Your Passport to Freedom, Opportunity, and Prosperity with James Hickman
Today, I’m talking to James Hickman. James is an international entrepreneur, investor, and prolific traveler who has visited over 120 countries on all seven continents. He has started or acquired businesses all over the world, including his own private bank, a prominent retail brand in Australia, and an organic, self-sufficient farm in Chile, just to name a few!
He holds multiple foreign passports and offshore bank accounts, stores gold in different vaults around the world, and grows his money using off-the-radar investments that pay way above normal yields.
James is also the founder of Sovereign Man, a community teaching tens of thousands of people how to build a free and prosperous life; one that protects your money from bankrupt governments, the volatile stock market, and world changing events — like the 2008 financial crisis or the most recent global pandemic.
In this episode, James shares experiences from his life and travels, and the unique strategies you can use to achieve more freedom, make more money, and keep more of it – regardless of your personal circumstances or what economic problems are facing the world.
- Why James decided to open a bank in Puerto Rico.
- The risky activities that banks get involved in that their clients often have no idea of.
- Why James launched Sovereign Man – and examples of common topics that he writes about.
- What makes an investment attractive to James – and why he believes that great free cash flow and negative net income is a great position to be in.
- Problems specific to investing in the United States – and why taxing the richest Americans still won’t solve the country’s debt problems.
- Why James believes in cryptocurrency – but not blindly throwing money into the crypto marketplace.
TweetablesI believe that building wealth means taking risks and working hard to create value for others, not sitting around waiting for a government handout while a central bank conjures money out of thin air. - James Hickman Click To Tweet You can actually be positive free cash flow but negative profit so you don't have a tax liability. - James Hickman Click To Tweet
Rate & Review The Lifestyle Investor
If you enjoyed today’s episode of The Lifestyle Investor, hit the subscribe button in Apple Podcasts, (or wherever you listen) so future episodes are automatically downloaded directly to your device.
You can also help by providing an honest rating & review over on Apple Podcasts. Reviews go a long way in helping us build awareness so that we can impact even more people. THANK YOU!
Connect with Justin Donald
Justin Donald: Well, James, I'm excited to have you on the show. I've actually been really looking forward to this for a handful of weeks now since we started communicating and finding a time. And I'm just thrilled because I've enjoyed all the things that you've taught and put out into the world over the years. So, thanks for joining us here.
James Hickman: Yeah. I appreciate it. I know we were going to do this a couple of weeks ago and that storm hit and you guys were, I think buried for a couple of days. So, I'm glad it worked out.
Justin Donald: Yeah. There is no doubt. This definitely is working out for the better because we got hit pretty bad with it. So, I'm so thrilled about all the things that you've been up to and all the moves that you've made over the years. You're one of the most well-traveled people that I know. And I think it would be fun to start with where all you've been in the world. How many countries have you been to? Because of anyone I know, anyone inside my network, I believe you are likely the most traveled person.
James Hickman: Well, you know, it's funny, travel's a little bit like wealth and like health and even popularity and a lot of things where you think you're at a certain level and you might meet somebody else. I remember thinking like, "I've been to a lot of places," and then I go and hang out with Jim Rogers and I'm like, "Well, this guy's been to way more places than I've been," but I think I'm up to probably about 122 countries at this point. I've been to all seven continents. I've got my favorites, I got my least favorites, but it's definitely whoever said it's a small world I don't think have ever actually traveled all that much because the world is actually a really big place and I think there's just a ton of interesting things to see, but more importantly, a lot of just wonderful, amazing people, a lot of really interesting opportunity everywhere. And that's the reason that I do it, though I haven't really been doing as much of it, obviously, over the last year or so.
Justin Donald: Well, and you've lived in a lot of places around the world as well. And I think that's cool because you have such a familiarity with all these different jurisdictions, the different laws, and rules in many different countries around the world. I just think that you're so well-versed on that front. I'm curious to know kind of what the inspiration there was. And then also, in addition to that, where all you have lived.
James Hickman: I've lived in a lot of places. I mean, I've lived in Thailand. I've lived in Uruguay. I've lived in Panama. I've lived in a lot of different places. I spent a lot of time living in Chile. Right now, I live in Puerto Rico, although at the moment I'm actually in Chile. In Chile, here I started. In most places I went, there's always a specific reason. Chile, most of the time is actually kind of business or financial related. In Chile, I started a large agriculture business several years ago and it's just really grown at an incredible pace. Back here, actually, one of our farms over here, there's a rooster hanging out just right outside of my window a little bit ago. So, if you hear some weird animal farm noises, that's where I am right now. But at the moment, my primary residence is actually in Puerto Rico. I'm there obviously for tax reasons. I'm sure your listeners probably know about that. I've been living there for a couple of years. It's been great. Puerto Rico is really interesting for a lot of reasons, a lot of interesting business opportunities there, which I'm happy to discuss if you like.
Justin Donald: Yeah. I think that'd be fun. You know, I'm heading there this weekend and we have a bunch of mutual friends that I'm going to be connecting with. And so, when I think about Puerto Rico, I think of all the great tax advantages. I had John Lee Dumas on the show a handful of episodes ago and he shared some of them. But I know that your wealth of knowledge here is pretty vast and you've even run sessions and seminars on this specific perk. So, yeah, I'd love to know the reason why you decided this was a good spot, at least for the time being.
