Brent Johnson is a wealth manager at Santiago Capital and a General Partner of the IceCap Strong Dollar Fund. Brent has had a multi-decade career in finance and has been responsible for managing billions of dollars.
Brent is well-known for his Dollar Milkshake Theory, where he expects a rapidly appreciating US Dollar over the next few years, relative to other world currencies.
Because the world is completely run by fiat currencies, cash whose value is not backed by some physical good such as gold or silver, Brent expects a massive devaluation of currencies across the board. Because of the U.S. is a relatively safer, stronger economy, he expects capital to flood into its domestic markets.
There are a lot of implications to the theory.
In this interview, Brent explains to Aaron what the Dollar Milkshake Theory is, how Brent’s career has unfolded, and the implications of a rising dollar for business owners and entrepreneurs.
Brent Johnson’s Challenge; Find someone you vehemently disagree with and have a conversation with them.
Connect with Brent Johnson
Santiago Capital Website
If you liked this interview, check out all of our past interviews with finance thinkers, investors, and advisors.
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Watson: Brent. Thanks for coming on the podcast, man. I'm excited to be talking with you.
Johnson: Yeah, it's going to be fun. I appreciate you inviting me.
Watson: So we have this kind of weird problem that we have to navigate, which is half the people, more than half the people that navigate to see this, are probably already familiar with you, maybe that's what attracted them to checking out this episode.
And they're aware of the dollar milkshake theory, but then we have this other constituency of regular listeners who maybe are not as kind of in the investing world and might not be aware of this theory for which you are well known. So I want to kind of start things off, just set this up with basically this acknowledgement that a lot of people are coming to realize the U S dollar is not a particularly great currency. But as we survey the landscape and we look across the world at, you know, the Euro, the Japanese yen and the British crown, the Swiss Franc, on and on down the line, they all have some serious problems.
So as you kind of survey the landscape, can you talk about what you see and what that leads you to believe will happen in the future?
Johnson: Yeah, sure. So, you know, I, first thing I should say is I always remind people that I called this the dollar milkshake theory. I didn't call it the dollar milkshake fact, you know. It's possible that I'm wrong, but I've done a lot of work on it over a number of years.
And the more I look at it and the more I think about it, the more I become convinced that I'm correct. It doesn't necessarily guarantee that I'm correct, but I think that I am, and I have not yet seen anything that would make me change my mind. And so the theory is that Fiat currencies, which is basically a currency that's not backed by anything other than the full faith of the government backing it or the tax revenue of the, of the citizens of the country behind it, all Fiat currencies have enormous problems. They're all currently debt-based. In other words, money gets loaned into existence. It's not a commodity that already exists in nature and they have a fundamental flaw and this fundamental flaw virtually guarantees that they will fail at some point.
Now maybe some countries' currencies will last five years. Maybe some of them will last 50 years. Maybe some of them will last two or 300 years, but they have this flaw that will cause them to fail. And I think we're moving towards that time period where Fiat, quote-unquote, starts to fail.
And the dollar is one of these currencies with enormous problems, enormous problems. And I think, you know, its days are numbered. But the issue that I see is that most people who call for the end of the dollar don't apply the same level of scrutiny to the other currencies out there that they do to the dollar. Because all the other Fiat currencies out there have the same problems, and none of the other currencies out there have the same advantages that the U S does as the holders of the world reserve currency.
And so I think as we move towards this quote-unquote end game, that the dollar will reign Supreme of the other Fiat currencies. Now it doesn't mean that things like Bitcoin and gold and other hard currencies, for lack of a better word, won't go up in value and maybe go up more than the dollar. But I think if you're just, if you just line up 10 Fiat currencies, and even if they're all falling, one of them will fall slower than all of the others.
And so then I have some people who will say, well, why even mess with Fiat currencies? Why not just buy gold or just buy Bitcoin or whatever it is. And you can do that. But I don't want to have 100% of my portfolio in anything, whether it's gold or Bitcoin or dollars or yen or stocks or whatever it is.
I want some diversification. And the point that I like to make to people is that even if you think all Fiat currencies are falling, You can make a killing if you figure out which one is going to fall the slowest by playing them against each other. And I think that's where we're at. I think we have the opportunity where everybody should own gold.
