went to, what I like to say is the weirdest school in the weirdest city in America. I went to the weirdest high school in San Francisco and rather than teaching us math, they had us get in groups of three and four and they had us discover everything on our own. So we would have these things called problem sets and we would do about one a week and the teacher would come around and sort of help us every now and then. But the goal was really to get three or four people to think through every single problem. And they called it discovery-based learning, which you've also talked about too. So my question to you is we're really used to learning when the map is clear and it's clear what to do and you can sort of follow a set path, but you actually do the opposite. The map is unclear and you're actually trailblazing and charting new territory. What strategies do you have to sort of sense where to move? MICHAEL: There's sort of a precursor question which is how do you maintain your morale and the Robert Pirsig book, Zen and the Art of Motorcycle Maintenance. He proposes a university subject, gumptionology 101. Gumption is almost the most important quality that we have. The ability to keep going when things don't seem very good. And mostly that's about having ways of being playful and ways of essentially not running out of ideas. Some of that is about a very interesting tension between having, being ambitious in what you'd like to achieve, but also being very willing to sort of celebrate the tiniest, tiniest, tiniest successes. Suddenly a lot of creative people I know I think really struggle with that. They might be very good at celebrating tiny successes but not have that significant ambitions, but they might be extremely ambitious, but because they're so ambitious, if an idea doesn't look Nobel prize worthy, they're not particularly interested in it. You know, they struggle with just kind of the goofing around and they often feel pretty bad because of course most days you're not at your best, you don't actually have the greatest idea. So there's some interesting tension to manage there. There's really two different types of work. One is where you have a pretty good goal, you know what success looks like, right? But you may also be doing something that's more like problem discovery where you don't even know where you're going. Typically if you're going to compose a piece of music. Well, I'm not a composer, but certainly, my understanding from, from friends who are, is that they don't necessarily start out with a very clear idea of where they're going. Some composers do, but a lot, it's a process of discovery. Actually, a publisher once told me somebody who has published a lot of well-known books that she described one of her authors as a writing for discovery. Like he didn't know what his book was going to be about, he had a bunch of kind of vague ideas and the whole point of writing the book was to actually figure out what it was that he wanted to say, what problem was he really interested in. So we'd start with some very, very good ideas and they kind of get gradually refined. And it was very interesting. I really liked his books and it was interesting to see that. They looked like they'd been very carefully planned and he really knew what he was doing and she told me that no, he'd sort of come in and chat with her and be like, well, I'm sort of interested over here. And he'd have phrases and sort of ideas. But he didn't actually have a clear plan and then he'd get through this process of several years of gradually figuring out what it was that he wanted to say. And often the most significant themes wouldn't actually emerge until relatively late in that whole process. I asked another actually quite a well-known writer, I just bumped into when he was, he was reporting a story for a major magazine and I think he'd been working, he'd been reporting for two weeks, I think at that point. So just out interviewing people and whatever. And I said, how's it going? And he said, Oh yeah, pretty good. I said, what's your story about? He said, I don't know yet, which I thought was very interesting. He had a subject, he was following a person around. But he didn't actually know what his story was. DAVID: So the analogy that I have in my head as you're talking about this, it's like sculpture, right? Where you start maybe with a big thing of granite or whatnot, and slowly but surely you're carving the stone or whatnot and you're trying to come up with a form. But so often maybe it's the little details at the end that are so far removed from that piece of stone at the very beginning that make a sculpture exceptional. MICHAEL: Indeed. And you wonder what's going on. I haven't done sculpture. I've done a lot of writing and writing often feels so sometimes I know what I want to say. Those are the easy pieces to write, but more often it's writing for discovery and there you need to be very happy celebrating tiny improvements. I mean just fixing a word needs to be an event you actually enjoy, if not, the process will be an absolute nightmare. But then there's this sort of instinct where you realize, oh, that's a phrase that A: I should really refine and B: it might actually be the key to making this whole thing work and that seems to be a very instinctive kind of a process. Something that you, if you write enough, you start to get some sense of what actually works for you in those ways. The recognition is really hard. It's very tempting to just discount yourself. Like to not notice when you have a good phrase or something like that and sort of contrary wise sometimes to hang onto your darlings too long. You have the idea that you think it's about and it's actually wrong. DAVID: Why do you write and why do you choose the medium of writing to think through things sometimes? I know that you choose other ones as well. MICHAEL: Writing has this beautiful quality that you can improve your thoughts. That's really helpful. A friend of mine who makes very popular YouTube videos about mathematics has said to me that he doesn't really feel like people are learning much mathematics from them. Instead, it's almost a form of advertising like they get some sense of what it is. They know that it's very beautiful. They get excited. All those things are very important and matter a lot to him, but he believes that only a tiny, tiny number of people are actually really understanding much detail at all. There's actually a small group who have apparently do kind of. They have a way of processing video that lets them understand. DAVID: Also, I think you probably have to, with something like math, I've been trying to learn economics online and with something like math or economics that's a bit complex and difficult, you have to go back and re-watch and re-watch, but I think that there's a human tendency to want to watch more and more and more and it's hard to learn that way. You actually have to watch things again. MICHAEL: Absolutely. Totally. And you know, I have a friend who when he listens to podcasts, if he doesn't understand something, he, he rewinds it 30 seconds. But most people just don't have that discipline. Of course, you want to keep going. So I think the written word for most people is a little bit easier if they want to do that kind of detailed understanding. It's more random access to start with. It's easier to kind of skip around and to concentrate and say, well, I didn't really get that sentence. I'm going to think about it a little bit more, or yeah, I can see what's going to happen in those two or three paragraphs. I'll just very quickly skip through them. It's more built for that kind of detailed understanding, so you're getting really two very different experiences. In the case of the video, very often really what you're getting is principally an emotional experience with some bits and pieces of understanding tacked on with the written word. Often a lot of that emotion is stripped out, which makes can make it much harder to motivate yourself. You need that sort of emotional connection to the material, but it is actually, I think a great deal easier to understand sort of the details of it. There's a real kind of choice to be to be made. There's also the fact that people just seem to respond better to videos. If you want a large audience, you're probably better off making YouTube videos than you are publishing essays. DAVID: My last question to you, as somebody who admires your pace and speed of learning and what's been really fun about preparing for this podcast and come across your work is I really do feel like I've accessed a new perspective on the world which is really cool and I get excited probably most excited when I come across thinkers who don't think like anyone who I've come across before, so I'm asking to you first of all, how do you think about your learning process and what you consume and second of all, who have been the people and the ideas that have really formed the foundation of your thought? MICHAEL: A Kurt Vonnegut quote from his book, I think it's Cat's Cradle. He says, we become what we pretend to be, so you must be careful what we pretend to be and I think there's something closely analogously true, which is that we become what we pay attention to, so we should be careful what we pay attention to and that means being fairly careful how you curate your information diet. There's a lot of things. There's a lot of mistakes I've made. Paying attention to angry people is not very good. I think ideas like the filter bubble, for example, are actually bad ideas. And for the most part, it sounds virtuous to say, oh, I'm going to pay attention to people who disagree with me politically and whatever. Well, okay, there's a certain amount of truth to that. It's a good idea probably to pay attention to the very best arguments from the very best exponents of the other different political views. So sure, seek those people out, but you don't need to seek out the random person who has a different political view from you. And that's how most people actually interpret that kind of injunction. They, they're not looking for the very best alternate points of view. So that's something you need to be careful about. There's a whole lot of things like that I enjoy. So for example, I think one person, it's interesting on twitter to look, he's, he's no longer active but he's still following people is Marc Andreessen and I think he follows, it's like 18,000 people or something and it's really interesting just to look through the list of followers because it's all over the map and much of it I wouldn't find interesting at all, but you'll find the strangest corners people in sort of remote villages in India and people doing really interesting things in South Africa. Okay. So he's a venture capitalist but they're not connected to venture capital at all. So many of them, they're just doing interesting things all over the world and I wouldn't advocate doing the same thing. You kind of need to cultivate your own tastes and your own interests. But there's something very interesting about that sort of capitalist city of interests and curiosity about the world, which I think is probably very good for almost anybody to cultivate. I haven't really answered your question. DAVID: I do want to ask who were the people or the ideas or the areas of the world that have really shaped and inspired your thinking because I'm asking selfishly because I want to go down those rabbit holes. MICHAEL: Alright. A couple of people, Alan Kay and Doug Engelbart, who are two of the people who really developed the idea of what a computer might be. In the 1950's and 60's, people mostly thought computers were machines for solving mathematical problems, predicting the weather next week, computing artillery tables, doing these kinds of things. And they understood that actually there could be devices which humans would use for themselves to solve their own problems. That would be sort of almost personal prosthetics for the mind. They'd be new media. We could use to think with and a lot of their best ideas I think out there, there's still this kind of vision for the future. And if you look particularly at some of Alan Kay's talks, there's still a lot of interesting ideas there. DAVID: That the perspective is worth 80 IQ points. That's still true. MICHAEL: For example, the best way to predict the future is to invent it, right? He's actually, he's got a real gift for coming up with piddly little things, but there's also quite deep ideas. They're not two-year projects or five-year projects, they're thousand year projects or an entire civilization. And we're just getting started on them. I think that's true. Actually. It's in general, maybe that's an interesting variation question, which is, you know, what are the thousand year projects? A friend of mine, Cal Schroeder, who's a science fiction writer, has this term, The Project, which he uses to organize some of his thinking about science fictional civilizations. So The Project is whatever a civilization is currently doing, which possibly no member of the civilization is even aware of. So you might ask the question, what was the project for our planet in the 20th century? I think one plausible answer might be, for example, it was actually eliminating infectious diseases. You think about things like polio and smallpox and so many of these diseases were huge things at the start of the 20th century and they become much, much smaller by the end of the 20th century. Obviously AIDS is this terrible disease, but in fact, by historical comparison, even something like the Spanish flu, it's actually relatively small. I think it's several hundred million people it may have killed. Maybe that was actually the project for human civilization in the 20th century. I think it's interesting to think about those kinds of questions and sort of the, you know, where are the people who are sort of most connected to those? So I certainly think Doug Engelbart and Alan Kay. DAVID: Talk about Doug Engelbart, I know nothing about him. MICHAEL: So Engelbart is the person who I think more than anybody invented modern computing. He did this famous demo in 1968, 1969. It's often called the mother of all demos, in front of an audience of a thousand people I believe. Quite a while since I've watched it and it demonstrates a windowing system and what looks like a modern word processor, but it's not just a word processor. They're actually hooked up remotely to a person in another location and they're actually collaborating in real time. And it's the first public showing I believe of the mouse and of all these different sorts of ideas. And you look at other images of computers at the time and they're these giant machines with tapes and whatever. And here's this vision that looks a lot more like sort of Microsoft Windows and a than anything else. And it's got all these things like real-time collaboration between people in different locations that we really didn't have at scale until relatively recently. And he lays out a huge fraction of these ideas in 1962 in a paper he wrote then. But that paper is another one of these huge things. He's asking questions that you don't answer over two years or five years. You answer over a thousand years. I think it's Augmenting Human Intellect is the title of that paper. So he's certainly somebody else that I think is a very interesting thinker. There's something really interesting about the ability to ask an enormous question, but then actually to have other questions at every scale. So you know what to do in the next 10 minutes that will move you a little bit towar

Michael: Hello everybody. This is Michael Gross of OptionSellers.com here with head trader James Cordier. We’re here with your March OptionSellers.com video podcast. James, as we head in to March here, what’s on everyone’s mind is the obviously the big development we had here in February. Big stock sell-off, it’s on everyone’s mind right now… stock investors are busy brushing themselves off, wondering what’s next. Over here in commodities, we didn’t really see a lot of movement in the markets themselves, but we had some developments in the option and option volatility. Why don’t we start off this month by maybe just talking a little bit about what happened in stocks themselves. James: Michael, it’s interesting, a couple of years ago we had BREXIT. We had Switzerland leaving the European Union, we also had the election outcome a year and a half ago. All these events didn’t really change fundamentals on a long-term basis, but what they did do is they injected a lot of volatility. The 3,000 point drop in the Dow Jones here just a couple weeks ago did exactly that. It turns out that there’s something called the volatility index in stocks. There was an instrument that was built for people to go short or long on it. It seems as though everyone was way short volatility. In the stock market, that got unwound, it developed a 3,000 point drop in the Dow Jones, and now we’ve got to the stock market recouping quite well. It’s probably going to continue to rally everything as far as we can tell. The U.S. economy looks good, the global economy looks good, stock profits look excellent right now. Volatility spiked in a dramatic way. For ourselves selling options on commodities, we saw volatility index spike as well. Precious metals, energies, and some of the foods did have a spike. In many cases, a lot of the positions we had did increase in value during this large increase in volatility. It’s not always fun when this happens, but it is absolutely a key ingredient in option selling. It allows us to sell options, as you know, 40-50% out-of-the-money. Without that creation that happens every 6-12 months in the volatility index in commodities and in stocks, we wouldn’t be able to do what we do. It’s a key ingredient and it did happen this past month. We’re very excited about the opportunities that it has now in selling options. Michael: It was kind of ironic, James, because you and I were watching this unfold, we were watching the stock market take a nose-dive, and we’re watching our commodities boards and basically nothing is going on. We have gold and silver prices staying silver, the grains and foods were business as usual, crude took a little bit of a sell-off, tied into stocks, but that was really the only one. Over in natural we had to sell off, but that was really already under way. It didn’t have much to do with stocks. Yet, you saw option volatility spill over from that stocks and it increased the value of those options temporarily, but now you’re seeing that come off a little bit. Is that right? James: It is. The volatility index in the stock market is practically to the same level as it was prior to the 3,000 point sell-off. In commodities, it has now come back about 75% of the level that it was at. The fundamentals never really changed at all, especially in commodities, and I think it sets up a great landscape for doing what we do. We’ll find out relatively soon. Michael: You know, a lot of people, they want to get diversified from stocks. That’s one reason why they’re interested in selling commodities options in the first place. You know, it was interesting… on CNBC they had an article about on the biggest day down in the Dow it was down, what…1,075 points or something like that? They ran an article that there was only 7 stocks higher that day and 2 of them were cereal and tobacco. It was Kellogg and one of the tobacco companies- I forget which one. CNBC’s analysis of that was, “well, even when stocks are down, people will still eat and they’ll still smoke”. That’s a point we make constantly is that no matter what’s going on, people still need to eat, they still need to drink coffee, and they still need to put gas in their tanks. James: The breakaway from the correlation from the stock market was very evident on that day. Gasoline and crude oil and soybeans and coffee… business as usual. That’s why a lot of our clients like being diversified away from the stock market. On that occasion, we did see the volatility index increase options on commodities, as well, and that’s just a key ingredient for us doing the business that we do. They did increase while we were in them. We just see, going forward, just a great opportunity to use that additional premium to position clients. Michael: So, we got a little bit of a surge in volatility, that pushed premiums up, and now that’s coming off. The premium is coming back down a little bit, but now we’ll have that historical volatility in the market. One thing you and I have talked about is now that opens up opportunities for us to do some strategies that maybe we weren’t able to do before. James: Right. In 2017, we saw volatility come down steadily the entire year, which really produced a great return for a lot of option sellers last year. Chapter 10 in the Third Edition of our book, we talk extensively about credit spreads. We haven’t had the opportunity to do that the last year or two because volatility has been low. The influx of volatility that happened over the last 30 days now allows us to do this. It is probably the most safe, sound option strategy there is. With the additional premium now, we’re looking forward to positioning in that fashion the next 6 months or so. Michael: Okay. One observation we were making as well is when volatility is up in options, obviously that’s when we want to sell them, but when the volatility is higher there can actually be less risk in selling the options because you’ve already had that surge in volatility. So, often times the path of least resistance is to come back off that volatility after you sold them. James: We saw that the months after the BREXIT, we saw that months after the Trump win during the election of 2016, and, boy, we did quite well right after that period. We expect that to happen again this year. We’ll see if that’s how it plays out. Michael: All right. As we head into March, we’re going to show you a couple ways maybe you can do just that. We’re going to move on to our feature markets segment and we will cover that in just a couple minutes. Thank you. Michael: All right. So, we’re back with our markets segment this month. The first market we’re going to talk about this month is the natural gas market, a market that’s near and dear to our hearts. Natural gas, if you’re unfamiliar with commodities, it’s a great market for selling options. There’s a ton of liquidity there and also you can sell options very far out-of-the-money, so it’s one of the core markets you want to focus on if you’re building an option selling portfolio. One of the first fundamentals that we look at when we look at markets like natural gas is going to be the seasonal tendency. As we know, seasonal tendency charts are not guaranteed by any means, but they do give