James Hickman: Sure. Well, the basic one is I think that most people that know anything about Puerto Rican tax incentives are the individual and the business incentive. The OG guys who've been there for a while still call them Act 20 and Act 22. Now, they've changed and they've rolled everything under, I think, Act 60 incentives code. Basically, if you live there as an investor and you're kind of primarily like a capital gains guy or capital gains gal, which would include cryptocurrency and stocks and these sorts of things, people that are traders I'm sure you get that tax-free because the Internal Revenue Code deems that when your capital gains that are not capital gains from real estate but capital gains from financial securities, the source of that income is the residency of the investors. If your residence is in Puerto Rico, then you don't owe any federal capital gains tax on that. In fact, you would have Puerto Rican capital gains, but they provide us incentive to cut that capital gains tax to zero. And then, of course, if you have a qualifying business, that qualifying business pays just 4% corporate tax, a tiny marginal rounding error for municipal tax, depending on where it's located. And then that's it. There's no dividend tax or anything like that.
The one that people don't know as much about is and, frankly, it's one that's generally for wealthier people and this is something called an international financial entity, which essentially a bank. And you can actually go and structure your own bank and do a lot of really interesting things with the Puerto Rican bank. I started one several years ago. It's been actually very beneficial in a lot of different ways. There are a lot of both tangible and intangible benefits to having your own bank. For me, part of it was I just got so sick of the banking system and the constant issues and challenges, I said, "Screw them. I'm going to start my own bank." And the biggest thing, too, is that you can do a lot of things with the bank and the bank, just like the business incentive in Puerto Rico is also only subject to a 4% corporate income tax. So, there are a lot of benefits and a lot of just different - there are so many tax incentives in Puerto Rico and what we've also found is that the government there is quite flexible in terms of creating new tax incentives. If there is something that would incentivize a new industry to come to Puerto Rico, they're actually very flexible in creating tax incentives to create incentives for people to come and invest in Puerto Rico because, by God, they need it there big time.
Justin Donald: That's awesome. Well, I'm going to be looking at some real estate there, not because I'm planning to move. I'm just really fascinated and when I had JLD on the show, he said he bought his two-million-dollar home completely with the tax savings that he made by moving there. I mean, that's substantial. I'd love to get into more of the bank because you and I, we've talked at length at different events about the banking industry, the issues with banking. One of my previous guests, Don Wenner, also started his own bank. He runs DLP Capital and it talks about just the myriad of reasons to have your own bank. But I'd love to know from your point of view why you got into it. Why is this a good move? Fundamentally, I totally get it but I'm curious if there are ancillary benefits that other people may not consider. And even the pros of banking with someone like you that is going to foster the money of your clients a lot better than your traditional bank.
James Hickman: Well, it's not for everyone, that's for sure. Starting your own bank is definitely not for everyone. It's something you have to have definitely a more substantial level of wealth, level of capital for it to make sense. But if you're kind of at that point because, look, it's regulated. It's not to say like, "Oh, it's in Puerto Rico. There's no big deal." No. You've got a state regulator. We deal with federal agencies, compliance people within my own bank. I mean, it's a real endeavor. And so, the costs associated with maintaining the structure are not insignificant so, obviously, you need to be doing enough business out of the bank for it to be worthwhile. But if you are, it can make a big difference. Some of it goes back to, if you look at the tax benefits, it goes back to the things that you can do with Puerto Rico's tax incentives and some of that stuff is sort of limited to, for example, under the Individual Incentives Act. You've got capital gains that can be tax-free but other types of income, for example, interest income can be taxable if it comes outside of Puerto Rico. Well, if you do some different types of investing and you can route that, if you can do it legally and run it through a bank, for example, banks are in the business of making loans and generating investment income.
So, there are certain ways that you can actually route a lot of that income through a bank, and then suddenly that income is subject to 4% tax as well. And just personally, as an investor, I like to do loans. I like to do anything where I've got physical, legal, or administrative custody over an asset where there's a robust secondary market and a quoted exchange where I can actually understand the value of this. And so, doing those sorts of things through a bank has been actually very interesting. And another thing that's just sort of a really interesting benefit of having a bank is that once you have one, I was actually quite pleasantly surprised at how much deal flow started coming my way just because people knew that I had a bank. People go, "Oh, yeah. You know, James has a bank. Let's call him up and see if he wants to do this deal." So, that was actually very interesting as well. And I think for people that think in the way, I mean, there's a lot of businesses that I've started and things that I've been involved with over the years. And I remember a friend of mine who is a fund manager, I think he sort of accurately described it. He said, "You know, the way you're structured, it's sort of like you're like a family office that owns a bank." And I'm like, yeah, that's actually for the way we work. And so, if you think in that level, it actually might make a lot of sense to consider starting something like that.
Justin Donald: Well, that's amazing. And I know it gives so many more advantages. Puerto Rico, in general, is about as good as you can get for being a U.S. citizen and needing to live somewhere else to minimize the tax liability that you have. I mean, I don't know there's anywhere else better unless you were to renounce your citizenship, right?
James Hickman: There are some very complicated structures involving double tax treaties and certain, let's just say, European countries that things that they're very, very complicated. But I mean, for I think just sort of the average person and even I'd say the typical very even wealthy person, you're just not going to beat Puerto Rico. It's that simple. You move there and you live in the beach and your tax bill basically gets sliced down by 90%, 95%, even possibly even 100%. So, it's hard to beat. It's really hard to beat.
Justin Donald: That's awesome. Well, I know it's been a long time coming on your bank because I believe you said it took four years to get everything through. And I was talking I actually mentioned that to Don Wenner when I was doing his episode and his bank took less but he anticipated that you had other regulatory measures that you had to cross, potentially being in Puerto Rico or potentially for the type of licensing or whatever the level of certification you were looking for your bank. I'd be curious to know why it took so long.