And if they have the ability to own some Bitcoin, because I think those are some asymmetric plays that are going to extremely well, but I think there's also an opportunity to make an incredible amount of profit by playing Fiat against each other. And so that's kind of the Genesis quote-unquote of the dollar milkshake theory.
Watson: And so one of the things that as people approach, and I'll just speak candidly, I said this before my interview with Ben Hunt was, you know, I still find myself at times getting confused by some of the terminology that is part and parcel to high finance and the folks that operate in this world. But as you're trying to navigate your way into it, it can become inaccessible very quickly.
So I think that, you know, whether it's because of Dave Portnoy, Or Robinhood or some of these, you know, very kind of user-friendly experiences. People are generally familiar with the concept of buying or selling an equity. Hey, I own Apple and Amazon. And as you spend more time in this space, you realize, okay, there's equities, there's bonds, and I can kind of, you know, figure out how to deal with those two types of securities in terms of a mechanism by which you quote-unquote, would play the U S versus these other currencies. Can you just talk maybe at like a one-to-one level about how that's actually executed and if that's accessible to the average person out there in the same way that those equities and bonds might be?
Johnson: Yeah. So, the answer is somewhat relative to one's Net worth and a level of access to different securities, right? If you are just a, you know, a working class person who has maybe, you know, a side fidelity account where they do some stock trading and stuff, the options are somewhat limited to what you can do.
But the first thing you could do is you could just own U.S. Dollar based assets rather than owning international assets. Right? In my opinion, over the next couple of years, U.S Assets are going to do better than emerging market assets and do better than international based assets. So in some ways that may just be avoiding the problem areas as opposed to profiting from the potential chaos.
But if you have a higher net worth and you have access to some different types of vehicles, some options, you know, options, strategies, maybe perhaps some derivatives or private funds that do these types of trades. Then you can get into things like betting on the Hong Kong dollar peg breaking or betting that Turkey will have a currency crisis.
It's very hard to do that as an individual in a regular brokerage account. But so the realm of possibilities is kind of broad, so it really kind of depends on your own personal situation? What I would say is that, you know, I think it's important to consider that, this war amongst Fiat currencies, because if nothing else it'll help you avoid the problems.
And then if you also have some excess capital where you can try to speculate and bet on it, well, then that's an additional benefit perhaps. But I think the main thing is just to kind of be aware of what's happening. And the other thing that people will often say to me is currencies don't really move that much.
Right? And if the dollar goes up 10%, you know, versus the other currencies and it causes all this chaos around the world. You know, 10%, it's nice to make 10%, but it's not going to change your life. Well, my point is, when you kind of get into the more sophisticated trades, you don't just buy dollars and hold them versus Euro.
You can play the knock on effects of the dollar getting stronger. So as the dollar gets stronger versus the Euro or the yen or the Australian dollar or whatever it is, there are knock on effects of that happening. And that's where you can, if you can figure out what the second or third derivative knock on effect of one currency strengthening versus another, that's where you can make some very nice profits.
And that's one of the things that I kind of try to do for my clients is we offer a fund, for lack of a better word, that plays some of those asymmetric opportunities. We do it in a way that would not normally be available to the traditional individual in their fidelity accounts, so to speak.
Watson: That's the icecap strong dollar fund?
Johnson: That's correct.
Watson: And so that's kind of another element of the story here, because in another part of the show is kind of piecing apart careers, how a career evolves. And you started Credit Suisse and you move into this space where you're now running your own fund, running your own firm. And one of the vehicles, part of that is just reputation, consistency, skill building, but also the ability to navigate the complexity of macroeconomics and making these kind of really big, frankly, high stakes types of financial decisions.
Can you talk a little bit about the, you know that there's like the Steve jobs quote from the Stanford commencement speech, he goes, you know, you look back at your life and you can see how it all connects, even if you can't necessarily see how those things step forward. What about your pathway to your current role with Santiago Capital led you to be able to see this opportunity and kind of have the legibility to make sense of these different currencies, where you said some people don't necessarily apply that same scrutiny to other markets?