you an average of what prices have tended to do in past years at different times of year. What we find is there are underlying fundamentals that tend to drive these every year. We’re going to take a look at the ones in natural gas right now. James, do you want to talk about that and why we see this type of movement in gas prices often in the past? James: It’s interesting, Michael. Often, suppliers want to bulk up for seasonal demand in winter, and everyone is basically building supplies going into December, January, and February. If the winter, especially in the Northeast, falls just a little bit shy of expectations or it’s 5 degrees cooler or warmer than normal, the supply actually is more than ample and prices usually start coming down in January and February as we see that we’re going to have enough natural gas and we’re not going to be running out. Again, here in the United States, we’ve had an extremely mild winter. Philadelphia, New York, and Boston, it has been some 10-15 degrees warmer this year than normal, and prices have come down just like seasonally they do. Supplies of natural gas this year are surprisingly low. Right now, we are approximately 23% below the supply of last year. We’re 19% below the 5-year average. That is because we’ve been exporting natural gas, something brand new to the exporting ability right now here in the United States. It’s setting up really nicely for the seasonal rally that we’re expecting. Natural gas right now is near it’s 12-month low here as we end February, often where it is this time of the year. Seasonally, what then happens is suppliers start building supplies then for summer cooling needs, which is like May, June, and July, and that often will give us a price spike starting in March and April. Michael: So, what you’re saying is this is really a factor of distributors accumulating that inventory, driving demand at that wholesale level, which is really what’s pulling prices higher… at least it has in the past. James: Exactly right. If we get through the winter, and it looks like we are again this year, prices usually come down because we are more than well supplied this time of the year. What wholesalers do for summer demand for cooling needs, especially in the Northeast, is they start building supplies and that demand boosts the prices starting in March, April, and May, and it’s setting up quite well to do that again this year. Michael: You know, it’s interesting, James, we talked about stock prices coming down earlier and a lot of people noticed a correlation and said, “oh, natural gas prices came down with stock.” That price really had nothing to do with that move in stocks. Natural gas prices were already coming down as a result of just normal seasonal tendencies. Wouldn’t you agree with that? James: Right. The natural gas market is so liquid. It takes no cues from any other market. The price of Apple stock has absolutely nothing to do with the supply of natural gas, the demand, or the price. It was in a downtrend here in the last few weeks just as the seasonal entails, and it was again this year. Natural gas definitely uncorrelated from the stock market and this year proved it as well. Michael: Let’s take a look at some of the fundamentals of where we find ourselves right now at the end of February, as far as supply goes. First of all, we’re going to take a look at the current chart, which looks a lot like that seasonal one. It looks like we may be at a low right now, technically looks like we’re a little bit set up for a rally here. Is that what you would expect it to look like this time of year? James: Michael, we could almost overlay the seasonal that we were just looking at and it lines up extremely well with this year’s pattern. The market is oversold right now, as the stochastic on the bottom of the chart describes. We really like the idea of the fundamentals being slightly bullish right now. We have nearly 20% below the 5-year average on supplies here in the United States. We’re going to be exporting more natural gas this year than ever before. As we get into the spring and summer cooling season, we do expect a nice bump up in natural gas prices, setting up, what we think, is a very good put sale for new option traders. Michael: Okay, good. That supply situation James was referring to, this shows the last 4 years. You’ll notice this line here is indicating this year where supply levels are. We are, as James mentioned, about 19% below the 5-year average as far as supplies go. So, this is where we are now. It sets up a fairly bullish fundamental supply picture, as you mentioned, James. There’s another side to that equation and that’s also the demand side. Why don’t you talk a little bit about that? James: The country is trying to get away from coal - electric power plants. We’re switching off into more cleaner utilization. Natural gas is going to be a big winner with that. Starting this year, having more so in the coming 3 or 4 years, but we are looking at record demand here in the United States for natural gas, combined with the fact that we are some 20% under the 5 year average on supplies sets up a nice bullish situation here for the next 3-6 months. Michael: I noticed, too, when we were looking at this bump for projected record demand in 2018, that came evenly from both residential and industrial demand sides… possibly speaking to a stronger economy, tax cuts, what have you, that are maybe at least partially driving that in addition to what you mentioned with coal fired plants switching over to electricity. James: Right. Definitely a push for greener production of energy here in the United States, and I think this chart shows it really well. Michael: Let’s take a look at a trading strategy here for those of you that are watching this. You put together a strategy here for, and obviously we’re doing a number of different things in our portfolios, but for the person watching at home that maybe wants to try it out or at least just see how it works… this is the strategy you suggested. James: We like the idea of selling September natural gas puts at approximately the $2.25 level. You can see where we’re trading right now. Often, with a seasonal rally that may or may not take place, we think it will this year, I think it’s set up quite well, natural gas is probably going to head up towards $3… maybe $3.10 or $3.20 this summer. We’re going to be some 30-40% above this strike price. We should have very fast decay in selling the $2.25 put. The market should stay a long ways away from it. The whole idea about trading seasonalities or trading fundamentals using short options is look at the variance you have in the market. This is a very large window for the market to stay above. If we have strong fundamentals and if we have a strong seasonality, can natural gas fall below $2.25? Of course it can; however, we really like the odds of this position going forward over the next several months. Fundamentally, natural gas should not fall below this level. Seasonally, natural gas shouldn’t fall below this level and we have record demand this year. It’s definitely a trade that we like going forward. I think it’s a great investment. Michael: So, what you’re saying for those viewing this at home, yes everything looks bullish here. That doesn’t mean it still can’t come down in the meantime to here, here, or here. That’s why you sell the option in the first place. You’re not trying to pick the bottom, you’re just saying it’s not coming here. So, we can go down here and it doesn’t matter what it does, even if we’re a little early or late on the trade, you still win at the end of the day if it stays above that strike. James: All investors know that timing the market is practically impossible. Trying to pick these small swings in the market are very difficult. All we’re simply doing is saying the market’s not going to fall below this level. As long as natural gas stays here, here, or higher, these natural gas puts expire worthless. Of course, as a seller, we get to keep the premium. Michael: Very good. Let’s go ahead and move into our next market, which will be the cotton market. Michael: Okay, we’re back with our second market this month, which is going to be the cotton market. Before we talk about cotton, there’s something I wanted to point out form our last segment in natural gas and the cotton market. These strikes we’re talking about right now have been made available by that last burst of volatility we got from the stock market. These strikes we are looking at probably weren’t available a couple weeks ago. When we’re looking at them now they are. So, this is kind of the fruits that option sellers can benefit from, from these little inputs of volatility into the market. So, let’s talk about cotton. It’s our next market for this month. The first thing we’re going to look at is the seasonal tendency for cotton. Obviously, we tend to see a rally up through the springtime months and then we see a sharp drop off. James, do you want to explain that or why that has tended to happen historically? James: Michael, this chart you can almost mirror over the grains of the United States. Basically, corn, soybeans, and wheat often planted in the spring and then harvested in summer and fall, and as the angst of the weather problems subside, so does the price. Cotton is planted in the south and, of course, it’s planted early in the year. So, as we’re planting in February, March, and April, there’s possible excitement about not exactly perfect weather. Users want to get insurance and they want to purchase cotton prior to planting season. As we reach April and May, we have a very good idea about how much cotton we’re going to be producing that year. End users get to stay off as far as needing to get a lot of cotton around them. So normally, once the commercial buying stops, the market usually starts coming down in May, June, and July. Interestingly, this formation so far has mirrored almost perfectly with what’s going on so far in 2018. We have a really nice setup looking just like this with a decent rally that started about 3 months ago. It’s starting to look like this already. Michael: Similar to that natural gas trade where you have the seasonal pattern tending to line up very closely with what we’re seeing in the actual price chart this year. Let’s take a look at where our fundamentals are this year as we look at the cotton market. The big story, ending stocks, stock/usage ratio… looks like they’re pretty healthy levels this year, James. James: They are. Cotton supplies in the United States are going to probably be exceeding the 10-year level that we had. In other words, we have cotton stocks that are going to be highest since 2007. Supplies look more than plentiful. We’ve planted just a great deal of cottonseeds so far this year in the south, and we’re probably going to have a bumper crop, the weather looks ideal, and planting went extremely well. With supplies in the United States at a 10-year high, the chance for a large rally going into harvest seems quite low. We really like the idea of selling calls. Michael: Yeah, that stocks/usage ratio at 30%... if you’re unfamiliar with the importance of these 2 figures, ending socks and stocks/usage ratio in agricultural commodities, we do have a piece on that on our website. It’s a tutorial. It’s at www.OptionSellers.com/agriculture. There’s just a brief video but it shows you the importance of these 2 figures. They’re the core measurements of supply and demand. They’re both baked into these things. With the highest in 10 years and, James, you alluded to it, next year, if they harvest all the acres they’re planning on putting in the ground this year, we could see these numbers even climb more. Outlook for cotton is somewhat bearish fundamentally, lining up well with that seasonal. Let’s go to the strategy we’re talking about this month. You’re recommending a call selling strategy. Do you want to talk a little bit about that? James: We are. We have cotton trading in the middle 70’s right now as planning season starts wrapping up. We’re probably looking at price pressure in the 3rd and 4th quarter. We really like the idea of selling cotton as high as the $0.90 level. The fact that we’re going to have practically a record supply and a record production this year at a time when supplies are nearing a 10-year high, the chance for approximately 20-25% rally going into harvest seems quite small. Cotton can fall, it can stay the same, it can actually rally quite a bit between now and harvest season. It has certainly a long way to go before we get to our strike price. This option at the $0.90 call strike price is trading around $700-$800. We think that is a very low hanging fruit for later this year and we think that we’ll probably be covering that position around $100 well before option expiration. The decay on that option looks terrific and the odds of cotton reaching that level is quite miniscule. Michael: Excellent. Part of the benefit if you’re using seasonals when you’re deciding which option to sell, these 2 things are almost perfectly matched because seasonals are not a perfect recipe. For right now, the seasonal tendency for cotton, it may not start declining until March or April, if it does at all. Even if you’re here and even if it does rally a little bit more and you’re not right at the beginning, that’s okay because, as James is saying, your strike is way up there at the $0.90 level and you’ve got plenty of wiggle room here to be wrong for a while, so to speak. James: That’s exactly right. That’s why we sell options on commodities and we don’t try and predict the small moves, just based on fundamentals, levels that the market cannot reach and will likely not reach. We’re not correct all the time. Every once in a while, the market might move in that direction, but selling options that far out-of-the-money using the fundamentals is a very good long-term strategy. Michael: If you’d like to read more about our research pieces on these 2 markets, of course they’ll be available on the blog. You’ll also want to make sure you get this month’s Option Seller Newsletter. That should be out at the end of this week, which would be March 2nd. The newsletter will go in the mail and that’s when the e-copy will go out. We will be featuring the natural gas market and trade strategies there. The cotton market will be on the blog, so if you want to read more about those be sure to get them. Let’s go ahead and move into our Q and A section and we’ll answer some questions for our viewers. Michael: We’re back with our Q and A session for this month. Our first question comes from Rob Reirick of Ithaca, New York. Rob asks, “ Dear James, you refer often to credit spreads in your book; however, I rarely hear you mention them in your market segments. Do you still recommend option credit spreads and, if so, why not features on them?” James: That’s a very good question. The layout and the description of our trading philosophy in our book is very detailed. When we’re giving examples for option sales in crude oil or cotton or anything else, we’re basically just laying out primary examples of where we think the market probably won’t reach. We often don’t talk about a more elaborate trade, which is a credit spread. We feel that credit spreads are probably the most opportune way to take advantage of high premiums and, at the same time, have a very conservative position where it locks in certain types of risk as involved with not just being a naked put or a naked call. We are looking at the next 5-10 years of utilizing credit spreads. We don’t talk about them a lot. They are something we’re going to be utilizing a lot in the future. Basically, when we’re talking about examples for option selling, we’re basically talking about straight fundamentals and levels that the market won’t reach. We are absolutely huge proponents of credit spreads and for our clients we will be doing those often now and in the future. Michael: This isn’t the only letter we got on this, James. Because you may want to read more about credit spreads and see examples, maybe we will start incorporating some of those into some of our examples in the future and showing you, the viewer or the reader, how to actually do it. James: As our viewership gets more further along with understanding option selling, I think that’d be a very good idea to elaborate a little more on the actual positioning that we do at home for our clients. Michael: Let’s get to our next question here. This is from Kevin Woo over Cupertino, California. Kevin asks, “Dear James, with the outlook for inflation growing, do you see a favorable outlook for commodities ahead?” James: Good question. As a basket of commodities for 2018 and 2019, we do see it in uptrend in primary prices. Basically, picking out a particular one that might outpace the other ones, I think that’s difficult to do. We’re looking presently at some of the best demand for raw commodities that we’ve seen for probably the last 10 years… from China, from Europe, from the United States. Of course, there’s some infrastructure spending ideas that are coming down the pike here in the United States. We do see commodity prices probably increasing this year anywhere from 5-15%. That might be led by precious metals, that might be led by energies, but, as a whole basket, we do like commodities going forward in the next 12-24 months. Of course, as option sellers, it doesn’t really matter if the market has inflationary factors that do increase commodity prices; however, if we do see that developing and we do see that on the horizon, we simply change our slant to a slightly more bullish factor as opposed to selling calls that are going to be out-of-the-money that are probably not going to be reached. We might utilize more 60% of our option selling as a bullish structure. In other words, selling puts under what we think might be a slightly higher commodities market in 2018 and 2019. I think that’s a great question and we are somewhat favorable on commodities. As a general theme, we do see the market going slightly higher this year and next year. Michael: That’s a great point you made there as well, James. I’m glad you addressed this, because this is a question we get often… “What do you think commodities will do? Is it a good time to be investing in commodities?” The point you made is as option sellers it doesn’t really matter if it’s a bullish or bearish year for commodities. We’ve had some of our best years in bear markets. James: Absolutely. Michael: It kind of goes back to one of those points we’re always making about diversifying your assets. If you have some of your assets in equities, real estate, or what have you, most people invest by buying assets hoping for appreciation. It goes back to that importance of diversification, not only of asset class into that commodity asset class, but also diversification of strategy, where as in what you described, you can benefit even if prices are moving lower, so you have a strategy equipped even in a bear market and you can potentially benefit from that. The importance of diversification is strategy. James: As option writers, you can be diversified to where part of your portfolio is looking for a slight uptick in prices while other markets that, whether you’re in stocks or commodities, and then other commodities might have bearish fundamentals and you might take a slightly bearish stance to those 2 or 3 markets. The idea of being diversified and having a portfolio that doesn’t necessarily need the stock market to rally, the commodities market doesn’t have to rally, this really gives a lot of versatility for a client or ourselves to diversify a client and have them be profitable, whether the stock market or commodities market goes up, down, or sideways. Often the market does go sideways. Right now, we have a very strong stock market, but over the last 10 years it normally doesn’t do that. In commodities, we normally have 1 or 2 really banner years out of 10 but, for the most part, commodity prices realize fair value, and selling puts and calls far above those markets can be very fruitful as we found out. Michael: Of course, if you want to learn more about the entire option selling strategy, you’ll want to read our book The Complete Guide to Option Selling. It’s now in its Third Edition through McGraw Hill. If you want to get a copy at a discount, or you get it at Amazon or in bookstores, you can buy it through our website… that’s www.OptionSellers.com/book. Thanks for watching our Q and A session, and we’ll now wrap up our podcast for the month. Michael: We hope you’ve enjoyed this month’s OptionSellers.com Podcast. James, we have in March, coming up, possibly our first interest rate hike. Do you have any comments on that or things investors might want to watch out for in the upcoming month? James: I think the realization of interest rates going up is going to really hit home. In March, we’re going to have the first rise of interest rates in 2018. There’s a lot of debate whether it’s 3 rate hikes or 4 rate hikes. It’s not going to matter that much. The dollar should be on more firm footing after the 1st hike, and then we’ll see where it goes from there. Higher interest rates are in the future and, we think, the U.S. economy and economies around the world are probably very well ready for that to actually take place. We think that’s going to create more opportunities in some of the strategies that we’re implementing. We’ll see. Michael: For those of you that are considering managed option selling accounts with OptionSellers.com, you probably saw the announcements over the month that as of May 1st, we will be raising account minimums to $500,000 for new accounts only. So, if you currently have an account under that level it’s quite all right. You’ll be grandfathered in, but as of May 1st, all new accounts will have to have $500,000 as the minimum. We are almost fully booked through April, so if you want to grab one of those last consultations through April to try and get in ahead of that minimum change, you can call Rosemary at the office. The number is 800-346-1949. If you are calling from overseas it’s 813-472-5760. Of course, you can always send an e-mail as well to office@optionsellers.com. If you’re watching our podcast today and you like what you read, be sure to subscribe to our YouTube channel. You can also get us on iTunes and, of course, you can subscribe to our mailing list on our website at www.OptionSellers.com. If you request any of our free materials there you’ll automatically get on our list and we’ll send you a notification any time we have new videos or podcasts. Thank you for joining us this month. James, thank you for your analysis on the markets this month. James: Likewise, Michael. Always happy to. Michael: … and we will talk to all of you in a month. Thank you.