James Hickman: Well, we have some specific needs for one that probably don't apply to most people. So, if you're just somebody that, for example, wants to have a centralized Treasury function because maybe you're an entrepreneurial-type person, you have multiple businesses and you want to create a tax-efficient, centralized treasury for all of your different companies, it doesn't really take that long. If you have greater needs, it's going to take a lot longer. But honestly, the biggest one was Hurricane Maria because when Hurricane Maria came around, we just started to get everything ready. And then basically the entire division, the regulator just shut down. It just went away. And Hurricane Maria had a massive impact on Puerto Rico for the longest time, so much so that so many government offices just closed for a really long time. And then there was, I mean, unfortunately, the commissioner, I think he was in place at that time actually passed away. They had an interim commissioner then got replaced by somebody else. And so, there's just a lot of turnover and just a lot of those sorts of issues that went on that a lot of the stuff kept happening. And we're just like, "Oh, my God, this is..." And then we had something with one of the federal agencies where the specific structure of our bank, we had to go and make changes to the structure in order to comply with a federal regulation that gave us access to that agency. So, there's a lot of complications very specific to my bank but I think for most people, it shouldn't take that long if it was something they were interested in doing.
Justin Donald: Yeah. That makes sense. And I just think it's awesome you were able to do it so congratulations there. I mean, that's a long process but I'm sure it just feels so great to know that you are able to accomplish it because there are so many benefits, not just to you, but to the people you serve, to the people that are going to use your bank that you're going to be a good steward of that money. And I'd love to kind of dive into just some of the just horrible ways that banks manage and invest money as a general rule and how risky they are because most people have no clue that the bank that is holding their money is investing in derivatives and high-risk stuff and that their solvency ratio is in a very scary place, especially a lot of these U.S. banks. Can you speak to that?
James Hickman: Yeah, sure. I mean, it is a little bit weird that when you think about it, when we were little kids and we think banks are safe, this is what we're told. Everybody knows banks are safe and you grow up and suddenly, whatever, you get a job or you start a business or something and you just go to a bank and you sign some papers and you start giving these people your money. You would never do that under any other circumstances. It was some guy comes up to you on the street and said, "Hey, let me have your life savings," you go, "Here you go," and then walk away. Of course, you wouldn't do that. You want to check the person out, you'd want to get a much better understanding and build a relationship and so forth. And yet with banks, we just sort of blindly go in, assume that everything is safe. And what's really weird about it is that even though over and over and over again, there's just a constant news flow of these guys that are screwing us and they're lying to us and they're stealing from us or they engage in just wantonly reckless, irresponsible behavior and then go to the taxpayer with their hat in hand and say, "We're too important. You need to give us more money because we're too important to go out of business." I mean, it's completely ridiculous when you think about it. They spy on their customers. They've gotten to the point now where the most innocent transactions, the most innocuous transactions now are met with derision, suspicion, constantly hassling people, demanding unnecessary paperwork.
And everybody's got their own stories and I've got a ton of them myself. I've got more or less kind of like one account that I use in the U.S. because it's connected to my family, to my parents, and if I need to give money to people, whatever, it makes it very easy that way. I remember I was making a transfer to my sister. This was not too long ago. The bank made this big deal about it and I'm like, "I've been a customer of yours since for like 25 years at least. My sister has been a customer for 25 years. This is not really that much money." And it was just the scrutiny over this sort of thing. It's just completely ridiculous. And then you actually start peeling back some of the different layers of the onion and start diving into some of the bank's financial statements and you start saying, "Well, hey, wait a minute. Let's take a look at this stuff that's on your books." And the first thing, you know, most of the bigger banks, they publish this stuff. They have quarterly financial reports and balance sheets and regulatory reports that they have to file. And so, most people never look at this stuff. Very few bank customers actually look at any of these things. In some cases, I think they should. I think people really ought to check out their financial partner. And if you really look pretty deep, you might not like what you see. In some respects, there's very little transparency. So, for example, a big bank might just have on its balance sheet, you know, they've got $800 billion in loans and that's it. That's all they say is it's just loan and you go, "Wait a minute. What kind of loans are we talking about? What's the collateral? How much is the collateral worth? Who's the borrower? What's the creditworthiness of the borrower? And what are the terms? And when can I expect? Because you're doing this with my money. This is my money." This is our money that they're doing this with and they don't really provide any of those sorts of details. And I think that finance, in general, demands a level of transparency that basically doesn't exist in modern banking.
Justin Donald: You know, it's such a fascinating thing like hearing you break it down and having this experience myself. So, this is what really bothers me about banks. When I put my money in a bank and then I want to take my money out of a bank and if you've never tried this, try taking $10,000 or $15,000 or $20,000 in cash out at one time. Well, number one, if it's over $10,000, there's going to be a report to the IRS that kind of flags you. But number two, often these banks don't even have that much cash on hand to be able to give you. And they say, "We need you to plan ahead of time." And then the third thing that can happen and has happened to me is they say, "Well, why do you need it?" "Well, what do you mean why do I need it? It's my money. I'm giving it to you. I'm lending it to you so that you can make money on it and safeguard it. So, you're making your money on it but why should you be able to stop me from getting my own money?" And then that your account can be frozen at any time for any reason. I mean, it really is just crazy. And this coming from these institutions, even the biggest name banks that are out there that have had some of the largest financial scandals in the history of the US. It really is absurd.
James Hickman: Yeah. I mean, it's probably surprising for some people to realize that when you make a deposit, actually, legally it's not even your money anymore. Now, it's the bank's money. You don't actually have money anymore. You have a claim on the bank's balance sheet. You become basically an unsecured creditor of the bank. So, it's not your money. It's the bank's money. And that's a weird thing for people, which is why they feel really entitled to freeze you out of your account or demand, pepper you with 20 questions about what you want to do with this money that you loaned to them that, in theory, should be your money but, legally, it's not. Legally, it's the bank. And you look at all of this, all these problems, all these challenges, all this risk, these crazy things they're doing with the money. I mean, some things we know that's crazy they're doing with the money. We saw that blow up back in 2008. If you look at the balance sheets, we see now that most banks keep very little cash as a percentage of customer deposits. They keep very little liquid assets as a percentage of customer deposits. They keep very little capital as a percentage of the total balance sheet. I mean, so many scandals there. Again, they're lying. They're stealing from customers. They're not honoring contracts. They're milking stuff. And they're charging exorbitant fees. And what do we get in exchange for all that? 0.03%. That's the big prize. That's the big prize. That's what we get for all this hassle and all this trouble. At a certain point, a rational person has got to look at it and say, "There's just got to be a better way. This is ludicrous."