Johnson: Yeah. You know, it's been a pretty interesting progression. I'll kind of tell the story, the progression as a story, and hopefully it won't be too long and boring, but hopefully it'll help kind of bring it all to you. I guess the story probably starts in 2006 or 2007, and I was, you know, I was living in San Francisco.
I was working for Credit Suisse, and I literally had my dream job. I mean, I have a picture of myself in college standing on a bridge in Switzerland. And behind me, it was all these big Swiss banking firms. And there, you know, are their logos and stuff. And at the time I wanted nothing more than to work for a big global investment bank and, you know, be involved in the markets and, you know, fast forward 10 years later.
And I actually had that job, and I couldn't have been happier. I was making good money. I, you know, I'd gotten married a few years earlier. We had a son, and I had my dream job. It's like, you know, it's like I had everything and. In 2007, I had a very kind of a fortuitous meeting for lack of a better word.
I met this young couple who had sold their video game company that they had started in their dorm room. And now they had, you know, a lot of money. And my job was to go out and find people like this and convince them to invest it with Credit Suisse, rather than investing with Merrill Lynch or Goldman Sachs or Morgan Stanley or whoever it was.
And so I met them and we kind of hit it off on a personal level. And I figured out pretty quickly that they were two of the smartest people I'd ever met, but they didn't know a lot about finance. But what I thought, but what really struck me was that they knew what they didn't know and they weren't afraid they didn't know. And they weren't afraid to ask questions about things they didn't know.
And so anyway, I convinced them to come into the Credit Suisse headquarters in San Francisco. And I said I would introduce them to our chief investment officer and the head of wealth management and the head of equities.
You know, we could give this big dog and pony show and I thought we were just going to wow them. You know, we have this beautiful office that looks over San Francisco Bay. You know, it was just, it was all set up perfectly. And so, you know, we come into this meeting and about five minutes into this meeting, I realized that this was not going to go the way that I thought it was going to go, because, you know, the young couple, they were, again, they were so smart and so polite and so nice, but they didn't, they asked very simple, but very pointed questions.
And, you know, these managing directors couldn't answer the questions. And they had the questions were like, what do you think the real inflation rate is? What do you think about the national debt? What do you think about the budget deficit? How do you think the real estate market is going to affect the stock market?
You know, just, you know, not crazy hard questions. Actually, very smart, intelligent questions, but. But they wanted specific answers. They didn't want just the, you know, one sentence reply, they really wanted to learn this stuff. And, you know, at first I was just kind of sitting back and watching it.
Right? And the embarrassing thing was, is I didn't know the answers either. And it was probably the first time I was like, Holy cow, I'm supposed to be a smart guy. And I don't know these, the simple answers either. So I immediately knew I needed to figure out the answers, but I thought my colleagues, my bosses, I thought surely they'd be able to answer them, but they couldn't.
And then when I knew that it was really over was when the wife said, 'could you explain to us what's a derivative?' And, you know, one of the guys said, Oh yeah, there are these complex, you know, options, contracts that are traded on anything from real estate to stock futures, to currencies.
And, and she said, 'well, do you guys trade, does Credit Suisse trade any of those?' And they said, yeah, we trade them. And she said, 'well, do you carry them on your balance sheet?' And they said, 'yeah, we do, but, but you don't need to worry about that.' And she said, 'well, why not? And they said, 'well, we hedge them out.'
And she says, 'well, what does that mean?'
He said, 'well, we offset those trades with Goldman Sachs and Merrill Lynch and Morgan Stanley. So while we carry them on our books, we, you know, we hedge them out with other wall street firms.' And she kind of sits back and she says, 'huh, that's interesting. Cause we met with Morgan Stanley and Merrill Lynch and Goldman Sachs last week. And they told us that they do the same thing, but they hedge it out to you.'
And these guys had no clue what to say, just absolutely nothing. And so, you know, at that point I was just like, Ugh, this is, this is just a disaster. Right. But none of the questions were particularly hard. These guys we're not used to being challenged. And so, you know, the meeting was over and the thing is, I'm still friends with these people today.
They did not become clients, but I'm still friends with them today and they're very successful and they're super nice and they're super smart. And we kind of stayed in touch, but after this meeting, I went back to my desk and I was like, you know, this is unacceptable. And the fact that I didn't know these answers, I just, you know, I need to know the answers.