Michael: Hello, everyone. This is Michael Gross at OptionSellers.com. We are here with your monthly podcast for August 25th, 2017. I’m here with James Cordier. James, welcome to the show. James: Thank you, Michael. I’m always glad to be here and share our knowledge and wisdom. Michael: Excellent. Well, we are here in the last week of August and we are heading into Labor Day weekend and right around the corner is, of course, September. A lot of people come back from vacation, a lot of traders come back into the fold, and often times we find out where we really stand in a lot of markets that may have drifted one way or the other during the summer. Right now, as we look at stocks, kind of off a little bit. From the beginning of August we’re down, although up a little bit early in the week here at time of recording. We’ve had a little push downwards and, James, I know you addressed this in your bi-monthly address to clients on video, but do you want to talk a little bit about what might be going on right now in equities? James: Yes, Michael. The equities market, as everyone knows, has been hitting all-time highs throughout the first 6 months or so of the year; however, just recently, a bit of a speed bump with just absolute chaotic times right now in Washington D.C. A lot of the Trump ideas that helped get him elected, which propelled the stock market recently, are in question. Tax relief and de-regulation and 0% interest rates all might be influx right now, and, certainly, a lot of the reasons why people were buying stocks over the last several months were these very business-friendly ideas. I wouldn’t say that they’re gone and out for sure, but certainly they’ve taken a back seat to just simply getting Washington squared away. Hopefully these ideas will come back because they definitely are business friendly. While we’re not in the stock market, we certainly do root it on, because I’m sure a lot of our listeners and a lot of our clients do have stock holdings, so we’re always rooting for it. It has taken a little pause here for certain reasons, and a lot of them are some of the goings-on right now in Washington D.C. Hopefully it’ll get straightened out before too long. Michael: Yes, obviously this market is still in a bull market. There has been no bottom falling out and there may still be some reasons to buy the stock market. Just some interesting stats I saw was that as of earlier in the week here, on the whole year the S&P was up about 9%- not too bad, but certainly off the highs. Interesting note, James, the Russell was even on the year- no gain at all. James: Right. I noticed that, and a lot of the ideas of deregulation and, you know, lower taxation, that should be helping the small caps. The Russell being basically even on the year really does bring into the question is “How broad is this rally?” Certainly, the Dow Jones, basically we cherry-pick 30 stocks and the ones we like we put in there and the ones we don’t like we take out. Certainly, the Dow Jones has done extremely well, but some of the larger gauges of the stock market, like you said, are unchanged or up a percent for the year, and I think that was an eye opener to a lot of investors that saw that in the news here recently. I know it was to me, as well. Michael: Well, I’m just glad, James, that you and I don’t have to forecast the stock market because that’s certainly too many moving parts there for me. I know you feel the same way. James: Likewise. I really enjoy investing our client’s money and talking to our listeners today based on fundamentals of 10 commodities that have been around here forever and will likely be consumed for years and years to come. Michael: On that note, why don’t we talk about something we do know quite a bit about and that would be autumn seasonals, which is the topic of our podcast this month. We’re going to talk about a couple commodities here that we do study very closely and maybe do have some insights into. As far as talking about seasonals to begin with, if you’re a listener or have been listening to us for a long time or you read our book, you’re certainly aware of seasonal price tendencies in commodities. It is something that we follow very closely. They are not the buy-all and end-all of price forecasting, but they can certainly be a very big factor and something that can help you tremendously as an option seller. James, I know we were talking quite a bit about grain seasonals this summer and how they often sell off into the fall. Lo and behold, that seems to be exactly what happened across the board. James: Boy, it really is. Grain stockpiles around the world are at extremely ample levels. We did have quite a weather rally in the month of July and, Michael, it always seems to be too hot or too wet or too cold or something, then the market rallies. Come fall season, generally, some of the greatest producers of the world of grains are here in the United States and, lo and behold, we’re going to have quite a bit of a bumper crop in corn, wheat, and soybeans. When you add that to carry-overs from all the other production in the world, lo and behold, prices come back down to earth and they’re doing again this year. We’re not even through August yet and we’re making quite a push to seasonal lows here probably over the next 30 days. We have corn, wheat, and soybeans testing 12-month lows. It wasn’t that long ago, just a month ago, they were testing 12-month highs. Certainly, there’s a bit of a whipsaw action this year, like most years, and as we get into September and October we think prices will probably be quite heavy because of seasonal factors. Michael: Yeah, the seasonal tendency is not always perfect, as you and I know. At the same time, grains this year seem to follow it to a tee. They start declining oftentimes into harvest, the market starts anticipating that harvest, starts anticipating that excess supply coming on the market, and prices tend to start going. That’s exactly what they’ve done this year, especially now that we’re past the pivotal parts of potting and pollination in corn and soybeans. So, it’s just an example. If you’re listening at home and following grains, this is an example of what seasonals can do and how they can help. It’s not always perfect, but it certainly can help. That’s what we’re going to talk about now as we come into autumn. It’s a key time of year for a lot of commodity seasonals. The seasons are changing, there’s a lot of things going on fundamentally, and the first market we’re going to talk about of course, James, is one of your favorite markets, which is the crude oil market. This is the key time of year for crude oil, as well. Maybe you want to talk a little bit about the seasonal there and what tends to happen this time of year? James: You know, Michael, you mentioned something really interesting. The seasonals aren’t the end-all to commodity trading; however, it certainly is a tool that we enjoy using. It’s not spot on every year, but what we like to do, as you know, is we gauge the fundamentals going into a seasonal time frame. If they coincide with the seasonal factors, that is certainly something we like getting involved with. The energy market coming up again is one of these. As you know, Libya, Nigeria, and west Texas are producing some 20-30% above what they were expected to produce as far as reference to oil production. If you take west Texas, Libyan and Nigerian extra barrels that they are now producing in excess of what people were expecting, it is going to come extremely close to what the OPEC production cuts were. So, Michael, if you look at it that way, the production cuts that were creating quite a bull stare in the market this summer, that seems to be coming to an end based on the fact that production is going to equal out with the extra barrels coming from those other locations. Michael: The media really hit that hard and talked about the OPEC cuts and the bulls came out of the woodwork. It didn’t seem to have much of an effect, and now you’re saying that it may have no effect on supply whatsoever, being made up elsewhere. So, as we head into fall, we’ve already taken away one of those big bullish bullets, so to speak, is what they were hanging their hat on. If we look at a seasonal chart, which if you are getting the upcoming newsletter we do have this featured prominently in there, but James, we see crude oil going into the 5-year seasonal average here, and it tends to start falling pretty dramatically in September. Now, we talked about fundamentals and underlying fundamentals driving the seasonal, but what are the fundamentals that tend to happen this year that tend to cause that price decline? James: Michael, that’s a really good question, and a lot of our listeners and clients probably have the same question. It’s basically we are looking at a balanced to over-balanced oil market; however, in the months in June, July, and August, the United States, which is the largest consumer of energy in the world, heads out for driving. It is driving season and if you think that that’s just a saying, it truly does matter. When you have some 300 million people that have vacation ideas versus stay-home ideas, that makes an enormous difference to the consumption of gasoline in the United States. In July and the first half of August, the United States set all-time records for consumption of gasoline. That is what has propelled the market here for the last 4-8 weeks that got us out of the 40’s. It got us up to $50 a barrel in crude oil. However, the magic is, starting in September and then October, all those driving ideas and all those vacations are now pictures in albums, or should I say pictures in people’s Apple iPhones. People are sitting at home and they’re digging in for school and fall, and that makes a huge difference. We think that seasonal is setting up practically perfectly again this year. Michael: So, you’re somewhat bearish as we head into fall, here. I know you’re going to be doing an interview with Bloomberg in New York next week in-studio, and you’ll probably be talking about at least partially about the crude oil market, so this is something that our listeners want to hear now is to not only what we think it’s going to do but why we think it’s going to do it. You’ve already covered a couple aspects of that. Let’s just talk about supply here briefly. We’ve talked about the seasonal, we’ve talked about OPEC, which is kind of a non-factor right now in your opinion. What about U.S. supply? What are we looking at there? James: The U.S. supply usually comes down during these large driving season months, and it has done that. We are some 3-4% below all-time record levels that we had earlier this year and late in 2016. So, the supplies have come down. Generally, that’s a very seasonal pattern. We’re not producing any extra oil or gasoline during the summer months. It basically stays pretty constant throughout the year. The seasonal factor then is the less driving that happens in September, October, and November – they call it the shoulder season. Basically, it’s after driving season and before winter hits. That is when the U.S. supplies will start increasing again and whether they hit a new time record this fall, or not, we’re going to be pushing at levels that is way more than what the U.S. needs. Of course, you have OPEC nations that will likely be scrambling and probably fudging a bit on the compliance with their production cuts that a lot of people talked about. What’s so important to know about oil is a lot of these countries, OPEC nations in particular, they have a specific amount of income that they need from their oil production. When oil is sitting at $50, it is pretty constant; however, if we start getting in down to 42, 40, possibly below 40 later this fall, they’re still needing the same amount of income from oil production. That is where it could get a little bit of a slippery slope for oil prices this fall when countries like Iran, Nigeria, Libya, and Saudi Arabia need to produce a certain income for their country and for their needs, and yet oil might be at 10-15% below the price. Then, the barrels start to flow and that’s what’s going to get probably interesting here on the downside here in the months of October and November. Michael: James, that’s a great point. You talked about OPEC and addressed it earlier that OPEC’s potentially cheating. A figure I know that we discussed a few weeks back was although OPEC is still “supposedly” under the restraints of the cuts, exports of oil out of OPEC nations hit a record in July- 26.11 million barrels a day. So, maybe they’re pumping a little bit less, but they certainly haven’t stopped selling it any more slowly, have they? James: Well, Michael, that’s the exact thing. Certainly their storage facilities and producing nations, as well, not just here in the United States, and that’s basically a way to get around the quota. They’re keeping oil flowing through export channels and, yes, lightly reducing production; however, what does that mean? That means the world is supplied, in some cases over-supplied, with oil. It’s interesting, later this fall and early this winter we could have millions of barrels more than what the world needs. Yet, if the world is producing just one extra barrel the price goes down. So, we do have some interesting times coming up in oil. We really like the idea of selling calls above this market for the next 6-month time frame. As you know, there are never any sure things, but we really like the idea of selling oil calls some 20-30% above the peak that they hit in summer as we go into the fall low-demand season. Michael: Okay. Yeah, a lot of people that listen to this or maybe watch some of our things think that to sell this we have to have oil prices go down to make money. While we think that possibly could happen, that doesn’t necessarily have to happen for an option selling strategy to be successful. James, just one more thing I wanted to throw out here, you were talking about supply levels and I pulled up some stats here while we were talking. You made a good point that supplies you’re down this year over last year, about 5.3% below where they were last year at this time, but we were at record levels last year. Even at current supply, we’re still 22% above the 5-year average. We’re certainly still in a burdensome supply situation as far as that goes. As we head into the winter months here, you’re talking about particular strategies, do you like selling naked here? When you look at it, is there a strategy that you could put together for a spread? I know we do a number of different things in our managed accounts, but maybe just for the individual investor listening… any advice for those guys? James: You know, Michael, I think some of our listeners actually take positions on our discussion, and other listeners are probably learning about selling options possibly on their own for the first time. Just as a pure speculative position for a listener is to simply take a look at selling calls, and I would say naked calls yes. Certainly we do have spread analysis we do as well in positions that we take that are covered. With oil trading around 48 and, in my opinion, probably going down to the low 40’s over the next 2-3 months, I would sell calls in the $64, $65, $66 level going out, say, 6-9 months or so. The conversation about selling naked options, I think they use that word for a reason to scare people away from doing it, but people who take a short position on oil at 48, they may have to sit with that position for a while and it may jostle around above and below their entry level. Selling calls at $65 is some 30-35% above the summer highs that we’re hitting. We’re doing it using timing, using seasonal factors, when oil will likely get down to the low 40’s, and think of how far out-of-the-money you are at that point. I would simply sell mid-60 crude oil calls and put a stop-loss on it that you’re comfortable with. Something tells me that somewhere between Thanksgiving and the holiday season that option is going to be worth about 10% of what you sold it for. We’ll have to wait and see, that’s what makes a market. That’s how we would invest in crude oil going through the rest of the year. Michael: Okay. That naked term, I think, scares a lot of stock options sellers, too, because they’re used to selling 1 and 2 strikes out-of-the-money. Of course, in commodities, we can sell much deeper out-of-the-money. We’re going to talk a little bit deeper about that later. What you’re talking about is we’re taking a position above where the price was at the highest demand point in the year and we’re taking that position heading into the lowest demand point of the year. So, those are certainly the type of odds you look for and, hopefully, if you’re listening you picked up on what James was saying and how you might go about that. If you would like to learn more and get a little bit more analysis of the crude oil market, we will be featuring in our upcoming September Option Seller Newsletter. That comes out on or around September 1st. You’ll get that in your e-mail box and, of course, a hard copy as well if you’re on our subscriber list. If you’re not a subscriber and you’re a high net-worth investor, you can subscribe on our website – optionsellers.com/newsletter. James, why don’t’ we go ahead and move into our second market here. Something you featured earlier in the month but it’s an ongoing opportunity, we feel, and that’s the coffee market. We’re rapping up the Brazilian harvest. Of course, Brazil, the largest producer of coffee in the world, and thus events in that country can have a major impact on prices. I know you’ve been following this pretty closely, James. Do you want to give kind of a summary of what’s going on in the ground of Brazil? James: Michael, some of the most ideal growing and weather conditions are happening right now in the southern hemisphere. Brazil, of course, was basically one large forest. Whether some people like it or not, the forest was cut down and coffee, sugar, cocoa, and soybeans were all planted in their place. That rainforest is just one incredible farm that feeds the world. What’s happening right now in Brazil is practically ideal conditions for productions of, especially, coffee. Coffee acreage is absolutely giant in Brazil. It’s a very large portion, especially of their mountainous regions. We have 2 cycles in coffee. One is an off-cycle and one is an on. The off-cycle obviously produces slightly less coffee than does the on-cycle. It’s basically the tree taking a rest for 12 months and then it produces the large amount again. Basically, the world is absolutely full of coffee at this point, both in Vietnam and Brazil and here in the United States. The U.S. has the largest green coffee stocks ever since they’ve been counting coffee stocks here in the United States. Also at a time when weather conditions in Brazil are absolutely ideal, we’re looking at practically perfect growing conditions for coffee in Brazil. We’re going into flowering season, which is going to start in September and go through November. If, in fact, the precipitation that has been going extremely well in Brazil is expected to continue through the rest of the year, we’re probably going to be seeing record crop production for coffee beans in Brazil next year. Basically, that entails all the fundamentals that we need to know for the entire year. Consumption stays the same- it’s always up about 1% a year. Production the next year is going to be a large surplus. It’s setting up absolutely ideal in selling options for coffee. Michael: Yeah, I saw some of the estimates. The market looks forward here- we are in 2017 but these are the futures markets. Futures look into the future. These markets are now starting to price the new crop, the crop that beans will be on the market in 2018. For 2018, as you mentioned, James, it’s a potentially record harvest. I know we had discussed there are some estimates- 58-62 million bags of coffee, which would just be gigantic. That would be an all-time record. As the market prices that, we could be in for some lower prices. I know you’re certainly looking for some prices to mitigate here as we head into our winter. Let’s talk a little bit about the seasonal since we are talking about seasonals this month. We’re pretty much at the end of the Brazilian harvest for 2017 the crop. I think as of August 1st we were about 80% done. I’m sure we’re closer to that now. What tends to happen with the seasonal price? I see we go down a little bit into the fall, then there’s a little rally in October, and after October it seems to just really fall off. What happens then? James: Michael, I think what seems to happen is investors, both speculating in coffee and users, otherwise known as commercials, they will take long positions going into flowering season. So, basically it’s not exactly