Justin Donald: Well, and to your point, part of what the banks hold so they'll take part of your deposits and they'll put it in bonds or short-term like T-bills and then they're earning a good return on that. When you can go straight to Treasury direct or there are many different places where you can go directly to get these things to earn a higher percentage than what the bank is doing with that portion of your money. And then with the other portion of your money, they're investing in risky things, high-risk derivatives, oftentimes, which we saw in the last financial crisis. And then on top of that, when you want to get your money out, it's guilty until proven innocent. It's the opposite of our legal system. It really is just such a peculiar experience.
James Hickman: It really is. And again, but it's one of those things that few people actually ever think about it. Most people have felt the pain but few people have really ever kind of paused and said, "Wait a minute, this is nuts and there's got to be an alternative," because we've been sort of programmed practically since birth like this is just what it is. You just put your money in the bank. In a way, it's like being in a bad marriage or something like that where you just feel like there's no alternative. I just have to stay with this person that constantly abuses me. That's kind of what it is with banks. And they say, "Oh, well, there's competition. There's not really any competition. They're all the same. Nobody can really claim that there's a whole lot of difference between one big institution and another big institution. They're all sort of part of the same oligopoly. They all invest in the same sort of thing. And you're talking about bonds and things they invest and there's just another great example of things that they provide very little transparency about. But it is interesting. If you think about the setup as a thought experiment, you lend money to a bank. When you make a deposit, you're essentially loaning your money to a bank.
In theory, you're supposed to be able to demand that deposit back. That's why they call it a demand deposit. You're supposed to be able to get that money back whenever you want. And yet the banks take that money, your money, my money, our money, and they go and they loan that stuff out, whether they buy bonds. Now, they're making loans to the federal government or they're making some mortgage for 30 years or they buy a 30-year government bond or a ten-year government treasury note. And so, now they've tied our money up for potentially decades and yet I'm supposed to be able to come in whenever I want and pull my money out. And you look and go, "How is that even possible that you could basically turn my money into a 30-year asset but have a short-term day-by-day liability back to me. It just doesn't compute. And so, the entire system is sort of built on that. And when you add in all of the fraud, the scandal, the mistreatment, the pitifully low interest rates, all those things, again, just doesn't make sense.
Justin Donald: Yeah. And then you've got this archaic and antiquated system of just banking in general, right? Like you can't wire on the weekends. We're closed on a Sunday. You can't wire at 3:00 a.m.
James Hickman: Oh, it's 3:00 p.m. It's 3:00 p.m. You can't do what you want with your money anymore. I mean, it's like, well, yeah. I mean. Give me a break. I mean, it's like it's 1875. I always joke about this. It's like they send a wire transfer. They still act like they're putting a bunch of cash in satchels on pony express and riding it across the country to deliver this. This is like everything about this is ludicrous. And I remember when I started my bank and we started dealing with some of these, let's say, big international intermediaries, I remember one of these organizations actually told us and they said, "Well, now, what we need you to do is go and find a computer that has Windows 7 on it because that's what our whole core platform runs on." We're like, "Wait a minute, Windows 7? This is an operating system that has been abandoned by Microsoft. There's not even service for security anymore. I mean, you might as well use DOS or like Windows 95 or something like that. What are these people doing? And yet they run countless transactions that exchange information and international wires and so forth. Honestly, it's an embarrassment.
Justin Donald: Well, I really appreciate your perspective there and I'd love to change gears because you started a company called Sovereign Man, and I think it's one of the coolest companies out there and it's such a great look at becoming a sovereign individual. I'm curious, what made you want to decide to start that company and you start out with a pen name of Simon Black? And for anyone that gets your newsletters and your emails, you always sign it Simon Black. So, I'd love to know the story and the origination of both Simon Black and Sovereign Man.
James Hickman: Well, it's less interesting probably than you might think it is but look at it this way. If I'd known it was going to last so long, I would have made some different decisions. But when I first sort of came into the idea of sort of writing and things like that, I never really done anything like that before but the guys that sort of kind of more or less recruited me into it, they're the ones that made the suggestion, "Oh, you should use a pen name." I was just coming out of the intelligence business. I was in the military and they thought that was interesting and use an alias just like an intelligence thing. Yeah. Okay, fine. And that's when it started and that was 2007, actually, I think how far back that goes. And so, like I said, if I had known then what I know now or known that it would last so long, I would probably make some different decisions. At this point, I mean, that was a long time ago and over the years, I have started a lot of different businesses. And now, again, we kind of run like a family office and start companies, invest in a lot of other companies, try and mentor entrepreneurs that are in a lot of different industries. But it's all around us still. We still write three, four, or five days a week sometimes and put a lot of content out to people. But, yeah, I think the origin story is probably less interesting perhaps than you might think it is.
Justin Donald: Well, I love the name. I think it's really cool. To me, it's like James Bond-esque and the name is still catchy.