And a lot of times when, and even today it's even more so, you know, you start talking about billions and trillions. It kind of all gets fuzzy. So what I did was I got out a piece of white paper, a pencil, and I went on to Google and I started, I looked up the national debt and I wrote it out longhand. I looked up the budget, I wrote it out longhand.
I looked up the tax revenue and I wrote it out. Basically I did a back of the napkin analysis on the U S fiscal situation. Looked up, you know, interest rates, and I looked up Credit Suisse's balance sheet and the amount of derivatives that we had. And I didn't spend enough time to come to a full answer, but I came, I spent enough time.
And because I did it longhand that I looked at all these numbers, it made me very aware that this problem was very big, and bigger than most people realized. And it made me realize that even though I didn't have the solution, I knew it wasn't going to end well. And so that kind of started a period of self discovery.
And I started, I couldn't ask my colleagues and my bosses, these questions. So I started, you know, going reading, you know, Textbooks and going into chat rooms and going onto obscure blog posts about economics and finance and derivatives and all this stuff. So, you know, I learned more over the next 12 months than I had in the previous 35 years of my life or whatever it was.
And so when we got into 2008, I won't say that I predicted the financial crisis, cause I didn't, but I was ready for it. And when it started to happen, I kind of knew why it was happening. And you know, that led me to ultimately decide that I no longer wanted to work for a large global investment bank because I felt that they were putting the needs of the firm in front of the needs of the clients.
So that led me to basically, so I had to give up my dream job. I had my dream job and I realized that, You know, even though I had everything I'd always wanted that I couldn't keep doing it. So then I had to make the decision, well, what do you do next? And I loved the job. I just didn't love who I was doing it for.
So once I came to the conclusion I needed to leave, you know, I talked to a couple of other wall street firms and a couple independent firms. And then I realized I can't go to another Wall Street firm because then I'll just be doing the exact same thing with the new business card. So, the first transition was to go from my dream job, working for a big global firm to working for a smaller, independent firm.
AndI did that at the end of 2009, beginning of 2010. And there's a little bit of an entrepreneurial aspect to that because when you do that, you know, you have to go to all your clients and you have to say, I'm leaving Credit Suisse this 150 year old, you know, global powerhouse. And I'm going to go work with a couple of my buddies and we're going to go from managing, you know, a couple of billion to managing a couple of hundred million.
And you think your clients are gonna say yes, but you never know, right? You know, until they actually sign on the dotted line and said, it's pretty scary. And so, but when you're an entrepreneur, that's kind of, at some point, if you're going to start your own company, you've got to, you know, you're betting on yourself rather than betting on the company that you used to work for.
So there was that aspect of it, and that was kind of exciting. And so I did that and as I continued to- This is getting to be kind of long. I hope it's making sense.
Watson: And there's an element of your story that's kind of a through line between previous episodes. So I'll hop in and then you can keep rolling with it, which is this idea that at some point it's almost like an idea grabs you as opposed to you grabbing the idea. Like people kind of think, at least I can remember thinking that this way, it's like, Oh, I'm going to be like looking down at the ground and I'm going to see it and I'm going to pick it up and I'm going to run with it. As opposed to almost like, it sounds like this interaction with the couple that were at least intuiting their way into what was going on with real estate markets back in '07/'08, was that like, almost like compelled you, you couldn't let it go. You couldn't pay attention to anything else other than absorbing.
Johnson: Well, and that's the thing. And people often use the matrix as an analogy. And like, you know, once you see the matrix, you can't unsee it. Right? And I'm a little embarrassed to admit this, that, you know, growing up, I was always pretty much a straight arrow. I wasn't necessarily a contrary and I was pretty much a consensus guy. You know, I had the All-American childhood and I thought that the president of the United States was the greatest person in the world and all our governors and the senators they were honorable.
And the people on Wall Street were very smart and they were trying to do well for their clients. And, you know, that's not necessarily the case in the real world. Right? And I probably didn't realize that until the financial crisis. And I probably didn't realize it until money was involved. And this is kind of embarrassing to admit that because it's in a way, like I'm a capitalist, and I think that, you know, the search for profit is a very good and powerful and ultimately altruistic force for the world. But money's not the most important thing in the world. And I've never thought money was the most important thing in the world, but many people on wall street think that money is the most important thing on the world.