a tree that coffee grows on, it’s more of a very large bush. What happens starting in October is the bush is expecting rain to develop, and then it flowers, and each flower, of course, turns into a cherry. If we have steady rainfall starting in September, a bush will flower some 3-4 times, which makes a huge difference during this time frame as opposed to if we have very small amounts of rain and then the bush only flowers possibly 2 times. Simply doing the math, you can see how important this time frame is. That is why the coffee market will start rallying in October as investors and end users want to guarantee themselves coffee prices at a certain level. Should precipitation then be ample through October, November, and the beginning of December, basically the fundamental analysis for the entire year at that point is over. So unlike waiting for monthly reports or quarterly reports out of a company that sells widgets, the production of coffee is then set in gear for the next 9 months, waiting for harvest to begin again. So, we have a rally that starts in September, it goes on through flowering season, as the weather cooperates, and all models right now are showing me that it will again this year, the price goes back down. The seasonal factors are the market falls in September. As we have harvest pressure, then we start getting a rally in September, October, and November, and then we look to sell probably very expensive call options in coffee, once again. We are bearish on the price of coffee, we are record supplies in the United States, we are going to have record supplies in Brazil, and anyone who is wondering what 60 million bags means, 6 times what is produced in the country of Columbia is what 60 million bags turns out to be. Certainly there’s no shortage of coffee over the next year or two. Michael: That’ll be good news for those of our listeners that enjoy a cup in the morning. James: Absolutely. Michael: Now James, you’ve been a proponent of selling calls in coffee most of the year now. We’ve made no secret of that. You’ve had several articles, you’ve talked to Reuters, and the whole time you’ve been moderate to bearish, but just thinking it’s continuing to sell calls is a great way to pull income out of this market, and that’s because it simply has some strong fundamentals. We don’t know if it’s going up or down tomorrow, but overall we feel there should be a price cap on prices that keeps it under certain levels. As a call seller, that’s all you really need. Now, I know you’ve been selling these and have been talking about selling them in your articles. Do you think that we’re at a point right now where you sell them or do you think since we’re heading into flowering season the better opportunity may be a few weeks or months down the road? James: Michael, as they say on TV, “That’s an excellent question”. We’ve been selling coffee calls practically all year. The coffee market has recently fallen some 15-20 cents over the last week or two, which has basically cut our calls in half in a very short period of time. I would hold off on any additional sales. We’re going to look at taking profits on our positions over the next 4 weeks or so. As listeners and people who follow along, one of the best things that could possibly happen is have a bit of a dry weather concern in the month of October. That could get prices back up another 10-20 cents that they had given back recently. I would then look to lay out coffee calls with both hands. The really interesting part about dry conditions in Brazil, if it’s just slightly drier than the farmers there would like, it’s going to likely make a difference of 1-2 million bags. When you’re talking about a 60 or 62 million bag crop that is just a drop in the bucket. Hopefully we have a little bit of weather concerns at the beginning of flowering season, get about a 15-20 cent rally on coffee, and I would be back to putting on my tuxedo and jumping back in on the short side. Michael: For those of you that would like to read more about how you can use seasonals or apply them in commodity option selling, I do recommend out book The Complete Guide to Option Selling: Third Edition. That will really lay it out for you and give you some of the key markets and key seasonals you can use in these markets. If you don’t have a copy yet, you can get it at a discount on our website – that’s optionsellers.com/book. James, we’re going to go into our lesson right now and I’m sure this is probably something anyone who has been reading or listening to us for any period of time is familiar with, but it never gets old. It’s something that bears repeating over and over. It’s something we call going deep, which is really a reference to selling deep, deep out-of-the-money calls. It’s done with a little more time on them and it’s a strategy that you’ve adhered to for some time. The common wisdom is when you’re selling options you sell them for 30 days out because you get the fastest decay, but you subscribe to the opposite theory. I think we’ve both found that when you’re trading fundamentally or seasonally, as we’ve discussed now, it’s almost optimally designed for that. Can you talk a little bit about the benefits of selling that far out and what we have to do to get there? James: Michael, it is so interesting. When you and I first discovered writing premium as an investment for clients, we were subscribing to the same ideas… 30, 60, 90 days out- that’s where the large decay is, that’s where the large curve is. Certainly, we had success doing that; however, in this day and age of computer driven buying and computer driven selling, against what the fundamentals might dictate that prices should do, we do sell options in commodities 6, 9, and even 12 months out. People who have sold options on their own would say to themselves or write the question to us, “That certainly gives you a lot of time for the market to be wrong”. My really easy answer is that it gives us a lot of time for our prediction to be right. Basically, technical factors can move the market for 30 or 60 days, whether the fundamentals had changed in that favor or not. What fundamentals won’t allow the market to do is make a 40, 50, or 60% move. So, the investors that are trading, selling options on a 30-60 day idea, and certainly they might be very successful in doing that, what we don’t want to have happen is have a technical move in a market with no fundamental market change and us get stopped out. We are paid to wait. Most investors have a very difficult time doing that. When you know what the fundamentals are, waiting is quite easy and, as a matter of fact, waiting is fun because you’ll see technical buying or selling in gold, coffee, or oil all the time. Yet, it’s not reaching ever a 50% move; however, it does make the news and it makes options expensive. That’s just the way we like it. Michael: That’s some really good points you brought up there. It reminds me of a story of why we started doing this in the first place. For investors listening that have sold close-to-the-money options, you know it requires a lot of effort and babysitting. What James is talking about, going further out in time, allowing you to sell much deeper out-of-the-money, not as concerned about those short-term random swings, higher odds. Probably one of the most overlooked benefits is lower stress, both to the investor and the trader. James, I know many people might not know that you and I, when we first started out, were retail brokers. So, about 20 years ago when we first started working together, we were brokers and we were making these trade recommendation to people and we were trading options 30, 60, 90 days out. A lot of the time, they did very well and they were very successful, but it was a high maintenance type of trading. You and I would be on the phone all day because people would be calling in and we’d be changing orders and changing positions and writing new because the market was moving and the options were always moving. When we switched to the strategy of selling deep out-of-the-money options, once that conversion was done, it was crickets. There was nobody on the phone and there was no reason to call. So, it was a lower stress for the trader, but as an investor, I don’t want to say you never have to watch it if you’re managing your own account, but certainly it’s a lot less maintenance than it is if you’re trading those short-term options. It’s almost like day trading, wouldn’t you think? James: Michael, I remember making that switch to much further out dated options. It’s so funny you bring this up. We did get one or two phone calls, and I remember one, it was from one of our favorite clients. He said, “James, I just love selling options this way because I’m such a bad trader.” Once you get that mindset, that you’re no longer gambling, you’re no longer betting on the spin of the wheel or the roll of the dice, when you’re actually taking fundamental analysis, if you possess it, and turning that into an investment, this is just a great alternative to what some mainstream investments are. Taking long-term views, treating this as an investment, once you made that switch, I know how it was for us, I would never trade a futures contract again. Selling options on commodities this far out based on fundamentals does give you the patience to wait. Let’s face it, that’s what the big money does and, U.S. listeners, that’s where you want to be, too. Michael: It’s hard to put a price on sleeping at night. I think that’s a good place to wrap it up this month. Obviously, these days, James and I offer fully managed portfolios. If you’re interested in a new account with us, I’m just looking at the sheet here, it looks like we are fully booked for September; however, Rosemary is currently booking interviews now for October openings. So, if you are interested in exploring the possibility of a managed account, you can certainly call her at the main number. That’s 800-346-1949. If you’re calling from outside the United States, the number is 813-472-5760. You can also contact her via e-mail. That is office@optionsellers.com. She will schedule you with a free consultation interview to find out more about our accounts. Obviously our recommended opening account is U.S. 1 million. Rosemary can certainly provide you with other details on the accounts, as well. James, thank you for your insights this month. James: Michael, always my pleasure. I just love chatting about what we do. Michael: Great. For all you listeners, have a great month of option selling. We will talk to you again in September. Thank you.

Michael: Hello everyone. This is Michael Gross of OptionSellers.com here with head trader, James Cordier. This is your monthly Option Seller TV Show. James, welcome to the program this month. James: Always a pleasure, Michael. Glad to be here. Michael: We have a lot to talk about this month. We have turmoil in Washington, we have some activity coming back to the VIX, and we have OPEC announcements, so there’s some volatility coming back into a lot of the markets. We’re going to talk to James about how that might affect some of the commodities we’re looking at. James, what’s your take on the new burst of volatility we’ve seen? James: Well, Michael, there is a lot of uncertainty right now. The stock market continues to meander and make new highs practically once a week, it seems, to get a new sell-off, and then buyers come back into the market. The VIX, which has been in the news recently, under 10, which I believe is about a 2 or 3 decade low, basically is saying that there’s no fear amongst investors, continue to pile into the stock market and continue to buy. The volatility index is just starting to pick up, however, in commodities. We’ve seen a dramatic move up in basically the energies and some of the metal VIX indexes, and it tells us that there is some ideas that some large moves in either the stocks or in the dollar denominated commodities might be approaching soon. Of course, we like the VIX going up – that increases premiums on both puts and calls that we follow. Michael: Now, is that spilling over from equities or anything going on in Washington, or is that happening on its own accord for different fundamentals going on in the commodities? James: I think a lot of investors are taking the cue from what’s happening from Washington and abroad. We have North Korea, we have a situation with Russia and the election, we have things going on in the Middle East right now along with Washington D.C. and a lot of the proposed changes are meeting some stone walling right now that’s going on. It is causing a lot of uncertainty and, of course, that’s something we enjoy following. Some investors don’t care for that very much but it’s certainly something that we like to see happening and it pumps up premiums on commodity options. Michael: Well, with that background setting for the month, let’s move into our first market. We are going to talk about the grain markets this month. June is a big month in U.S. agricultural markets. This is typically the month where planting is completed in markets like corn, soybeans, to a lesser extent wheat, cotton, and those type of things. When you look at seasonal factors, the end of planting season can play a big role in that. James, maybe you want to talk a little bit about what that often means for certain grain prices? James: Michael, a lot of our viewers and listeners here today hear us talk about seasonal factors. Corn and soybeans, a lot of people don’t realize, are practically everything that’s consumed. Whether it’s in China, Europe, or here in the United States, it comes from a kernel of corn or from a soybean. Practically everything we eat, dining out or cooking at home, that’s what takes place. Corn and soybeans are an absolute essential to the food system for practically everyone on the planet. It’s a huge market. The corn and soybean market basically has some type of fear or anxiety going into planting season. The planting season has to be just right or a lot of investors feel that we’re going to have smaller yields and possibly a smaller crop. Generally, it’s either too wet or too dry or too hot in May or June, and that does bid up prices often. Generally speaking, at the end of that rally and once the corn and soybeans are planted in the United States, of course, prices then come back down to earth and, lo and behold, the U.S. farmers are some of the best in the world and sometimes a bumper crop. (4:18) Michael: Now, when we talk about a market like soybeans, we didn’t really see that big run-up this year. We had relatively stable planting season and I think that kind of moves us toward what the fundamentals were this year. There’s a reason we didn’t really see a big run-up in the spring. Would you agree with that? James: We certainly haven’t seen that run-up yet. Right now, we have soybeans and corn planting just about on schedule. There was some ideas that there would be delays because of too much rain, but boy… too much rain makes a lot of grain later on this year. There still might be one or two rallies in June or July, possibly, there’s a dry spell in there somewhere. People are also talking about El Niño, which can certainly change weather patterns here in the United States. For the most part, the fundamentals are already in gear for low grain prices at the end of this year. Ending stocks, of course, are extremely high and production out of Brazil is at all-time record highs. So, if we get this weather rally sometimes in June or July, that would probably be a selling opportunity. Of course, for our clients, we are already short the grain market based on the fact that, like you said, the fundamentals right now are going to probably overwhelmed seasonal factors this year. I think we’re on the right side of that market. Michael: I know you were a proponent of selling calls this month. As far as ending stocks go, as you said, global ending stocks are “over 90 million metric tons”, which would be an all-time record for world ending stocks for the ‘16-‘17 crop year. When we’re going into this seasonal time of year where prices often start to weaken in the summer, as you were talking about, we’re going at with a backdrop of record global supplies. Even though prices have come down, I know you were very interested in selling call options on soybeans, not necessarily because you think the bottom’s going to fall out just because you think it’s going to have a hard time rallying in this type of environment. Is that correct? James: Exactly, Michael. Of course, as option sellers, we’re not exactly trying to predict where the market’s going to go but, of course, where it’s not going to go. With world ending stocks at all-time record highs, record production out of Brazil and Argentina, record production likely here in the United States. Do soybeans fall 5-10%? We’re not sure, but then going up 30%, of course, seems very unlikely. Of course, as option sellers, we are basically betting where the market is not going to go as opposed to where it has to. This year, with record ending stocks and just huge supplies from everywhere, a 30% rally in prices seems quite unlikely. Michael: Great. If you want to read James’ feature article on the soybean market for May it is on the blog. You can go back and take a look at that where he really outlines the case for selling calls this month. For those of you that would like to read more about seasonal tendencies and the agricultures or other commodities, you can also read about it in our book, The Complete Guide to Option Selling: Third Edition. That is available on our website at OptionSellers.com/book. James, lets move into our second market this month, which is the crude oil market, which we’ve certainly seen a lot of developments there. A lot has been in the news about crude this month. There’s big talk of OPEC. In fact, today right before we came on camera, we just had a big announcement for OPEC. Do you want to talk a little bit about that and what’s going on there? James: Well, Michael, ever since you and I have been in this business there has been the old adage of buy the rumor and sell the fact. I think that happened in great text today as the OPEC nations and non-OPEC nations decided, and certainly have been discussing for a long time, to extend the production cuts that were announced approximately 6 months ago. They were going to now announce that there were going to be 9 months of further production cuts. Certainly, that has been well advertised. The market did rally on those ideas over the last few weeks. I think crude oil went up from around 48 to 52 recently based on the fact that they would be extending cuts. Today, the cuts were announced that 9 months would be prolonged into the smaller production of many OPEC and non-OPEC nations. The market answered that with a resounding $2 down and the price of oil went from 52-50. Basically, the world is awash in oil, and if the fact that production cuts are going to be extended, they weren’t really that bullish to begin with. Of course, what’s happening in the United States that we might want to talk about is really the deciding factor and what’s changing oil prices. Michael: I know, even going into these cuts, you weren’t really bullish on crude and that was because of the supply and the production situation in the United States. Is that correct? James: Correct. Going into the large announcement from OPEC and non-OPEC nations some 6 months ago, very few people are familiar with the fact that weeks leading up to the announcement, OPEC ramped up production to levels never seen before. Though they did cut for the first time in 10 years, or something like that, production just prior to that went up a million and a half barrels. So, cutting and announcing a 1.5 million barrel cut really doesn’t move the needle at all. Of course, here in the United States, mainly the Permian Basin in Texas, production is now ramping up into all-time record highs. If in fact the U.S. does start producing 10 million barrels a day, which is looking like it will happen late this year or early next year, that completely erases the cuts from OPEC, which were thought to be so bullish, and the bottom line is if we have one more barrel of oil than we need the prices go down. Right now, it looks like we’re going to have approximately 1-2 million barrels more per day than we need going into 2018. The real key is going to be can OPEC stay together, be cohesive with these cuts when prices start to fall in the 4th quarter of this year. They’re going to have to hang tough because if they start cheating, this thing can really snowball and come down. We don’t’ see that happening. There’s something going on in Saudi Arabia as far as their first IPO of the largest extent ever seen before, and they’re going to do everything they can to keep oil prices high. Michael: That in the backdrop of