James Hickman: Well, I think that's what they were going for back in 2007. So, if that's the case then maybe mission accomplished. But, I mean, I'm just James and as I do business and so forth, Simon Black is just a pen name and it's one like I said, I'm surprised that I think when I got started in that business, I didn't necessarily have the long-term view that I have now on business and investment and so forth. It was just kind of something that I fell into. But I enjoy it and I think as a business it's been very interesting. I think the best thing about the business is the people that have been attracted to it that I've met, our customers, our members. You obviously know so many of them. I mean, they're just some of the most wonderful people, you know, like-minded folks. And ultimately, I think our whole ethos is just really about freedom and personal freedom and personal responsibility, self-reliance and I think these are very frankly, very logical, very sound messages. It's not any kind of crazy conspiracy theory. I think it's very rational. I would tell people it's like, "You know, look," I mean, you read our stuff. It's like we say, for example, "The treasury secretary of the United States puts it in black and white in their annual report that Social Security is going to run out of money in the not too distant future. So, this isn't a conspiracy theory. This is the Treasury Secretary of the United States. And so, anybody that plans on retiring at some point in the future probably ought to know that the Treasury Secretary is telling you that they're going to have to cut benefits. There's just no way around it. And so, again, this isn't some crazy lunatic conspiracy theory. This is the Treasury Secretary of the United States." And so, all we kind of step in and say, "Look, here are some things to think about. Here are some ways to set aside more money for retirement. Here are some structures that you can set up to create more tax benefits for yourself to be able to do that." So, that's really what it is. It's just an ethos sort of personal responsibility, self-reliance, logic, reason, and personal freedom.
Justin Donald: Well, I love it. I've been the recipient of just great content and great relationships. I'm part of your total access, obviously, and we've gotten a chance to spend some time together because of that and I just think it's cool. And I've been able to invest in a bunch of deals with you and I am very pleased about that because these are companies that I would have never known about. I'm curious for our listeners and for our viewers, what are the types of companies you like to invest in? I mean, you kind of have a very wide range of investments and I feel like you're really good at looking at trends. I talk about this in one of my chapters, one of my ten commandments is invisible deals, and that's spotting trends and seeing new technologies, and figuring out where the status quo may get interrupted and transformed. So, I'd love that just to hear more of your thought process on investing in general.
James Hickman: Well, I think in a nutshell, and before I do any investment, I always think there's either is it something that I'm investing where I'm a minority stakeholder or is it something where I'm acquiring the entire business? And frankly, to me, it's kind of the same and if I look at in the same way, if I were investing in the stock market, I wouldn't want to buy a single share of the business unless I wanted to buy all the shares for business. And it was just a company that I would actually want to own and that's always the first question that I ask myself, is this a business that I want to be in? That's going to depend a lot on whether it's the industry that I want to be in. There are certain industries that I specifically targeted where years ago I said I want to have an AI business, I want to have a machine learning business. I definitely want to be very deep into different cryptocurrency businesses and some of these pretty obvious trends that years ago we really wanted to get out in front of. But also, is this the business that I want to be in? Do I want to be in this business? It also has to do with the fundamentals of the actual business, not just the industry. So, is this sort of the cash flow profile that I'm looking for? As an investor, in general, I think everybody's got a different investment objective. I like cash flow. To me, cash flow I think every business should be profitable and I think some years ago there started to be this bizarre shift in investing where it didn't matter.
We work. The more money we lose, the more popular our investment comes, the higher our valuation, all these things, which just didn't make sense to me and we see this with a lot of, frankly, very popular stocks that in many respects, either the more money they lose or maybe make a tiny little bit of money and the CEO comes on Twitter and says some stuff and the stock price goes through the roof and it's not what business is supposed to be, which is generating a strong, positive, free cash flow. And I use that term very deliberately because from an accounting perspective, there is a difference between free cash flow and net income or net profit and I focus on businesses with strong free cash flow. Frankly, a good position to be in is where you have a business with great free cash flow, but actually negative net income because then it takes away your tax liability but you get to put a lot of money in your pocket. That's a great position to be in. And sometimes, for example, real estate gives you that opportunity. You can have that because of depreciation expenses and so forth. You can actually be positive free cash flow but negative profit so you don't have a tax liability. So, these are the things that I look at in terms of do I want to be in this business? The second question I ask especially if I'm making a passive investment or minority investment is, are these the people that I want to be in business with?
And that's probably the most important, frankly, is I only want to be in business with people that I think are, you know, I go back. I went to the military academy in 1995. Norman Schwarzkopf gave a great speech to the Corps of Cadets at West Point and he, you know, talked about leadership in the 21st century and he said, "Leaders of the 21st century have two characteristics. They have competence and they have character. You know, they're good at what they do and they're trustworthy, reliable people of integrity." And those are exactly the two things that I look at in terms of the entrepreneurs and the founders and when I assess essentially these people that I want to be in business with. And then the third tenet really is, is this a price I'm willing to pay? And that gets down to valuation and things which has been most of which have been very lofty. I was looking at a deal, I look at deals all the time, which is this one came across my desk. I mean, people want $50 million for a business that's still in the early stage form. I saw one recently. It's $200 million for very early-stage business. I mean, there are some really ludicrous valuations out there, but those are kind of really the three key tenets that I look at. And I don't always get it right but that's what we strive for.
Justin Donald: Well, I think it's so important to have your investment tenets or criteria. You know, my book is based on having my ten commandments or my ten criteria, and you've got yours. And that's why you can invest and it spans over different industries. So, we've invested in agriculture. We've invested in junior gold mining. We've invested in technology, in Amazon for Eastern Europe.
James Hickman: The emerging frontier markets. Yeah, exactly.
Justin Donald: Yeah. I mean, it's just so cool. And music royalties. I mean, there's just so much stuff we've been able to do. And we're making investments that are outside of the United States. So, for me, I live in the United States so I feel like it's really good to have exposure outside the borders of my own country. And I know you're a big proponent of that as well.