And so when, when we had this global financial crisis and it, and it affected the money of not just wall street, but it started trickled down to affecting all the moms and the pops and the businesses and the people who, you know, houses and the - yeah. It was money that made me realize the rot in the system for lack of a better word, maybe that's the right way to say it.
And it kind of made me start questioning everything that I thought I knew. All the walls that I had built up, you know, in, in my life basically came tumbling down and I had to rebuild those up. You know, I had to build a new foundation and rebuild the walls and it took me a long time to do that. And I did that, you know, as my career was progressing.
And so it was that continual study of the monetary system, how it actually works, how money flows through it, the incentives of both sides of both the customers and the banks and the central banks and the governments and how they all interact. And, you know, it was through that continual study that I really kind of got to see the structural problems with it. And because I'm not somebody who just thinks money is the most important thing, it's important, but it's not the only thing, that, you know, I'm not somebody who can just manage the money and not think about my clients. Like I've always managed the money for individuals.
I'm not managing a big mutual fund where I don't know the end customer or an endowment fund where you - like, I actually see the individual people of whose money I'm managing. I have to sit across the table from them and look them in the eye and say, we either made money or we lost money. And it affects their individual life on whether we're successful or not.
And so, you know, as a fiduciary, I felt like I had to understand things better than the average person. And because we were, I became more convinced we are moving towards this end game quote-unquote of the Fiat monetary system. It needed to have a better understanding of how the system actually worked.
And as I became more familiar with how the system actually worked, I became convinced that clients needed to own gold as part of their portfolios. So, you know, for a number of years, I've been a big proponent for gold. I think everybody should own gold in their portfolio and it's through. It's through studying the system and understanding the role of gold that I really kinda realized early on that the us dollar had a big problem.
But it took me several years to realize that I had done a very good job of analyzing the U S dollar, but I had not done a good job of analyzing the Chinese Yuan or the Japanese yen or the Euro. And the fact of the matter is, is that the world runs on a Fiat monetary system, and the Fiat currencies trade relative to each other. So if you do, you can do the best analysis in the world on the dollar, but if you don't see how it trades in relation to these other currencies, it's like analyzing it in a vacuum.
You're missing an incredible, incredibly important part of that analysis. It's like, you know, it's like you're building a car and all you focused on was the tire. You forgot to look at the fenders and the, in the engine and the roof and all that other stuff. And so once I started looking at it as a whole, then I realized.
Or at least I came to the belief that as we move forward in time, and as these problems in the Fiat monetary system start to be exacerbated that the dollar would rise versus all these other currencies. And I thought that that would lead to great chaos. And so that kind of brings us to today. But it was in that process that I discovered the opportunity existed that if my belief is right, there are the number of asymmetric plays out there that could help protect client portfolios and could help make a lot of money. And so that was intriguing to me. And we set it up in a way that clients could allocate a portion of their portfolio to this, not their entire portfolio.
You should never bet your entire portfolio on any one thing you should always have, in my opinion, always have some diversification. But we figured out a way that we could make an allocation to some of these asymmetric bets. And if we're even a little bit right, we have the opportunity to make some money.
So, that kind of brings us to the day. And that brings, you know, the whole dollar milkshake theory. It came up as a way to explain to my clients a very complex topic. You know, basically I think the U.S. Is going to suck up capital from around the world. Kind of like, you know, the whole world mix this crazy milkshake with all the stimulus and the bailouts. And now one country, which I believe is the United States, is going to suck up the majority of that, that milkshake. And that's where it comes from. And that, that kind of leads us to today. So that was a very long explanation. I apologize.
Watson: Do not apologize because that context is what this format is all about. And I know that another thing that my editor, Dan, who's going to be putting this together will love is that you name that after there will be blood, when he comes in the bowling alley, he's like I came and I sucked up your milkshake.
Johnson: That's exactly where it came from. Yeah. That's exactly where it came from. Daniel Day Lewis was one of my favorite actors and that was an amazing movie. And I think it's very appropriate because, you know, I think Daniel Day Lewis was this ruthless, you know, operator who did anything to get all the oil. And, you know, whether you look at them this way or not, but countries are kind of the same way, you know, this is for all the marbles, right?