last energy report here this month, still looking at record supplies for this time of year in the states. I think were 528 million barrels or something like that, which is an all-time record for this time of year. All this news, they’ve really been playing up this OPEC deal in the media for the last couple of weeks. Yet, here we are with a backdrop of record supply. A good point you brought up as well in the newsletter was how U.S. frackers have really ramped up production. I think we’re at 9.3 and I think you said we’re headed to 10 here at the end of the year. You can see right where they made those cuts and you put a good chart in the newsletter of where U.S. production starts trekking up again, just making up for what OPEC wants to give away. James: Exactly right. It is an absolutely gift to the frackers here in the United States that OPEC and non-OPEC nations are cutting production. It’s keeping prices still relatively high, giving new developments here in the United States chances to lock-in hedges. We were reading in the Wall Street Journal today that no longer are producers in Texas and North Dakota and everywhere in between, they’re not so susceptible to the large moves in the price of oil. They’re getting very sophisticated. A lot of areas, especially in the south, they’re able to produce oil anywhere from $20-$25 a barrel, some as high as maybe $30-$35, but they are now locking in future production using the futures market. When you can produce oil for $25 and sell it for $50 and lock that in, that’s what they’re doing. They’re taking advantage of that. As prices do fall, possibly in the 4th quarter this year, they don’t feel any pain. They just keep pumping because they’re locked into futures price at $50 printing money basically. What that’s going to do is exasperate the overproduction and the large supplies, we think, and then we could look at some prices possibly in the low $40’s to $40 later this year. Michael: Now, one more thing to talk about here as far as the seasonal tendency goes. We talk a lot about seasonals. Seasonals have kind of been knocked a little bit out of whack since the OPEC announcement back in November, but you are thinking that with the latest OPEC moves, we might see that kind of knock the market back into alignment with the seasonal tendencies. James: We really see that happening. What OPEC will be likely be doing at the very least is coming close to balancing the market again. We’ve had this boom bust every 6 months for oil production and oil prices over the last 2 or 3 years. That did change with the last production cut announcement 6 months ago. We see a slight balancing of oil production versus consumption, and that should throw us right back into the seasonalities that we enjoy so much. We love going short crude oil just as we’re coming out of driving season going into what we call the shoulder season, which means no longer driving season and yet too warm to have to heat homes and businesses in the Northeast. That is shoulder season. The market rolls over in the 4th quarter of the year so we take advantage of selling calls here in the summer and then reverse that position later this year and beginning of next. Michael: So, although we are bearish crude, neutral to bearish, we are not positioning money that we need the market to necessarily fall. Let’s maybe talk about for our viewers that maybe aren’t that familiar with option selling yet how you would position to take advantage of this type of market. James: When we heard of the announcement 6 months ago, we thought that would probably neutralize both bullish and bearish factors. We have too much supply, however we have production cuts from OPEC. We immediately put on a strangle in the crude oil market. We did think that the seasonality would probably take a pause until the end of this year. We basically took the excitement by selling $75 calls, meaning we are betting the market can’t get to $75, at the same time putting on a strangle, and by doing that we sold $33 puts – an absolute enormous window for the market to stay inside. That position has worked extremely well. Both of those positions are approximately 20% of what we sold them for. We should now go back into a seasonal pattern where we top-out in summer. What we mean by that is if oil is trading around 50-51 currently, what we would do is look at the winter contracts, say January, February, March, and look to sell options there. If we sell a $70 call while price of oil is at $50, we are basically betting where the market won’t be. This winter, we do expect the smaller demand season of January-February to take hold of 40% rally in crude oil prices during the weakest season of the year. That’s a bet we like to make and with oil at 50 selling calls, for example, around 70, basically what you’re doing is you’re playing football. You’re not necessarily passing to where the runner is or the receiver is, you’re passing it to where you think the market is going to go. Everyone is bullish in the summer and that’s where you go short. What you do is you throw it to the receiver who is running in January when demand is going to be at its least. Michael: As far as the market goes, the bulls seem to be running out of arguments here. OPEC was a big thing a lot of them were hanging their hats on and that hasn’t taken place. Now we are into summer driving season, which they will probably be talking up a little more, but with the supply where it is right now, prices tend to actually top in early to mid summer. We are just betting it’s not going to go up. It seems like anything can happen, of course, but it certainly seems like pretty high odds position from that point of view. James: I think with what’s happened to the market here in the last 6 months, we will have some equilibrium. You have producers locking in hedges, you have smaller production, so these moves from 30 to 70 are probably behind us. Crude oil prices 40 to 55 are more likely going to be the norm here for the next few years. Selling puts and going long in the low 30’s, and selling calls in the mid to upper 70’s, I think, is going to be a cash cow the next several years. As you said, anything can happen. We will have to wait and see. Selling options 40% and 50% out-of-the-money in crude oil, I think, is going to be ideal. That market is going to start finding equilibrium and some sort of balance, and what we call historic volatility is still in when you price options. The new norm is going to be more of a $40-$50 price and the volatility that was created over the last several years allows us to sell options 40%-50% out-of-the-money. That’s why we talk about volatility. That is the life-blood of what we do. From time to time, whether it’s fear of turmoil in North Korea, something going on in the Middle East, that is ideal for us is something that pumps up energy price options and we like to take advantage of that. Michael: Hopefully the media keeps helping out with that and keeps public buying those distant option premiums. James: That’s the hope. Michael: For those of you that like to learn more about the crude oil market and our strategy there, it is our feature article in the June newsletter. That will be out at or around June 1st in your mailbox. Keep an eye out for that. Obviously, in addition to our outline for crude, we also have some lessons in there about how you can sell options and manage risk is our feature this month. So, there’s quite a bit of new information there. You don’t want to miss the June issue. James, lets move into our lesson this month. This is one we haven’t done on video yet, but it is one we have talked about in our booklets if you have received our booklets in the mail. A lot of people that call in will ask us, “How do you pick the option you’re going to sell?” It’s really a short question with a very long answer, but we thought what we could do is just provide a few bullet points that if you are looking at trying to understand how this is done, the type of things we look at when we’re selecting a trade in commodities. There is really 5 things that we look at, James, that you and I have discussed. We’ll just kind of go down that list and talk a little bit about each of them. The first one on that list is something we are very big on which is the supply-demand fundamentals of that individual commodity. Do you want to talk about how you approach that when you’re looking at a commodity? James: Michael, I think a great analogy is years ago when people were investing in dot-com companies and these are names that you’re seeing on TV, they’re names that people are talking about, and the market started falling and people are looking at dot-com companies… “My gosh, I can buy it at 50% of what the price was just a few months ago. It has got to be a great buy.” They buy XYZ dot-com company, it’s down 50% from its highs, it sounds like a great buy. Then it is down 75% from its high and people are just getting white-walled here back in the crash of 2006, 2007, and 2008. You ask that investor, “What are you getting beat up in?” … “Well, I bought this dot-com company.” “What do they make?”… Not sure. “What do they do?”… Not sure. It is very difficult to stay with a position like that. We do fundamental analysis on about 10 commodities. I’ve been trading silver since when I got my driver’s license. I’ve been trading coffee for the last 20 years. We count barrels of oil constantly to try and understand what the value might be. When selecting short options based on fundamentals, when the market moves a dollar against you or people are on TV yelling about OPEC announced the cut or the market is up or down, for an investment to work you have to have staying power. You can’t get bumped out of the market on a small move. So often, if you have fundamental research and analysis, you’ll know that when the market moves slightly against you it is just noise. Computerized trading is moving the markets a lot more than it used to. We love computerized trading, it’s making our options more liquid to trade, but it also does send gyrations through the market from time to time. Having the fundamental research already in place allows you to be patient with your position. We sell options based on fundamentals. If they are not there, or we’re not sure what they are, we simply wait 6 months for them to maybe become more clear in a particular market. We want to sell options far enough out in time and price so that small gyrations in the market doesn’t disturb our position. How often does someone who does look at selling options on commodities or stocks? They’re attracted to selling the short-term option, selling a 30-day option or a 60-day option thinking, “Well, I only have a short period of time. That’ll have to wait.” But what ends up happening is a small move knocks you out of that position. Of course, what happens once month later is that market’s doing exactly what you thought it would do, except you don’t have your option anymore. We look at selling options 6-12 months out. If we thought the sweet spot for short options was closer in than that, that’s what we would do, but I have found that selling options 6 months out-12 moths out allows you the selling power to stay in your position. We were based on fundamentals when the market goes slightly against us, we just aren’t able to have patience and let the market come to us. Michael: When you know the underlying fundamentals, it’s really giving you the confidence to stay in a position and not get shaken out by this or that or what’s on the news today, which, you know, we talk about over and over and over again in everything we do. James: Writing short options, you are one thing – you are paid to wait. If you know what the fundamentals are and if they’re on your side it makes it much easier to do that. Michael: When we’re looking at trade, we look at fundamentals first. Second thing we’re going to look at is seasonal factors, which we’ve already touched on a little bit here today with some of our other things, but seasonals kind of play into the fundamentals because they’re really just reflecting certain fundamentals that tend to happen at different times of year. James: Exactly right. With the grain market, seasonal factors are there’s fears of planting, too hot or too dry conditions in the summer, and then you go right back to supply and demand in the fall. What seasonals do is they are basically fundamentals. It tells you exactly when the demand might be the most for gasoline, when the demand for natural gas might be the least. What it does is it helps us decide whether we should be long or short that particular market. If you combine that with a supply and demand, basically you are putting everything in place to allow you to put on a position and to stay with it. Michael: So, those are going to be the 2 core factors we look at when selecting a market. Obviously, the third thing on the list is volume and open interest. We have to find a market that not only is seasonally or fundamentally favorable, but there has to be enough options in there for us to go in and sell some. If there isn’t sufficient volume rope and interest, it’s not a viable market, so that’s the third selection process. That’s kind of self-explanatory, you probably don’t need to expand on that I wouldn’t think. James: Just the algorithms and the computerized trading is just making option selling just such a pleasure right now. The volume and open interest is increasing dramatically, even on far-out options. Making sure that there’s the ability to get in and out of the market is, of course, of the utmost importance. With computerized trading it is certainly helping a lot. Michael: We are using those 3 things to really select our market. The last 2 things on the list we are using for timing. What you’ll find is the last 2 things on our list are usually the first things that most option books will tell you to look at, or option gurus or option traders. That’s volatility and the technical setup. Those are the last things we’re looking at because by the time we are looking at those we’ve already picked the markets we want to be in. we are just using those 2 things for our timing, correct? James: Exactly right, if you’re trading a 2 week or 4 week option, you do need to have perfect timing. We have done all of our homework basically telling us whether we want to be long or short a particular market. Once we’ve made that determination, we try to blend in a little bit of timing to help us sell options when they might be at their peak or close to it. The desire or the need to have perfect timing with our form of option selling isn’t there, but certainly when we can see some technical buying or selling it can increase options that we’re looking to sell maybe 10-15%. We will certainly take advantage of that when we can. Michael: For those of you that are interest in this, we do get a lot of questions on this so we are probably going to be doing some new upcoming videos on these things, how you can use them, how we incorporate them when we’re managing portfolios as well. You’ll kind of learn from both sides of that. As far as just a little update here for this month, our waiting list for accounts is booked into July now, so if you are interested in possibly working with us directly, you can call Rosemary to schedule a consultation and she is filling the final slots we have now for July openings. If you haven’t heard about our accounts yet and you’d like to learn a little bit more about them, you can request our Discovery Pack, which looks like this, and that will tell you all about OptionSellers.com managed accounts, requirements, and how you can get started in them. You can request that on our website OptionSellers.com/Discovery. We thank everyone for joining us this month. James, thanks for your analysis this month. James: My pleasure, Michael. Always enjoy it. Michael: We’ll look forward to talking to you again in 30 days. Thank you.

Michael: Hello everyone. Welcome to the April edition of the OptionSellers.com Podcast. This podcast will be both video and audio podcast. This is our first video podcast. James, welcome to the podcast. James: Thank you, Michael. Very excited about doing both video and audio – get our mugs out there! Michael: I think first on the agenda this month is what we have going on in the stock market right now. Is this going to be the long awaited correction everybody’s been awaiting or is this just a little blip? What do you think? James: It’s interesting, Michael, the stock market has just been on a historic tear here ever since the election – and with good reason. If we have deregulation and we have a lot of pro-business ideas coming out of Washington along with a U.S. economy that’s doing fairly well right now, a lot of investors have been pouring into the stock market. We had the first shot across the bow, of course, with the healthcare issue being quite a bit of a swing and a miss for Mr. Trump this past week. A lot of investors right now are thinking, “Well, if we can’t get that passed maybe the deregulation and lower taxes and interest rate help may not be as much of a slam dunk as a lot of investors thought.” This could finally be the catalyst for the long-awaited 5-10% correction in the stock market. Everyone was absolutely factoring in the best-case scenario. Now, Washington D.C. quite isn’t as put together as people thought. The whole idea of a strong U.S. economy along with a very business-friendly administration, some of that’s being taken off the table right now. I wouldn’t be surprised that a lot of investors do take some chips off the table. Some of the largest investors in the world right now have thought about that and Goldman Sachs and large banks like that are talking about making their position smaller. That tells me maybe the long awaited correction probably in the 2nd quarter this year might not be such a big surprise after all. Michael: Yeah, I’ve noticed a lot of the news channels are still bullish, they’re still cheering it on, but you can’t underestimate that public sentiment. If it starts to go, everybody’s pricing in this big economic boom. If that doesn’t happen, you can’t underestimate what that can do to prices, as we’ve seen in commodities, as well. James: Absolutely. We start getting just a little more selling than buying. We keep buying the dips, buying the dips, buying the dips, and one of these times we’re going to cross a certain moving average that’s going to cause the computer to do some selling. Then all of a sudden, everyone’s racing for the door. The stock market’s not going to collapse. We’re not going to have an epic fall of 20-30%, but this long awaited correction that gets people to re-think their investment, that’s overdue. I think we could see that happen in maybe April or May. Michael: All right, well, lets talk about some ways people can get diversified, obviously what we specialize in. This month we’re going to talk about the cotton market. Some things are starting to take place there. It’s been on a pretty good bull market here for the last year or so. We’ve had lower supplies and cotton has just been gradually trending up. You and I have been talking about this over the last several weeks about we could be seeing a shift here, we think there’s some opportunities for selling premium. Talk a little bit about it. What do you see happening here? James: Generally, the ten commodities that we follow will have a spurt of buying from an importing nation and then will have a spurt of selling from producers that have an abundance of whatever the commodity is. What’s happened this past 12 months is we’ve seen Chinese imports have gone up dramatically over the 5-year average. That, of course, rallies the market. Cotton right now is at practically a 1-2 year highs. What’s so interesting, Michael, is that a lot of investors will hear that the Chinese consumption last year was up like it was and they’re going to pile in on this long position. I know we were talking a little while ago about the SPEC position in cotton. It’s at near all-time highs. It’s basically the herd driving into a market that sounds like it has bullish fundamentals, only to have the Chinese buying. Watch this- all of the sudden it will turn off the beginning of 2017. This timing coincides with plantings in the United States. They’re expected to be up some 10% this year. So, you have all this bullishness, you have all the speculators piling in. China is one of the greatest traders of commodities in the world. Obviously, they have the largest population and they need to feed them, clothe them, and provide energy. They seem to be some of the best traders, so they were buying cotton last year when cotton prices were low. Now, they’re at multi-year highs. Speculators pour in and now the U.S. farmer plants 10% more cotton than they did last year and now you watch the market turn back