James Hickman: I am. I mean, frankly, I spent most of my adult life outside of the United States from the time that I was in the military through today and now, again, it might not be for everybody, but for me, it's been great. You know, different cultures, different languages, different experiences. For me, it's been a lot of fun and very comfortable overseas. But I think as well, from an investment perspective, in many respects, there can be a lot of very unique and often overlooked opportunities abroad. The agriculture business here in Chile is actually a great example of that. When you look at it, what we sell is something that has a global market price. And yet as a producer, we have production, we have distribution. It's a large, in many respects, vertically integrated business now. But just as a producer, for example, I look at between what we produce and what our competitors in the Northern Hemisphere produce. Their land costs are five to ten times as much. Their labor costs can be five to ten times as much. Their input costs are more expensive. You know, transportation costs to be more expensive and yet the price that we get per kilo or per ounce or for whatever are basically saying actually because we're in the southern hemisphere we produce during times of global scarcity, our prices are actually better. And so, the margins are just so much better.
And it's just an example of looking at agriculture, which I think from a macro perspective has a bright future. If you look at inflation, if you look at population growth with all these different things, I think agriculture really has a lot of very positive growth fundamentals. But looking at that from an overseas perspective, you can see actually now you've got a sector that has a strong future for a lot of different reasons but now you're in a place where the margin is so much higher simply because you look overseas instead of domestically. So, it's a very interesting example of, I think, how broadening your horizons. Again, the world is a big place and it's worth looking at when making some of these decisions and at least keeping in the back of your mind saying, is this something that I might be able to do better, more efficiently, or with higher margins overseas?
Justin Donald: Yeah. And I think it's also good to realize as you're investing, that times change. And just because you may live in a nation that is a superpower today doesn't mean that that's going to maintain in the future. And we're already seeing some warning signs. I'm real curious to get your take on the state of the economy because I know this is something that you are passionate about, that you have a lot of perspective on. I mean, there's a lot of different directions we could go but I'd love to know just preliminarily what your thoughts are.
James Hickman: If you mean specifically in the US, I think, look, in the U.S., there is an extraordinary abundance of bright, talented, sharp people who go out and create value and do amazing things. They develop technology and they build businesses. And so, at the end of the day, there's bright and talented professionals and there's hardworking people. At the end of the day, that's really what an economy is. It's about people producing stuff whether that's goods or services. And so long as you've got that kind of population, I think very smart, talented, willing people who can do that work, that's really how an economy is built. And I still believe that in the United States. The issue with the U.S., of course, is that there are so many things I think economically that exist now that are completely artificial, where you've got the Federal Reserve that has conjured trillions of trillions of dollars out of thin air that just sprinkle it all over the economy, that inflates asset prices. You've got the Federal Government that's created an enormous amount of debt that weighs very heavily on not only current, but future taxpayers and future generations of workers. You've got unfunded pension programs. I mentioned Social Security earlier. I mean, this is not a small problem. This is a problem that literally goes into the tens of trillions of dollars. Again, not my math. This is the Treasury Secretary of the United States who says this.
So, there are a lot of really, I think, difficult things both from a fiscal and monetary perspective that present enormous challenges now and into the future. The biggest one of those, I think, really is just the issue with the currency itself with the dollar and it's gotten to the point where they've kept interest rates at effectively zero for so long. And this is what has caused people that, I mean, you could go out and buy a house now and get a mortgage. I was just looking not too long ago when the rates had a two-handle on it and I just couldn't believe it. I couldn't believe it. And it's gotten to the point now where if people suspect, I mean, just in the last week, there is this fury in financial markets because the 10-year Treasury note got up to what? A point and a half. And this is considered outrageously high now to be 1.5%. And, you know, people's heads explode. Financial markets go into turmoil because 1.5%. And this is extremely dangerous now because they reached the point where at least the financial markets at a minimum and more and more than likely now, most of the economy, the real estate market, businesses, I mean, and so many businesses, the commercial debt in the United States, business debt, corporate debt is obviously at an all-time high and say all these companies that are borrowing, borrowing, borrowing, and all this stuff depends on ultra-cheap interest rates. And so, if interest rates go up to even just 1.5%, everybody loses their mind.
And so, if you get to the point where even this rate goes up to even just something as ridiculous as 3%, what happens? I mean, now we might be looking at a major crash, a lot of industries just going under. And I don't like to talk in terms like that or use words like crash and so forth, but just looking at, again, the fury that we've seen in financial markets and at how dependent like a junky. So many industries are on ultra-cheap interest rates. It doesn't leave the policymakers really any room to raise rates very much at all. And this is a huge problem because if we start seeing signs of inflation, which already exists, there's a lot of signs of inflation already and rent prices, food prices, and a lot of different things, they don't have the ability to go and raise rates to prevent that because then the financial markets in many respects they have had these huge declines. You have a lot of companies that go out of business as a result. On the flip side, if there's another big recession, they don't have the ability to cut rates anymore because they're already at zero. So, they're just stuck where they are right now. When you have the largest, most powerful central bank in the world, they can't go up and they can't go down. That's just not a great position to be in from a macroeconomic perspective. And so, that's the kind of stuff that I think about and tend to write about.
Justin Donald: Yeah. And the greatest deficit in the history of the nation, right?
James Hickman: History of the world.
Justin Donald: History of the world. I mean, this is absolutely nuts. And most people just are completely clueless as to what trillions of dollars actually looks like. And we're not talking about just whatever you see and hear. There's also the unfunded liabilities that exist too that need to be taken into account. And then you hear about the government talking about wiping out all these student debt, which is one of their number one revenue sources. So, it is really fascinating. I'd love your thoughts on that.