And I think in many ways, the U.S. has it set up to where it's kind of rigged in their favor. And before it's all said and done, I think the dollar is going to go a lot higher.
Watson: So, where I want to take this now and, and there's, you know, a ton of great resources that people can go to online to learn more about the kind of nuances from a high finance perspective of the dollar milkshake theory, because you've done all sorts great interviews across YouTube. But where I kind of want to take this is, and also in that spirit of, of diversification, there's a reality that, particularly for business owners, it's harder to be more diversified because they might have a lot of their net worth tied up in the firm or the entity that they built.
Maybe, you know, private equity comes in, buys a slice and it takes some chips off the table, but there's, there's still a significant kind of concentration, concentrated bet there generally. And so they're obligated to be great stewards of that asset for themselves, for their loved ones, just the nature of where they're best placed, and kind of taking this down. If we're talking about the interactions in a global macro environment between these different currencies, I would almost make the metaphor there, like, you know, the amount of ships coming in, in and out of the port and, you know, Hong Kong or new Orleans or somewhere crazy like that.
And then you could go to the intersection in a small town and there's a whole lot less traffic. It's a whole lot less in terms of quantity. But, you know, you're looking at these like massive flows and we've got these, you know, business owners and operators who are kind of down there, they're seeing their own flows.
It's just a different scale and a different scope. So how does that tangibly get translated into action for someone that's, you know, whether it's running a retail experience or an agency, a service provider of some way shape or form?
Johnson: Well, It's kind of a difficult question to answer, but the truth of the matter is it really does what's going on now is going to affect everybody on the planet.
You know, we've gotten into a situation where, long story short, there is just too much debt in the world. I don't have time to explain it all, but there's no way that all of this debt can ever be paid off. And all of this debt is massively deflationary on the global economy. If more of your money is going to service debt, that means that there's less money to go towards a new and profitable and maybe, you know, growth toward growth type opportunities.
And so the only way to get out of this is to inflate those debts away. And so that's what governments around the world are trying to do. They're trying to figure out a way to keep interest rates lower than inflation. Well, they're trying to get inflation. There's so much deflationary pressures. They're doing everything they can to try to get inflation, and then they want to hold interest rates low.
So that inflation rate will be higher than the interest rate. And this debt will get deflated or inflated away over time. And whether they are successful or whether they are not successful, it's going to affect everybody because it's going to affect your purchasing power. There's either going to be a big inflationary wave in which case your dollar loses value over time or your currency loses value over the time.
And so you need to factor that into your cost of living in the future. Or, you know, there's going to be, they're not going to be successful and there's going to be this massive deflationary wave in which case maybe your businesses or your own personal assets come under pressure. And so you need to be prepared for it for that way at all.
But one way or the other, it is going to affect everybody on the planet.
Watson: And just to hop in there, there is no status quo. Like it's pretty stark. It has to go in one direction or another.
Johnson: Yeah. There can be status quo for short periods of time, six months. A year that maybe they can stretch this out over another two to three years before, you know, the play, you know, the central banks have the plates spinning, right.
And they are masters at keeping these plates spinning. And maybe they can keep it going for another couple of years. I don't know. But I think we're getting very close to the point where it's going to go one way or the other.
Johnson: And so I think, I just think it's important to understand that dynamic and understand what it's under.
It's important to understand what they're trying to do, which is inflate everything away. And it's important to understand what they're capable of doing, because just because you want to do something doesn't necessarily mean you're going to be able to do it. And so we are skeptical that the central banks will be able to manage their way through this crisis as well as many other people think that they're going to be able to do.
Watson: And another nature, too, I mean, we're conducting this interview across the country. There's a, you know, because of everyone having to stay home for the lockdown or the coronavirus, people are learning how to do business at a distance. And so maybe another kind of like tangible, actionable implementation of this is, are you doing your transactions in U.S. Dollars or a different currency? Do you have the capacity to change how that banking gets done, how that payment processing gets done and kind of reorient yourself to, I don't know if de-risk is necessarily the right word, but kind of rebalanced the way cash is flown in your business?