down. It’s a seasonal trade and it lines up with the fundamentals. Doing the opposite of what everyone else is doing right now in commodities has been quite a great trade over the last 12-24 months. Speculators race into the cotton market. All of the sudden, the fundamentals turn and all of the sudden you have them heading for the door probably this 2nd or 3rd quarter of this year, as well. Michael: Yeah, that’s an interesting point. You’re talking about prices going up on SPEC buying and demand. We were looking at the ending stocks for cotton and they are low by maybe historic standards but relatively over the last 4-5 years they are fairly high. I’m going to check my stat over here- I know I don’t want to get the figure wrong. Ending stocks for cotton this year at 4.5 million bales, that’s still the highest in 8 years. Now, what you’re talking about is you have farmers because prices are so high they are planting in 9-10% more cotton this year. We’ll know for sure here in our report at the end of the month. We’ll get planting intentions reports, but early estimates – if we’re planting 9-10% more cotton, plus we have that seasonal tendency for prices to start declining this time of year, those call premiums have really escalated up above the markets. You’re thinking this might be a good time to start picking some of those off? James: We do. It’s a great way to diversify a portfolio. Cotton right now is overpriced. The supplies worldwide are high enough to not cause any type of shortages over the next year or two. The Chinese buying is probably going to slow down and the United States is probably going to produce quite a bit more cotton than the last several years. It almost turns out to be a perfect seasonal play. We’ll wait and see if that’s the way it turns out. Michael: All right. Now, in our piece, we did write a piece on this earlier in the month, you can see it on the blog if you haven’t seen it yet, you were looking at the Dec 90 calls. Is that still a strike that you like right now? James: The Dec. 90 is like our dream call right now. We’re hoping that the market can edge up a little higher to reach that level. Selling cotton in the high 80’s is probably what we’re going to wind up doing. If we can walk into the 90 calls a little bit later in maybe April or May certainly we’d put our tuxedos on and jump into that trade. That one looks like a good one. Michael: That’s one we put out there for when we write our public articles. Obviously, when you and I are trading we’re doing this, often times a series of strikes, a series of months, sometimes even a series of strategies all in the same market for our clients. I think you kind of picked that one as a good example for people that may not be clients and are just reading this and seeing a typical type of strike we would look at. James: That’s how we would play it, both for our clients and anyone trading and taking advantage of short options or riding out there. That’s why I would steer them that way, yes. Michael: Obviously, for any of you listening to this that are interested in how we put these fundamentals together and select this type of trade, like in cotton, you’ll want to get a copy of our book, The Complete Guide to Option Selling: Third Edition. That is available on our website at www.optionsellers.com/book. You’ll get it at a better price there than you will at Amazon or your local bookstore. All right, so let’s move on and talk about one of your favorite markets, the crude oil market. We have been addressing this market over the last month or two, but we’ve come to a point now in crude oil where you think there’s some major fundamental shift going on and I think that’s presenting some pretty good opportunities for option writers. Do you want to give your overview of crude oil right now and what’s happening there? James: Michael, one of the markets that we follow most closely is because it has the most trading volume and open interest. We were earlier talking about speculative buying or selling and different commodities. Often, it’s based on headlines. We noticed that when OPEC announced production cuts earlier this year speculators raced in to the long side of crude oil. Headlines The Wall Street Journal: First OPEC Production Cuts in over a Dozen Years. Clearly, the market is going to rally, clearly it’s a great buy, it’s just a matter of how much money you’re going to make buying crude oil. That’s what speculators did. They accumulated the largest SPEC position in history right after the production cut announcement. What’s so interesting is that this herd mentality so often is wrong. Needing to peel back the onion just a little bit just prior to the production cuts, especially from OPEC, non-OPEC nations cut production as well, that’s not as important, with the exception of Russia, of course, which is the second largest producer in the world. The 3 months prior to the production cut announcement, OPEC ramped up levels of new supplies to the largest level ever. As a matter of fact, the production cut that was announced was basically equal to the increase in production the previous 30 days to 60 days just prior to the cut. Nobody hears about that. All people talk about is production cut from OPEC and the market’s going to go to the moon. Investors start buying calls and buying crude oil futures and crude oil companies, for those of you who are investing in stocks, at an all-time record pace. This past week, we’re now starting to count barrels and we’re looking for the supply cuts. Certainly, with all these production cuts by OPEC announced, we’re going to have smaller amounts of crude oil worldwide, right? Didn’t work out that way. Here in the United States, of course, the Permian Basin, the Dakotas, different parts of Oklahoma and Texas are ramping up oil production to all-time, all-time highs. The investors and speculators that push prices up to north of $60 a barrel for far-out contracts built in the greatest hedge that the people in Texas have ever believed that could absolutely happen. Texas production is approximately $16-$18 per barrel to pull it out of the ground. They were just allowed to hedge their production over the next 2-3 years at approximately $60 a barrel, a.k.a. printing money. So, the old adage of low prices curing low prices may not take place this year. Production in the United States is expected to make all-time highs at a time where OPEC is going to start probably becoming slightly fragile. OPEC production cuts, everyone is doing a fairly good job of following along with the cuts that they talked about and oil prices start to fall. OPEC nations then start to cheat and at that point we have a snowball effect. It’s probably too early for that to happen. June and July are very strong demand months here in the United States. We don’t expect to see prices really crater this summer, but this fall if we have a slight tick up in prices in June and July of this year then we’re going to be looking at call selling opportunities for December, January, February, March, the weakest time frames of the year, at the same time when supplies will probably be at their all-time greatest. We are watching with both eyes very closely for a small tick up in energy prices this June and July. Clearly, they’ve fallen off dramatically. We were talking about selling a crude oil when we did not believe production cuts to be so bullish, crude oil fell $7 shortly after that. I remember talking to clients and other people that are in the industry that don’t trade with us. I said, “Watch out! Don’t listen to this OPEC production business. It’s not bullish, the market’s going to likely fall.” We had a couple of colleagues that said, “James, why are you telling me this?” I said, “I’m just warning you because we think that the market’s going to fail here”, and he was basically saying, “Well, the whole world is bullish. We’re going to have less production.” It didn’t turn out that way. Oil fell some $6-$7 a barrel. We’re hoping for a slight up tick with strong demand for driving season this year in the United States. If we get that, we think call selling in crude oil could be good for 6-12 months out. Oil this fall and winter could be in the low 40’s, it could actually have a 3-handle on it, and we’re going to be taking advantage of that when that happens. Michael: Yeah, I just put together out summary. We sent our summary to CNBC this week on the oil market. Hopefully, they’ll want to have us on and talk about it, but if you’re listening, CNBC, we’re ready for you with our quarterly oil analysis. Feel free to give us a call. I know you, James, talking about the cuts, have not affected supply. In fact, right now, all-time record highs in the United States- 528 million barrels. That’s 27% over the 5-year average. So, I would think that still qualifies as a glut. Would you? James: Michael, that’s definitely a glut. If we have one more barrel in the world than we need, prices go down. We have just a dramatic over-supply in the United States. Ever since we’ve been counting barrels of oil in the United States, we have never had a higher supply than we do right now. At a time where production in the United States is now going to ramp up, it is a bearish scenario. Am I saying that oil is going to fall every day and it’s going to go down to zero? We’re not saying that, but as far as the investors that like the herd mentality, this June and July we’re probably going to have more ramblings out of OPEC. They’re going to say, “We’re going to extend the cuts. We’re happy with the way it’s working but we’re going to proceed to extend these cuts further.” We’ll probably get another pop from that on the bullish news, and that’s the one we’re going to use to probably lay out some calls out 6-12 months and I think that’s going to work out pretty well. Michael: For those of your listening that may not be that familiar with option selling, what James is really saying is we don’t need prices to fall, although we think that’s a distinct possibility, we just don’t need them to go skyrocketing up in this environment. With this type of supply we don’t think that’s likely, that’s why we go high above the market and sell calls. As long as the market doesn’t get there, those calls expire and investors keep the premium. Did you have your eye on any strikes you want to share right now or do you want to save that for another podcast? James: We’re going to be selling crude oils calls with a 7 on them, and I don’t mean 7 or 17, I mean 70. If they’re producing oil in Texas at 17, we’ll go short at 70. We’ll take our chances on that and I think it’ll turn out pretty well. Michael: All right. For those of you who want to read our full forecast and analysis of the crude oil market, along with some potential trades you can look at, that is coming up in our April newsletter. It’s going to be coming out within the next couple of days. Look for it in your mailbox. If you’re not a subscriber yet, you can subscribe at our website. If you come to our website and order anything you’ll be on our subscription list. We do have a special crude oil feature this month because this is the trade we’re going to be looking at now for the next several months. One thing about option selling is if you’re taking premium out of a market, you don’t just have to sell it once and take it, you can often keep mining premium into that market for months at a time. Am I right? James: That’s how we do it. Michael: Okay. In addition, in your upcoming April newsletter there’s also a special feature this month on some of the top mistakes high-net-worth investors make, particularly 1 percenters... people that are in that higher-net-worth strata, that even though we tend to be sophisticated investors, at the same time there are some blind spots there. We did a lot of research here, a lot of different reports we found, and I think you’re really going to be fascinated to see some of these things. A lot of them, James, you wouldn’t even think of as high-net-worth investors making these type of mistakes, and they do. We really put that in perspective and I think a lot of our readers will enjoy it. James: You know, money doesn’t come with instructions. So often, you hear about investors that are making their money in whatever line of work their business or company that they had, and when they go to invest on their own they don’t quite have the success. A lot of our investors, the clients of ours, made their fortunes being experts at what they do and hiring someone to do it for you is probably a pretty good idea. Michael: Well, the first hint is don’t keep it all in the stock market. I’m sure most of you probably know that. So, we’re going to move on to our lesson portion of the podcast this month. James, this month we’re going to talk about an aspect of risk management. We did a piece on some more advanced ways to manage risk this week on the blog and we got a lot of feedback and a lot of questions. Thank you, all you viewers, for that. One of the things and questions we got there was, “Well, that’s great for naked options, but what about if I’m doing a strangle? How do I manage my risk on a strangle? I’ve sold a put and I’ve sold a call on the same market- how are you managing risk on those?” I think that’s something we want to talk about and address some of our readers who maybe want to learn how we do that. James: One of our most attractive commodity options sale that I find when I’m scouring the 10 markets that we’re closely watching, and that is identifying fairly valued markets. Quite often, you will have CNBC or Bloomberg go to the pit and the gold market is down $20 or it’s up $20 and people are talking, “Oh, the gold market got hammered today. The gold market’s soaring today.” A $20 move in gold makes a headline. It makes a headline on T.V. and they go to the pits and they’re talking to the traders and what have you. A $20 move in gold doesn’t move the needle for the options that we sell. When we sell options on crude oil or coffee or gold, often they are 50-60% out-of-the-money. So, these 1-2% blimps in commodity prices for the underlining contract makes a lot of headlines, but as an option seller, whether it’s yourselves doing it for your own account or we’re doing it for you, it very rarely even moves the needle. When selling a put and a call in gold or silver or crude oil, often the distance between the put and the call is the same value as the underlining contract itself. In other words, gold is trading around $1,200. We have option sales where we strangle gold and the strangle is $1,000 wide. So, identifying fairly valued markets, gold happens to be one of them right now, we think it’s pretty close to fairly valued, the put and the call they babysit each other while you’re waiting is basically the best way I can look at it. For example, if you’re short a gold strangle, your call is $500 above the market, your put is $400 below the market, this one is offsetting the other one at the same time. So, in other words, if the gold market moves $20-$30, your call position might go against your slightly, but your put is now taking care of the differential between from where you put the initial position on. If you use the 200% rule, and we do that ourselves, it is a very, not necessarily strategic, but it’s a very easy management tool that you can use. If you have 12 positions on in the year and 2 of them double in price, do the math. That still can be a very, very great return and it does hold your risk parameters in check. If you are selling a strangle in gold, you might take in $600 on the call, $600 on the put, you have $1,200 worth of premium. Not only will a naked call or put often double, unless the fundamentals change, but that $1,200 in premium that you take in on a strangle, that will almost rarely, practically never, double in value. So, if you have a $1,200 premium in strangle, the $1,200 level for it to double to $1,400, rather $2,400, just happens so rarely. The strangle is our best approach to markets that we find that are fair valued. If you do have your put or your call pinching you just a little bit you’ll notice that the opposite direction option is doing extremely well for your account. Needless to say, you have to have risk control parameters when you first enter a position. You can put in a 100% rule on your short put or your short call. I would put 100% rule on the entire premium itself. It gives your position a great deal of time and room to work. The strangle, I think, is the very best option sale going. If you want to keep a very close reign on your put or your call you can do that. If you wind up stopping yourself out of a strangle on most commodities, in my opinion, you’re not selling enough time. A lot of investors and a lot of books talk about writing options, they talk about a 30 day, 60 day, 90 day option. If you’re getting stopped out of your short position, those are probably the options that you’re selling. I would go further out in time and in price. Commodity options you are paid to wait, and patience is the name of the game. If you’re able to put on a strangle and you’re able to wait, more times than not you’re going to have very good results. You’re not hitting homeruns selling a strangle that far out, but for those of your who want to win the game and are okay with hitting singles all year round I think that’s a great way to do it. I think our investors certainly know about that and our viewers could find that out for themselves if they wanted to. Michael: One way of looking at that, you’re talking about risking the whole premium of the strangle. In other words, you’re saying if you take in $1,200 you can risk up to $1,200 on either side. So, actually, you can be a little more aggressive on your risk management on both sides because you have that balancing affect on the opposite side. Correct? James: Exactly right. Michael: So, instead of risking your call to double value, you can almost risk it to triple value and still get away with it because you have some extra risk management with the strangle if you’re following that. James: The stay ability in a strangle, and that is the key to option selling, is being able to ride out the small blips in the market that change the premiums. Patience and the ability to wait is the key and a properly placed strangle will give practically anyone the ability to stay with that market. That is something that we find at our office for our clients that we do a great deal. The proof is in the pudding. The strangle is a great way to go. You need to identify a fair value market. If you’re able to do that, the strangle is going to be very fruitful. Michael: One of the things we talked about this week in our risk management lesson is the purpose of the risk management tactics often is just to slow the market down long enough to let them expire because time is always working in your favor. So, if you’re using a strategy like the strangle where you’re risking premium to a certain value, you can also incorporate things like a roll. You can use a roll in a strangle where you’re rolling up or if fundamentals change then maybe you just roll it into a one-sided trade instead of just a strangle. Getting a little more creative there, but all of those strategies that we talked about can also be applied to spread, even to a strangle, to get a little more advanced. James, when you’re talking about that, the 200% rule is a good basic rule that can be used either with naked or with a strangle you just described. James: Correct. For all the times you put a strangle on, there’s a chance your put or your call will double in value. As long as the fundamentals in that market didn’t change, feel free to roll down the put or roll up the call. 9 times out of 10 that will not double again and you will be collecting 75% of the premium that you originally sold for instead of 100%, but that’s a very great investment. Michael: Excellent. Well, I hope everyone’s enjoyed our first audio and video podcast this month. For those of you that are writing in asking questions and sending them, please keep those coming. We love to address those on our shows, such as this. For those of you interested in our accounts, unfortunately we are fully booked for April. We are working into our May availability now. We still have some availability for new accounts in May. If you’re interested in learning more about this, please call Rosemary at the office. It’s (800) 346-1949. She’s scheduling consultations, which will take place in April. So, if you’re interested in one of those, give her a call. She can get your scheduled. James, I appreciate your input this month. We’ll be back next month and we’ll update some of these trades and see what’s going on then. Thank you, James, for everything this month. James: My pleasure. Always happy to do this. Michael: For all of you out there, we will talk to you in 30 days. Thank you.