James Hickman: Yeah. The debt one is quite interesting because just as a small correction, so on the federal government balance sheet, where they have like any business or individual, they've got assets and liabilities, the largest financial asset on the government's balance sheet is student debt. So, this is essentially money that the federal government has loaned out to young people across America and said, "Here, use this money to go and fund your education and then you'll pay us back over 15 years or whatever." And now they're saying they want to forgive that debt, which sounds nice in theory but essentially this means that there's like a trillion dollars that is going to wipe off the federal government balance sheet. And you just got to look at this and go, "Dude, you're really at like a negative $50 trillion." I mean, maybe they figure, "Hey, we're already negative 50. What's another trillion? Like, who cares at that point?" But again, it's this kind of mentality that concerns me because they think from a dollar or the interest rate perspective, it can't go up and it can't go down but the Federal Reserve says, "Well, we're just going to keep printing money as much as we want," and the federal government keeps saying we're just going to keep spending money as much as we want. And now there's just no limit to their largesse and they say we're going to have green new this and free that and universal that and all this stuff and you go, "Man, somebody's got to pay for that at a certain point," but there's just no thought given and they think they can go out to wealthy people and say, "Oh, we're going to tax rich people."
Elizabeth Warren wants her two cents and they're going to go, "Sorry, lady, this is just a drop in the bucket." I mean, you could go and tax two cents, you could tax five cents, you could tax 10 cents, you could literally confiscate all the wealth of the richest people that they despise so much, they could confiscate 100% of the wealth of all the rich people and it wouldn't make a dent in the problem. They wouldn't make a dent in the problem. And that's the thing to think about. So, we've got all these wonderful, smart, hardworking, talented Americans and we've got these complete stooges in the government that are making these decisions have no clue what they're talking about, what they're doing, and honestly, it's disgusting and, you know, I think it's pretty easy to understand why people feel so angry and it doesn't even begin to scratch the surface of some the issues I think that people have but, yeah, I think that's a situation that we're facing.
Justin Donald: Well, and the way that you solve it is funny, right? You've got these states that are raising state taxes to astronomical levels and instead of raising it on the wealthy, it probably makes more sense to make your state more tax-advantaged so that more people come in. So, you make the pie bigger versus have people leaving, but having a higher tax. That's really, you know, some of the solutions don't make a lot of sense to me and it's fascinating. And so, I love talking about this because I think it's important that people make decisions about investing and about their future based on these realities. These are not speculations. This is real. These numbers, you can look them up. These are published numbers and I think it's good to just be in the know. And it also begs the question of what does that do if we have this fiat currency that is becoming devalued and debased every single day. We've got another 1.9 trillion that's about to get approved in some way, shape, or form here in a matter of days or weeks and we've got about 40% right now of the total amount of dollars circulating in the US that were just created within the last 8 to 12 months. And then you're going to have another 1.9 trillion to add to that. So, what does that bump it up to? 45%, something. I mean, it's really just such a high number. So, it begs the question of how relevant is cryptocurrency in this space where you can have something like Bitcoin that can't be printed? There is a finite amount that is made. There's 21 million. That's it. And 5 million are probably lost forever. So, that lowers it. And I'm curious your thoughts there.
James Hickman: Well, look, I mean, I have been pro-crypto for, I mean, since 2011, 2012. I first presented it to our audience, I think, in 2012 or 2013. So, yeah, I'm obviously very on board. I think anybody who - you can't look at these numbers and think, "Oh, no problem. Nothing to see here." I mean, I mentioned earlier about thinking very long term and I think that's more important than ever. And this isn't just in the U.S. or the U.S. is the biggest culprit right now. I mean, the deficit this year in the United States is probably going to be larger than the entire GDP of the United Kingdom. So, I mean, you can't look at a number like that and go, "What's the problem? You know, who cares?" Especially if you're younger or you have kids, you got to think about these things. If you've got young kids, your kids are going to work their entire lives paying money into a system that isn't going to be there for them when they're older. And so, I think it's important to think about these things and educate yourself and your kids on these issues. And again, it's not just the United States. The U.K. is in the same boat. France is in the same boat. Spain is the same boat. Italy is in the same boat. Japan's in the same boat. All these guys are in the same position.
And so, it really does mean that people have to start looking at alternatives. And I think cryptocurrency represents a lot of really wonderful things. If you go back to what we're talking about with a banking system, you have these people that are lying to you, robbing from you, taking your money, putting in things that are risky potentially but at a minimum. They don't even tell you where it's going. There's no transparency. You've got all these things because you've got the debts and the deficits and then canceled culture and all these other things. It's pretty easy to understand that people have lost confidence in the system. You've got all sorts of bizarre propaganda with the media, COVID lockdowns, all these sorts of things. It's really easy to understand that people just lost confidence in the system, the financial system, in their politicians and Congress and all these things. And so, when you start looking around, cryptocurrency becomes a very attractive alternative, I think, to say, well, here's something where I can be my own banker. I can have a secret key sitting in my safe or on my phone or encrypted in the cloud or whatever the case may be and I don't need an intermediary standing in between me and my money. I don't need that suddenly with cryptocurrency. And so, it solves that problem. I don't need to worry about this rock and a hard place that the central bank is in where they can't go up and they can't go down. You know, I don't need to worry about that because I have this other alternative where I've got some savings. And so, I don't need to worry about the manipulation. I don't need to worry about all these other things. You have this thing that suddenly you have a lot more control over your finances.
And I think that's really the idea is, in general, you have a lot more control over everything in your life than they probably want you to believe. You have a lot more control of your personal freedom. You have a lot more control over your health. You have a lot more control over your family, your children's education. You have a lot more control over your finances than these guys want you to believe. And I think cryptocurrency is one potentially attractive alternative to that for a lot of folks that are willing to go through the steps to understand it and actually educate themselves. And this is a big caveat that I have to say. I think if anybody just wants to blindly throw money at Bitcoin without taking any effort to understand what it is, what it does, the advantages and disadvantages, the strengths and weaknesses and the problems and challenges and opportunities and potential demand, and all that, I mean, really, that's just a stupid thing to do. You should really take your time to educate yourself and understand everything you possibly can about cryptocurrency and understand that, by the way, Bitcoin is not the all-encompassing cryptocurrency. There’s a whole lot. I mean every one of these, there's so many of them and every one of them has, in theory, unique technology and technological benefits and drawbacks. It's important to understand the differences in the technology behind each of those just in the same way that there's differences in the technology between Google and Facebook and as a biotech company and anything else. So, I had to say that. I think there's a very bright future for cryptocurrency, but that doesn't mean just blindly throwing your money into the marketplace is a good idea. I don't think blindly throwing your money anywhere is a good idea.