Johnson: That's right. I mean, I think that, you know, I think it's a time where, you know, if all of the central banks of the world are having to do all this extraordinary measures, it's obviously not a quote- unquote, safe time to do business. Right. But at the same time, if you are being offered financing at 0% and you have, or 1% or whatever it is, and you have a very strong business and you have a big belief in it, and you have a, you know, you feel like you have an edge over your competitors, then it's also an opportunity to maybe take some of that fine.
I'm not encouraging people to go into debt. I actually hate debt. But if you know how to use it, you know, This is also a time where, you know, great, you know, there's that same chaos is a ladder, right?
Johnson: And , if you can use that takes us to move further up the ladder, and because you see that you have an edge in your particular field, then maybe this is the time to take that risk.
Watson: One other question that I had kind of back to the identity of Brent Johnson and this associated idea that you're well known for, which is the dollar milkshake theory. You gave a great caveat at the beginning, that it's a theory. It is not some sort of law of nature that you've inaccurate or anything like that.
How have you gone about this, it's like two Dumbo's like opposite extremes. Number one to be known for anything is great from a brand building standpoint, from a capacity to people want to have conversations with you, people may be once you to provide service to them in some way, shape or form. But at the same time, there's this risk of the ego being tied up in the thing that you've created.
It's very easy to become detached from that book over there that someone else wrote. But when it's your baby and you want to maybe have that instinct to hold it dearly, how do you navigate that and probe that and make sure that you're not falling blind to a bias like that?
Johnson: Well, first of all, it's very hard. Nobody ever likes to be wrong. And so whenever you have a, you know, there's a kind of saying in our business that, you know, you should have strong opinions, loosely held, right? And so I think if it, and I think this applies to any business, not just my business, but, you know, especially my business.
But in order to, I mean, my job, it's really kind of a, it's kind of a ridiculous job thinking that you can predict the future. Right? And I'm the first to admit it. It's fun. And it's interesting and it's challenging, but the idea that you can predict accurately predict the future on a ongoing basis is the height of hubris, right? So you always have to kind of either control your risk on the downside or constantly review your opinion and your view. And, and it's not always easy to do, but that's why, you know, you have to build some risk parameters into your business. I think that and you have to stay true to that.
So that's part of it. So there's a big risk to doing it, but there's also a great benefit to do it because I think if you don't have a strong view, then you're going to be too wishy-washy to ever make any money or to ever really be successful.
So I think it's important to have a roadmap of where you're going, right? You know, if you just get in the car and start driving, well, you might have a good time, but you know, you're probably not going to get anywhere. but if you're driving from San Francisco to Los Angeles, You know, you're going to head South, right.
And maybe you start off on 101 and your plan is to drive most of the way on 101, but you also know at some point you're going to stop off to go to the bathroom or get some food, or, you know, you want to go see a sight. But you need to have, so you need to, you need to be flexible, but you need to have a plan.
You need to have an idea of where you're headed. So I think that's what I see that the dollar milkshake as, is that this is my plan for how I see the world developing over the next two or three years. Now I haven't bet a hundred percent of everybody's money on this theory. Right? And you know, the other thing is that it's possible that I get part of the theory right and the other part completely wrong.
And I think it's important to have that built in there as well. In many ways, this dollar milkshake theory is a hedge against everything else. We're not making asymmetric bets with entire portfolios. What we're doing is we're using this framework to create diversified portfolios and to protect, use this framework, to protect against some chaos that we see coming.
And then with a portion of the portfolio or allocating that towards these asymmetric plays, where we can benefit from the chaos. Now, if we get it wrong and there is no chaos, And the main part of the portfolio just kind of continues to do not fantastic, but well, and doesn't have this chaos doesn't come and hurt it.
Well, then we're still making money on that part of the portfolio. And if the hedge or the insurance policy, however you want to, you know call that, doesn't pay off. Well, then we're still, we're fine. Right? But if we're right and the theory plays out even a little bit correct, we can still make a lot of money. And if it plays out exactly correctly, we can make a lot of money.
But again, I think it kind of depends on how you implement this idea. Or you're again, we can use the dollar milkshake theory as an example here, but it doesn't really, it applies to everybody. You know, you can, you, if you have safeguards built into your system, you don't have to be 100% right all the time. Cause you're never going to be 100%, right all the time.