Michael: Hello everyone, this is Michael Gross of OptionSellers.com. I’m here with James Cordier in our home offices in Tampa, Florida. James, what a month of volatility this month. James: It certainly has been. The commodities markets for the last 18 months have been doing a slow drip to the downside. Mainly because of the slow down in China and the demand for raw goods: nickel, zinc, copper, lead, and iron ore have been slowly falling, and, finally, with the idea that interest rates are not going to go up four times this year, which everyone had plugged in to their calculations, meaning a strong US Dollar, which means lower commodity prices. That has completely reversed. Again, here in the United States, we don’t think that’s going to happen, but that has certainly shot some volatility into the commodities market, something as Option Sellers, we really wanted and waited to see. Michael: James, I know when we talk about commodities, some commodities are more volatile than others, what we saw a lot of this month was some volatility in the metals markets, particularly gold and silver. We had discussed last month a strangle in the gold market, where we sold puts and calls. I know we adjusted those positions a little bit, and I think our listeners would be eager to hear how that’s done or how you would adjust a strangle in a situation like that. James: The gold market, like anything else that we put a strangle around, has a very good chance of increasing on one side or the other. In other words, moving towards the put or the call. Often, when we sell a strangle, whether it be gold or any other market, Michael, as you know, normally we are trying to highlight around a $1,200-$1,400 strangle around the market. If one side starts moving up, in other words, the rally that we’ve had in gold, just about $100 an ounce basically overnight, did increase volatility especially on the call side, what we would certainly want to do is protect our clients at all times. Even though the gold market is still some $250-$300 away from those original strike prices, we were able to now roll up into positions that are now $500 and $600 above the current price. It’s a strategy, as far as strangling goes, of selling puts and calls simultaneously. It’s certainly one of our favorite trades, especially when you’re looking at fairly priced commodities. The fact that gold rallied $125 rapidly, certainly did make the call side much more interesting. We did roll up several of our positions to levels that we really don’t think gold can hit. We have no inflation, we have a much more stable stock market right now, the banks in the United States are much more well-capitalized, and the chances of gold going to $1,900 or $2,000 in the next several months, looks like a pretty good thing to bet against, and that’s what we’re doing. Michael: James, we’ve gotten a lot of mail in this month from people talking about trading metals and some of the moves there, and types of strategies we might recommend. One point you made, that was a great point when we were talking last week, was that now that the volatility is in the market, it’s a ….. A great point you made, James, is that a lot of people trading gold and silver look at it and say “Well, I don’t want to trade that market. It’s too volatile”, and, if you’re an options seller, it’s exactly the opposite. The more volatile it gets, the better it is for you as an option seller, and, the point you made was, now that the volatility is in the market, there’s actually less risk for an option seller. James: That’s true, Michael. As we both know, having volatility makes it seem actually more risky than it is, in my opinion. When you’re able to sell options 20%-30% out of the money in a quiet market, is that better than selling options 50-60% out of the money in a volatile market, and I would say that the latter is true. Certainly, the higher probability is in markets where you’re able to sell options further from the underlining futures contract, and that is definitely what we have in gold and silver right now. The silver market hasn’t moved nearly as much as some of our articles we’ve written recently about silver being the kind of a market between copper and gold. Gold has made the big move. The large premiums right now are in gold calls, as well as gold puts, simply because the volatility, and we think right now is an ideal time to get involved by selling options on those two markets as the volatility has finally really increased into something that’s really the life blood of option selling. Michael: It’s like the Warren Buffet mantra: “Be greedy when others are fearful, and be fearful when others are greedy.” James: I couldn’t paint that picture any better than he does. Right now, that’s really a good observation of where our market is right now. Michael: Let’s talk a little bit about what’s going on over in the oil markets. That’s had a big month there, too, and some big developments with OPEC. Can you talk a little bit about that and what’s going on with OPEC? James: You know, for the last several months, so much of the analysis that’s taken place right now regarding oil prices, and regarding OPEC as well, you know, Iran is coming on, so they’re not going to cut. Saudi Arabia finally has the new producers, the United States, they have them on the ropes, so they’re not going to cut. Russia’s not going to cut because they all need to have a certain amount of income on a weekly/monthly basis. The bottom line is, they do have to cut. They do have to balance the market. We saw the first beginning of that this past week, as both Russia and Saudi’s did agree to freeze production and, of course, the long awaited production cuts were not there yet. However, a huge step forward was taken place. The market did not hail it with a great bit of fanfare because everyone was hoping for production cuts. We didn’t get those. However, we did have a huge 180 degree turn in the idea that the largest two producers are aware and very conscious of balancing the market. I think that first step certainly was taken place in order to do that. They froze production at basically record levels, which doesn’t sound bullish, but, for the first time, in as long as we can remember, as far as this rampant move down in oil prices, the market realizes and the leaders of OPEC, certainly Saudi’s, realize that they have to balance the market. We finally have that in place right now, and we’re looking at probably production cuts being announced sometime between now and June. Iran kind of threw cold water on it by saying that production freeze is kind of silly. I think that they’ve been out of the market so long that they lost their mind a little bit, because that was certainly not welcome news to hear Iran say that. I’m sure someone’s slapping them up right now saying “Next time that we’re discussing production cuts, don’t say anything like that of the kind”. I think Iran probably learned their lesson shortly after making that little announcement. However, we do see production cuts. There were actually numbers being floated around, and I would bet a dollar right now that the next time where there are production discussions going on, Iran cheers and thinks that it’s a good idea. We’ll see if in fact it turns out that way. The oil market, which has been flirting, once again, with down near 30, is gaining Traction. We think still the chances of seeing a four-handle on crude oil this spring is very good, and we think that being short puts being in the $20-$23 range is going to be a very fruitful idea later on. Michael: The big development there wasn’t actually the deal itself, but, as you said, the big impact was psychological. It sets the stage for, finally, there’s going to be some cooperation, and, as you said, sets the stage for a possible cut later this spring or maybe early summer time. James: That would be our guess. The market has to be balanced. The Saudi’s realize that. They will be the ones to lead that charge. When you think about Venezuela and some of the other periphery countries that are in OPEC, they have to see crude oil prices rally $5, $10, $15 just to make ends meet. I think it’s going to happen. How long would a rally last if, in fact, we do have production cuts? Will there be cheating going on? Certainly there will, but when these announcements are made, and I really think they will be, we are going to see a decent rally in crude oil, and hitting $40, I think, is a real high probability going into spring. Michael: I would imagine that would probably jack up the volatility of call options as well going into summer. One strategy we talked about possibly for the summer time, not just yet, but a couple months down the road, maybe selling calls high above the crude market. James: That is going to be, in our opinion, one of the best seasonal trades along with the puts that we have on right now. Crude oil is not going to be trading at $20, no matter how many of the talking heads come on CNBC and say “It’s heading to 20”. Just before we started this discussion today, I just heard someone say it’s going to 15. That’s not happening. We love the idea of being short the puts at the $20 level. We should rally into April, May, and June. If, in fact, we do that, we’re going to see call premiums on December crude oil towards the $80 strike price. Michael, crude oil is not going to 80, either. What we really like is the idea that you get through driving season, you go into shoulder season, which is September, October, November. Prices will likely be back down in crude oil, certainly a long ways away from 80. We think that the selling puts now and selling calls this summer for the December contract, probably around $80 or $85 a barrel, is going to be a very nice low hanging free trade for us. Michael: Plus, if the market does rally $5 or $10, you’ll have all the talking heads coming on saying that it’s going to 100. That’ll help the call option premium, too. James: That’s exactly what’s going to happen. The talking heads on TV certainly help push the market in whatever direction it seems to be most easily traveling. I think May, June, and July there’s going to be discussion like that. Hopefully, people are listening and buy the $80 calls from us. I think that’s going to work out really well. Michael: For all you listeners out there that are listening to the discussion on the metals and OPEC, we address both of those markets in your upcoming Option Seller newsletter. It should be coming out on or around March 1st, so look for that in both your e-mail box and your physical mailbox. Speaking of the Option Seller newsletter, you’ve probably read we have a number of different guest analysts that now are volunteering to work with us, come on, and be interviewed in the newsletter. Some very great option talent there that’s wiling to share opinions and insights into selling premium. We’re also lining up a number of those people to participate in our future issues. James, you’ve recently had the opportunity to be interviewed by a stock option selling newsletter, Born to Sell, and you talked a little bit about differences between stocks and commodity options and how you go about managing a portfolio. I know one of the key points you were talking about there was structuring a portfolio, how we go about being in different markets, and the type of different markets you look for. Can you talk about that a little bit and what you talked about in that interview? James: Michael, that's probably the biggest transition from most investors to writing covered calls, or what have you, on their stock portfolio, and wanting to get diversified, certainly with all the volatility. Michael, you’ve seen a lot of people come over to Selling Options with us and building their own and having their own portfolio with us. Everything is about diversifying, as you know, and we want to be in the different sectors that have very little correlation to either the stock market or sometimes to the economy. I think what I enjoy most about building portfolios is that we are able to hopefully prosper in bull, bear, and neutral markets, and, also, by being able to diversify inside the commodities market itself. Sometimes the price of wheat will have very little to do with the price of silver, and coffee very little do that with the price of crude oil. It really gives us a lot of the balancing power in order to make sure that a portfolio is diversified. Certainly we have some interesting times ahead of us with a 0% interest rates and sometimes negative interest rates all around the world. We probably are going to have some interesting moves in the stock market and in commodities over the next 12 months, and I think being able to diversify is going to allow us to prosper from them, and, of course, now we finally have the volatility to sell high premiums. Michael: Yeah, it was a great point that came up in that interview, and I don't know if it made the final cut, but I know he asked you “How would a portfolio like this perform in a down market or a bad economy?”, because a lot of the stock option sellers are selling calls, they’re selling covered calls, or they’re selling puts and waiting for the market to go down so they can buy the stock. That works great, except when stocks go into a bear market. Then, those guys are sucking wind. He said “Well, how’s your portfolio doing in a down market?” and you said “Well, it doesn’t really matter. It doesn’t correlate to down markets, and it doesn’t really matter what the market is doing because you can be on either side of it.” James: Right, and the fact that we can be, you know, positioned for a weaker economy. We can be positioned for China, continuing to slow down, or there's even people talking now about a possible recession in the United States. I know that sounds really dramatic, but people like Carl Icahn are usually listened to. I know he's getting a little bit older now, but he’s a very, very intelligent man and people are following words that he says. The fact that we are able to, you know, be diversified to a point where we can prosper in a market that’s falling or an economy that’s weakening, I think, makes what we do, you know, kind of a sweet spot right now. We are able to sell calls in markets that might follow a trend down with the stock market. I think crude oil, the one that you mentioned here a little while ago, is going to be a prime example. After a small rally this spring and summer, I think a lot of the energies, and maybe the stock market, has a weakening period going into the last third and fourth quarter of this year. That’s going to be one of our, probably, favorite positions. Michael: All right, for anyone interested in learning about our managed accounts or how they work, you can request our investor discovery pack. That’s at OptionSellers.com/Discovery, or you can always give us a call at 800-346-1949, and we’ll get one of those right out to you. James, we are going to shift gears here a little bit and we’re going to talk a little bit about strategy. We spoke a little bit earlier about positioning portfolios and the type of systems we incorporate into that. One of the more popular items that people like to talk about is the concept we describe in The Complete Guide to Option Selling as “staggering”, where we’re staggering our expiration dates with the objective of having options expiring, if not every month, close to every month. Can you talk a little bit about how you do that or how you recommend other investors do that? James: Whether an option seller is doing that on his own portfolio, or, certainly we do that for portfolios ourselves, the idea is if you have a fundamental view on a particular market, say for example, the silver market has been trading around $14-$15 an ounce recently, we expect silver to probably stay in this trading range for quite some time. A position that would inquire staggering would be selling, say, the $9.00-$9.50 put in Silver. For example, say the December contract: if, in fact, time goes by and that December contract starts to decay, and if the fundamentals are the same, we would look then on to the most active contracts in silver and then start selling the same $9.50 put there. As, certainly, the front contract starts to loose some ground, and, as a matter of fact, eventually come off, we will be looking at selling the next contract and silver. Certainly, the fundamentals change from time to time and the range that silver, or any of the commodity would be trading in, is going to vary slightly and, of course, we just sell a slightly different option that way. The idea is that once a portfolio is built, and it does take several weeks to do that, as you know, you can have options expiring worthless or getting to a buy-back point every other month or every other two months. It certainly is fun once the pipeline is filled. Basically, you’re looking at options that are coming off every one to three months. If you are in six or seven different commodities, it is possible that that staggering does offer good liquidity every 30 days and, certainly, that is our objective with staggering. It takes a while to fill the pipeline, but, once it’s done, it can be very rewarding going forward as these options start coming off. Michael: An important point to make there that you brought up is that you don’t necessarily have to wait for those options to expire. For instance, if you sold silver puts and they’ve lost 50% of their value so far, you don’t have to wait for those silver puts to expire. You can go ahead and go the next month out and take in some more silver premium in the same strikes. That’s a prime example of staggering. What does that do for the investor? James: Well, like you mentioned, you don’t have to wait for the option to expire to sell another silver put or another coffee call. Basically, as you initiate a position, you have a certain amount of margin that’s earmarked from your account to hold the position. If in fact, like the example you said, Michael, an option is now trading at half of what you sold it for, what that does is it frees up the margin. If you were putting down $1,000 to hold the position, now there’s only $500 to hold that same position. Let’s utilize that additional margin money to write an option on the same commodity, possibly, and, that way, you have the staggering affect. Often, what we will do, is sell an option for a certain amount of money. As it starts approaching maybe 10% or 15% of its current trading value that you initially sold if for, that makes it a great buyback. At that point, the option that you sold after that might be looking at 50% decay and it’s a nice snowball effect, once it’s in place and working correctly. Michael: Efficiency of capital… James: Perfecto. Michael: That is really what staggering is all about. Making it work as hard as it can be working at any given time. If you're interested in those types of things and structuring a portfolio, we feel it’s probably one of the most important aspects of selling options that most option sellers overlook. They’re thinking about what market to get in, they’re thinking about what strike they want to sell, and they’re forgetting that probably the most important part is how your portfolio is structured to begin with. What market you’re going to be in, how your capital is going to be allocated, those are the type of things we really talk a lot about in The Complete Guide to Option Selling, and, of course, that book is available at book stores and online retailers. You can also get it on our website through a special offer at optionsellers.com/book. Before we close out here this month, a couple of announcements: one, we do have some consultation dates open in March for new investors. If you’re interested in a managed account, or discussing one, you can give us a call at 800-346-1949 or 813-472-5760. Again, that is to schedule a free, no obligation consultation for a managed option selling account. James, before we go, we are coming into a time of year where there’s a lot of a seasonals coming up, and are there any markets that you see, coming up in the month of March, that may have a big seasonal impact here? James: A lot of the grains, Michael, actually, in the past, had seasonalities that would take place in June, July, and August because of the crop growing season in the United States, but so many commodities now are grown in the southern of the hemisphere in Australia, and Brazil. Quite often, a lot of the grain markets right now have seasonalities that take place the opposite of what they did, certainly. February and March has been a very fruitful time for selling options in grains and soybeans, so those are something that we’re going to be looking at over the next 30 to 60 days, as well. Michael: It is a great time for seasonal tendencies. In the April and May newsletters, we are going to be talking a lot more about that. In fact, I think we’re going to see if we can get somebody from Moore Research to come on in and do an interview for a newsletter, so we’ll talk a little bit about that. Anyone who’s interested, again, we have consultation dates open in March. I believe the second part of March, we still have some dates. You can give us a call if you’d like to schedule them at 800-346-1949. Otherwise, we wish you all a great month of premium collection, and look for your newsletter next week. We will talk to you next month. Thank you.