Justin Donald: James, that's so well put and well said. And I appreciate that. You know, one of the things that I think you're best known for, one of my favorite things that I've heard you talk about is having a plan B and we've just talked about all kinds of different things going on there. And some are bad, some are good. Some are in the middle. You know, some may have no bearing whatsoever. But you talk about the importance of having a plan B, and I love to kind of wrap our session up talking about that.
James Hickman: Sure. Well, look, I'm an optimist, and the reason I'm an optimist is I think you can wallow a lot in the debt, in the bank and the dollar, and the lockdowns and all of that but at the end of the day, all these things are just opportunities. There are opportunities to make changes in your life. There are opportunities to go out and do something different, seek out alternatives. This is not, as I often say, this is not exactly the first time in history that these sorts of things have happened. Every time this happens, we can kind of look and see given historical examples, we kind of seen this movie before and you could probably look out into the future a little bit and say, well, nobody knows exactly what's going to happen and when. If we did, we make bets on who's going to win the Super Bowl next year, but nobody knows. And we can't say for sure exactly what's going to happen. We could probably imagine that continually posting these massive deficits that are larger than the GDP of the United Kingdom, probably not very healthy for long-term macroeconomic conditions. Having an insolvent pension fund, having insolvent every fund. They've got whether they're talking about the Pension Benefit Guaranty Corporation or the Highway Transportation Fund or any of these things that all these things that are insolvent, probably not favorable for macroeconomic conditions. Conjuring trillions of dollars out of thin air, probably not favorable for macroeconomic conditions.
And so, if you can see these sorts of trends and understand that, the idea when I talk about this old ethos behind having a plan B is it's not put on your tinfoil hat and go and move up into the mountains and just be afraid and angry for the rest of your life. No. That's ludicrous. I mean, listen, if you just really love the mountains, in which case have at it. But really it's just about saying, "You know what, let's look at the risks and let's do the things that put us in a position of strength regardless of what happens or doesn't happen next." And I use this point to say, look, if you can do things, if it's within your life or lifestyle if you have the opportunity and you think, "You know what, I think maybe moving to Puerto Rico might be a good idea for me," and your life accommodates a move like that and you think it makes sense then congratulations. Now, your tax bill has been slashed dramatically. It's hard to imagine there's a lot of downside to paying less tax. There's no downside there, right? And so, these are the sort of things I'm talking about. It puts you in a position of strength because now you have more money in your pocket because you've taken this completely legal approach to reduce your tax bill. There's no downside. Nobody's going to wake up in the middle of the night going, "I'm so angry I'm not paying enough taxes." So, these are the things I'm talking about, putting yourself in a position of strength regardless of what happens or doesn't happen next.
Maybe having some things, some alternatives to a currency that's between a rock and a hard place maybe that makes sense. And so, having a little bit of gold or cryptocurrency and so forth to say, "You know what, if the dollar tanks then, boy, I'm glad I'm going to have these alternatives," but even if things kind of got along just fine then maybe there's not a whole lot of downside. Maybe I'm still okay having a little bit of this asset that has a 5,000-year history of value marketability. Maybe I'm still okay having an asset that has potentially a very bright future, has some very interesting, disruptive advantages that could put me in a better position with respect to these banks that I don't like so much. And so, these are things I think the decisions that people have to make and there's a lot of options and opportunities. At the end of the day, it really starts with having the will to act and having the right knowledge and information. And so long as you have that, you're always going to be okay and you might not be able to have confidence in the financial system, you might not be able to have confidence in the government and politicians, but you can have a lot of confidence in yourself. And that really just begins with, I think, having the right information and the willingness to take action.
Justin Donald: I love it. Another thing that I just love about having this plan B is even thinking to the point of second passports and having a second passport by investment or by ancestry. And I know that you're big on that. It's planning for the worst but expecting the best or hoping for the best so that you're not living a life that is a very skeptical and negative type of life but it's planning just in case everything does go wrong but you and your family are taken care of and set up. I think that's awesome. And I love what you do. I think you've got an incredible podcast. I think that your newsletters and emails are just spot on and I really thoroughly enjoy the education that you put out into the world. So, thank you for joining us, James. And where can our listeners and viewers find more about you online?
James Hickman: Well, I think with respect to this conversation, sure, I mean, people can go to SovereignMan.com. You know, like I said, I'm not here to sell anything. So, if people want to go to the website, that's fine but I was just happy to have the conversation, and it was a pleasure to catch up with you.
Justin Donald: Well, and I think that's what's awesome about you. You know, before the call, you're like, "I don't need to sell anything." But I love what you do and I want to shout it from the rooftops because I think that the world needs to learn about it. But I love the way that you serve and the way that you teach people. So, thank you for that, James. And I love ending my podcast the same way where I really want to challenge all of our listeners and all of our viewers to take some form of action today towards a life of financial freedom and towards a life by design that is purposeful, that really has a compelling vision of the future. So, I challenge you to take that step, take one step today and move towards financial freedom. So, thank you so much again, James, and I look forward to seeing more of the amazing content that you put out and obviously at the next event that you hold for all of your investors.
James Hickman: Good to see you, buddy.
Sign up to receive email updates
Enter your name and email address below and I'll send you periodic updates about the podcast.