Michael: Hello everybody, this is Michael Gross of OptionSellers.com, here with James Cordier for your March Option Seller Radio Show. James, welcome to the show. James: Michael, as always, a pleasure doing this and speaking to our audience and everyone worldwide. Michael: Well, we have a lot going on in commodity markets this month. James, let’s start off with the metals markets. We are having another surge higher here as we enter into late March. What’s going on over there? James: Well, we started rallying here, over the last week or two, with negative interest rates worldwide. Certainly, both in Europe, China, and Japan the first time people have been discussing negative interest rates. That certainly gives the catalyst for investors in these parts of the world rationale to get into precious metals. Obviously, when you’re putting your money in a bank and you have to pay the bank, that certainly gets under people’s tragh, and why not look for other investments? Certainly, Michael, when interest rates are negative, people think about inflation and we haven’t seen inflation yet. It appears to be right around the corner, and that’s what gold is pointing out with this recent rally. Michael: Yeah, they’ve been interesting markets to watch. Also, over in the energy markets, a market we’ve been talking about a lot over the last couple of months – crude oil, pushing the $40 level. Where do you think we’re going from here? James: Michael, you and I talk about seasonalities, especially in crude oil and gasoline, we’ve been trading these markets for over a decade. In regards to seasonality, one of the most ideal setups right now is taking place in energy. We are looking at perfectly fairly priced oil market, based on both supply and demand. We will often see energy prices fall October, November, December, going into what we call “shoulder season”. Then we expect this seasonal rally as driving-season approaches, and that’s exactly what’s happening now. So many people are pointing toward OPEC getting together and cutting production, and, actually, this past week they didn’t do that. They simply froze production at what level? The highest level ever. Yet, crude oil rallies $15 a barrel and gasoline rallies 20%, simply on seasonalities, and I think that’s what’s going on right now. Certainly, here in the United States, we have crude oil supplies at all time highs. You have Russia, Saudi Arabia, Iraq, and Iran producing the most oil ever, and yet the market rallies. This is the power of seasonality and it’s certainly flexing it’s muscles again this year. Michael: Well, I’ll say in a big kind of way, and bringing up seasonals, this is a very active time for seasonals in commodities. We’re going to talk a lot about that today, simply because we’re entering into a time period here… April, May, where you have a lot of strong seasonality in a commodities markets. James brought a great one up, crude oil… perfect example. We also have some strong seasonals in the grain markets this time of year, and even over into softs markets in coffee. Coffee is a highly seasonal market, as well. Grown in Brazil, their seasons are opposite of ours, where we’re having spring right now they’re having autumn. James, I know coffee is one of your favorite markets to trade. What’s going on right now? First of all, let’s talk about the seasonal. What’s the typical seasonal for coffee this time of year? James: Generally, the seasonal factors have switched to demand for this time of year. Fourth quarter and first quarter, in the Western Hemisphere of course, is the largest demand season. It’s thought that people drink a lot more coffee when it’s cold, and down here in Florida, I think we drink the same amount, but certainly the populations, northeast especially, and also regions in Europe, it’s thought that someone drinks 150% of the coffee they do in the winter, versus the summer. Generally speaking, demand is largest in the United States in January, February, and March. That often kick-starts a bit of a rally in coffee prices. That’s what we’re seeing right now. Harvest in a lot of the Central American countries and Brazil, as well, isn’t in earnest at this time of the year. We’re looking at that starting in the next three to four months. Then, supply comes on at the same time that demand weakens, and that’s why this seasonal, that we’re going to talk about right now, is going to be in play probably in the next thirty to sixty days. Michael: … and that seasonal is from the seasonal charts. Looks like we get a pretty steep drop off in coffee prices, at least historically speaking. We typically see that at the end of our spring, sometime in the April-May time period. Is that a function of harvest beginning? James: That’s a function of the end of demand season and a function of the beginning of harvest season. It’s almost the perfect storm for coffee prices. Generally speaking, demand has sapped a lot of the supply once winter is over. At the same time, we’re looking at big production in most of the Central American countries. Vietnam right now is thought to be sitting on the largest stockpile of coffee ever. Brazil is going to be producing upwards of sixty million bags this coming year. Once we get past the flowering season, once the flower turns into a cherry, and once the cherry is in good shape in Brazil, you can start counting coffee bags. Right now, we’re looking at a record for 2016-2017. Seasonally, ideal situation for the market to fall off again this year, starting April and May and the low of the years, normally made in June and July, and that is something we’re certainly going to be positioning for going forward. Michael: Record crop out of Brazil is a big story. Coffee, I know, could be one interesting development here that you mentioned earlier, before we started the show here. We have report of some type of bug in the northern part of the coffee crop from Brazil. What’s going on with that? James: That is correct. Certainly, El Nino has produced certain weather conditions in coffee crop, sugar crop, cocoa crops, all around the world. The Brazilian coffee crop is no different. The regions that are experiencing this bug that’s been eating some of the berries is in the northern fringes of the coffee plantations in Brazil. It’s primarily where the Robusta coffee is produced, not the Arabica. So, it’s not so detrimental to the coffee production this year, as if it was eating the cherries on Arabica trees. It’s not doing that. So, that will dent probably a couple million bags of production in Brazil this year. Fortunately, for someone who is going to go along with this seasonal play that we are going to be doing, the Robusta crop we probably can afford to lose a couple million bags, because the Robusta is what’s grown in Vietnam, and they’re sitting on stockpiles as high as you can see. We will not be short of Robusta coffee this year. As a matter of fact, we have quite a glut. Michael: James, one thing I was thinking, as well, is you get a news story like that where the media grabs it, you bring speculators into the market. That pushes up the volatility one the options, especially the calls, wouldn’t you think? James: Exactly, that’s playing into our hands perfectly. We’ll see, in fact, if it does play out that way. Once again, just like we have seasonalities in grains here in the United Sates for planting season, there is a seasonality for coffee prices, as well. They normally have a bit of a rally in either the months of March or April. Low and behold, here we have a rally going on right now. Primarily, it’s from the dry condition in the northern parts of Brazil. Also, this bug has been hungry for cherries recently, and who can blame it. I would be too. What a beautiful cherry to ravage, and that’s what it’s doing. It looks like it’s going to possibly reduce this year’s production by a million or two bags. We don’t think that’s going to make a big difference come harvest time. Michael: And as far as strategy goes, we have a market now coming into a time where typically it has a bearish seasonal. We have somewhat bearish fundamentals, this strategy we probably look to do there would be put together some type of call selling strategy. What do you see there, James? James: Well, quite often, a lot of the markets that we’re following right now are fairly priced. However, coffee is not going to be fairly priced. We’ve been trading around 130, 133 recently. If, in fact, the market gets up to the mid to upper 130’s, possibly 140, that will be above fair price. That will be above fair value. That should spur call buyers in coffee all the way up to the $2.40-$2.50 level, practically double the price of coffee. If we time that to sell these options to expire in fall and winter, later on this year, we’re expecting coffee price to be back down to the 120-125 level. If we’re short from $2.50-$2.60 strike prices in coffee, ideal for a seasonality and ideal for option sellers over the next 30-60 days. Michael: That’s a great point, and, if you’re listening to this, coffee is a great market to trade fundamentally and one of the big advantages if you’re an options seller. If you’re trading in this market, there aren’t a lot of traders out there who understand the fundamentals behind this market. They’re trading it technically, they’re watching the news, but if you understand the fundamentals in markets, especially like these- coffee, where you don’t have a lot of mainstream media coverage, it can be an advantage to you as a trader, especially if you’re selling deep out-of-the-money options. So, that’s one of the things we try and bring you here. James, there’s a lot of seasonals this time of year. We can’t cover all of them in just this podcast, but grains are a market that has a lot of seasonals in the spring. Corn is one market that we covered earlier this month. If you got our e-mail, you get our monthly e-mails on the markets, we did feature the corn market, we’re also getting some volatility there. Let’s start off talking about corn, James. We have a seasonal, tends to go down once we hit March-April. Can you talk a little bit about that? James: You know, the seasonality for grains, corn and soybeans, grown primarily in the Midwest, here in the United States, generally we have an idea that it’s too wet, it’s too dry for planting season. It can be either delayed, it can be the ground is simply too dry from the previous year. It seems to have a rally as we go into the end of the first quarter. We’re getting a small rally right on the grain market, and that might be primarily what’s happening right there. We expect, with corn supplies at ten-year highs, we have carryover one of the highest in almost two decades. We expect corn prices to probably head back down in late spring, early summer. Certainly, with supplies as large as that, corn is going to have a difficult time reaching some of the levels that we can sell corn calls at. Any strong move to the upside here in March or April would be ideal for selling corn calls for the end of September, October time frame. That’s something we’re going to keep our eye on, certainly. As you know, Michael, the best thing about selling options on commodities, it’s purely supply and demand. There is nothing technical that creates a bull market, there’s nothing technical that creates a bear market. It’s simply having not enough of the commodity to go around, or there’s too much of the commodity to go around. That causes prices to fall. At the end of the year, the weather is not going to be an issue, the technicals are not going to be an issue, the United States is going to be flooded with Corn. That is going to be meaning lower prices and corn calls purchased by those who buy lottery tickets, as you like to describe them. I think they’re going to be throwing them out the window, because that’s what they’re going to be worth this fall. Michael: Yeah, I agree with you, James. In corn you have a market similar to coffee, where you have a strong seasonal tendency for prices start to break right into planting season. Interesting conversation this week with Jerry Toepke with Moore Research, who is going to be featured in our upcoming April issue of The Option Seller. Jerry plays a big role in building those seasonal charts we all see online. We were talking about the corn market and corn’s one of those markets where, just as you mentioned, sometimes you get some anxiety building up to planting season. Once the crop starts going into the ground, corn tends to go in a little bit earlier than soybeans, they tend to finish up a little bit earlier than soybeans. That anxiety starts coming out of the market, price starts to break. So, you have a strong seasonal tendency for this to happen, and we also have, on top of that, some bearish fundamentals. It’s hard to state them any other way. You have corn stocks at 10 year highs- 1.8+ billion bushels. Planting intentions are expected to be 2 million acres higher this year than they were last year. At the same time, we have some things putting a little bit of volatility into the market. You have the anxiety over planning coming up, there’s some talk of some wetter soil levels in southern growing regions, and we also have the USDA planting intentions report that comes up on March 31st. We’ll get a little bit more refined picture of what planting is expected to be this year. Right now, they’re expecting it to be higher over last. Two things- you have bearish fundamentals and a bearish seasonal, so any one of those things that brings more volatility pushes call prices up, unless there’s some type of real challenge to planting this year. I agree, I think we’re going to have some great call selling opportunities there. It’s a market to watch. James: It sounds as though we’re piling in on corn, but the fundamentals don’t lie- the numbers are true. Any excitement or pandemonium over weather conditions this spring is going to create a great selling opportunity. Hopefully, we get that excitement in volatility, and, if we do, laying out calls is going to work real well, I think. Michael: Yeah, I think so, and soybeans are in the same boat to a certain degree. We’re going to be talking about them later in April. The point there is they’re a great time to trade grains this time of year, certainly a market to keep an eye on. As I mentioned, coming up in the April newsletter, you will hear my interview with Jerry Toepke of Moore Research- some great insights into seasonals. We’re also going to be featuring the coffee market, one James just talked about here, spell that out a little bit, and show you a strategy you can potentially use there, depending on where we go. While we’re talking about seasonals, James, I thought we’d go ahead and move in and talk a little bit more about how traders can use seasonals, because I’m sure a lot of people listening they’re saying “What are seasonals? I’ve heard of them. Maybe I’ve never heard of them at all”. In commodities, there are seasonal tendencies of certain markets. It’s not guaranteed, but they can be a powerful tool to use, and we use them here extensively. I think they are a very important part. James, maybe it would help some of our listeners if you talked to them a little bit about how you use seasonals. What’s the type of thing you look for in a seasonal chart when you’re looking at these things? James: Michael, quite often, commodities are fairly priced. Each day, when the bell rings on the exchange floor in New York and Chicago, the price of corn, the price of coffee, the price of gold, trades at exactly the level it’s supposed to be. Fair value. We decide that by auction, open outcry, that anyone can vote on at the end of the day, and that is where the market settles each day. For certain reasons, technical trading takes place, speculators get into the market, sometimes it’s fundamental selling or buying. The idea of trading seasonally is it reverses what inevitably is an incorrect rating. In other words, the market is falling in crude oil again this year. We are sitting at $27-$28 a barrel January and February, and everyone in the world is betting that oil is now going to $20 a barrel. Watching CNBC, watching Bloomberg, watching Fox, one talking head after the other is talking about $20 oil, $18 oil, $10 oil. That sets up the perfect seasonality for what we do. Going into January and February is when supplies are at the largest and when demand is at the least. Low and behold, what do you do? You start selling puts for the June-July time frame. Why? Because the seasonality kicks in in March and April in the United States, and that is when the beginning of driving-season happens. Seasonality allows you to define how you should be positioning yourself in the market. You don’t listen to the noise trading seasonally, you don’t get excited when the market’s at it’s high, you don’t get scared when it gets to the low. It gives you the intestinal fortitude to trade commodities, and if you allow the 82% of the time when options expire worthless, that gives you the rationale for getting yourself in the market when listening to the pundits on TV would make you fearful of doing so. Seasonality gives you guts that you need, seasonality gives you the idea that, in fact, the market is eventually going to come around to your thinking, it gives you the timing that’s needed. Trading commodities, even though we don’t need great timing selling options, it’s just one more piece to the puzzle to put the odds in our favor, in my opinion. Michael: Yeah, that’s a good point. It’s one piece in the puzzle, and, if you’re thinking about trading seasonally, these can be a powerful tool, but you can’t just look at them and use them in a vacuum. One of the things you have to understand about seasonals is there are fundamentals that tend to cause these seasonals every year. They don’t just happen on their own. So, if you can look at the seasonal that will reflect it, but to really get the most value out of it you have to understand the fundamentals behind that seasonal. James, I know one thing you do is you keep an eye on and monitor those fundamentals. Are they happening the same way they tend to happen each year? What’s different? You brought up a good point about coffee- there’s a bug in the crop. Could that have an impact that could override to seasonal? Right now we’re thinking no, but it’s still something that you have to keep an eye on, you have to understand what’s driving that seasonal to really get the most out of it. The seasonal is really reflecting what’s going on under the surface. Do you agree with that? James: Michael, we follow around 8 or 10 commodities. As seasonals start approaching, we do nothing but analyze fundamentals, we research what the fundamentals are. Quite often, going into a seasonal period, the fundamentals will be, once again, fairly valuing the particular commodity. Certainly, when oil made a low in January and February this year, there was every reason to be bearish on the market. The thing is, we go from the least demand period to the highest demand period in a very short period of time at the very beginning of each year in the United States. We go from the smallest amount of demand of energy to the largest amount of energy usage from January to April- very short period of time. The fact that we’re trading options on futures, the market doesn’t wait for that demand to increase. It expects it to. Low and behold, April, May, and June, people start driving their automobiles, and demand goes up from 20-30%. This is what spurs this seasonal to work. It is a fundamental factor that makes the market go. Knowing these seasonals in advance allows you to get in when everyone’s selling, get short when everyone’s buying, and that’s what makes this just a great piece to the puzzle… utilizing seasonality and adding it to your option selling. Michael: And as an option seller, if you are selling options, the reason we stress them so much is they’re almost a custom made tool for this type of strategy. It used to be, 10-20 years ago, there was a lot of talk about seasonals and commodities. The way people would try and trade them was “Well, let’s see. The chart here says the seasonal falls on April 20th, so we sell it on April 20th, and we buy it on June 1st, and that’s worth 12 of the last 15 years”. So, they go and do that. Low and behold, the thing goes up and they lose. So, the thought process is “Well, seasonals are no good. These things don’t work”. What people don’t understand is these are merely reflecting averages. It doesn’t mean it’s going to fall right on that day. It might not fall at all. The key thing as an option seller is you don’t have to be guessing what the market’s going to do on a daily basis. All you need is that general, typical price trend that you can look at, and then sell deep, out-of-the-money options, way above or way below it. So, even if it doesn’t happen at all or you missed it by a week or three weeks or a month, as an option seller you have so much room to be wrong that you can still end up profiting from it at the end of the day. I know that’s something we try and look for a lot of the time in our trading. James: Michael, whether our audience today is selling options for themselves or they’re considering selling options with us, or they already are, fundamental analysis on the grain market, the softs market, the energy market, it’s available to anyone. All you have to do is go online, you can find out what the supplies are, you can find out what the trends are in production. Make sure, going into a seasonality, that everything is neutral. Make sure that there’s not an underlining factor that’s going to cause the market to not trade seasonally. It’s something that we work on all the time. Our listeners who possibly are selling options on their own, you can do the same thing. Don’t simply look at a seasonal chart. Do the fundamental analysis prior to getting into the market. That’s going to put the odds in your favor, something we’re always stressing. It’s not that tough to do. Michael: For those of you who’d like to learn more about seasonals, we do cover them extensively in our book, The Complete Guide to Option Selling, 3rd Edition. They are a big component of selling options on commodities, if that’s an investment you’re looking at getting into on your own. Obviously, for our clients here, we monitor and do that for them. Speaking of, we do have some consultation dates still open for April for anybody interested in possibly talking about an account. Feel free to call Rosemary at the 800 number: 800-346-1949. She’ll let you know what we have left available in April. James, I know you have another video coming up this month. Is that correct? James: We’re going to be talking about one of our most near and dear commodities, KC, also known as coffee, probably one of the best seasonalities available in all of the market. I’d compared it to the seasonality in energy. Supplies in coffee going forward are going to be heavy to the market, and this rally that we’re getting right now in March and April, I think, is going to set up, ideally, for seasonal call selling. So, that’s something we should probably hit in this video and get everyone very well on board as this trade approaches in the next 2-4 weeks. Michael: Yeah, that will be a great video. I know we’ve gotten some e-mails and people are certainly interested in what we’re doing in metals. We’ve been mining a lot of premium there in the gold and silver markets, and I’m sure you’ll be talking about that, too, possibly in the upcoming video. That will be before the end of March. You can look for that in your e-mail box. You can also be looking for the Option Seller Newsletter. It should be to you sometime within the first couple days of April. I appreciate everybody listening today. I hope you found this podcast on seasonal tendencies interesting. As always, feel free to give us a call. If you’d like to learn more information, get a discovery pack, you can also find us online at OptionSellers.com. Thanks for listening, everybody, and have a great month of trading.

Welcome to the Shaun Tabatt Show! In this episode I speak with Michael Jordan about the new Verse Art product line from Faithlife. About Verse Art: Taking a cue from the wild popularity of their daily verse art offerings amongst bloggers and social media users, Faithlife has created a line of sixty canvas prints that will allow you to take your favorite Bible verses and related artwork "offline." Now you'll be able to showcase them in your home, office, and place of worship. Verse Art offers a great way to stay encouraged and inspired as you keep God's word in front of you each and every day. About Michael Jordan: Michael Jordan serves as a Lead Web Marketer for Faithlife Corporation. Connect with Michael and Verse Art: VerseArt.Faithlife.com Facebook Twitter (@VerseArt) E-mail Michael For additional show notes, visit ShaunTabatt.com/037.