You know, in our business a lot of times what we try to say is that it matters how much you make when you're right and how much you lose when you're wrong. And if you can make more when you're right than lose when you're wrong over time, you're going to make money. And so it will not feel good if this dollar milkshake theory turns out to be wrong, right? It will be a blow to my ego. Well, you know what I've had blows to my ego before and I've gotten over it and I think you have to get, you have to have the ability to get over it.
And so it's possible that if this just proves to be wrong, that we will have to adjust our portfolios and adapt to the new environment. But it's important to have that view in the first place or else you're never going to know whether you're on track or not. And if we turn out to be even a little bit right, we think the opportunity to make money is really high.
And if we turn out to be really right, then it can potentially be life-changing. And if we could turn out to be completely wrong, we have our client's portfolio structured in a way that it doesn't kill them. So we kind of feel like we've, we've built that into the overall process. But, you know, again, you know, there comes a time when you just have to say, you know, I got it wrong.
And then the other thing is there's two types of wrong in our business. There's two types of problems. One is that there's, you can be early in which case it hurts and it's annoying and it's frustrating, but it eventually pays off. And the other one is that you're just completely wrong. Right?
And you're just wrong altogether and you know, you're never going to be right. And that's a fine line to walk, too. I think again, if you, if you position the trade appropriately, or if you structure the trade appropriately, if you structure your portfolio appropriately, you can kind of build some safeguards into it upfront.
I don't know if that answered your question or not.
Watson: It did, and I think that even the way you broke that out in like the types of wrong and the way you're managing it from an ego perspective, versus the way you're practically implementing it to manage it from a risk perspective, all that's really helpful.
And I could probably, frankly, you know, Sit you down for another hour and like break apart all the nuances of that. But we got to aim towards wrapping up. You've been very generous with your time. So if folks want to learn more, you know, see what other stuff you're paying attention to or get other access to your work, where can we point them in the digital world to do so?
Johnson: I think there's a couple of ways to do it. You know, I appreciate you having me on your podcast. So hopefully people will, I'm happy to send this around and hopefully people will watch it and listen to it. You know, if you go into YouTube and you just type in 'Brent Johnson milkshake theory,' or 'Santiago capital milkshake theory,' you'll get a lot of links.
So that's one way you can do it. I have a website it's just just SantiagoCapital.com. So www.SantiagoCapital.com. All that's on there is my contact information, but if people want to send me a question or, you know, send me an email, I always try to get back to everybody. I don't know, I'm not always successful. I get a lot of emails and direct messages and stuff, but, if I don't get back to you, feel free to send it again. You know, I promise you, I don't think that you're bothering me. I can't promise I will get back to you right away, but I will do my best. I'm pretty active on Twitter, so you can send me a direct message on Twitter, or you can follow me on Twitter.
The handle is @SantiagoAuFund. But you can also just look it up by Santiago capital or Brent Johnson and I think you'll be able to find it. So that's the main way.
Watson: Beautiful. We're going to link all that in the show notes, you can find it goingdeepwithaaron.com/podcast or probably in the app where you're listening to this right now.
But before I let you go, I want to give you the mic one final time to issue an actionable personal challenge for the audience.
Johnson: Wow. Oh, you know what? Okay. I got a good one, and I think this is something that I try to do all the time and it's helped me enormously and it's not easy. It gets easier the more you do it, but it's not easy. So my challenge to the audience is find somebody you absolutely vehemently disagree with, and then go talk to them and consider what they have to say. And then go back a week later and talk with them again. And in between, think about what they said. You don't necessarily need the debate in that first conversation, but go talk to them.
Be polite, even if you think they're out of their mind, listen to what they have to say. Go back for a week and consider it and then go back and talk to them a week later. I think that's the only way you're going to learn. And I think that's the only way you're going to discover new things. I think it's very easy, so this is going to tie into social media a little bit. I think social media is an incredibly powerful tool. But it can also be extremely dangerous if you only follow people and you only interact with people who you agree with. It's very easy to get caught in an echo chamber on social media I purposefully follow and interact with and have conversations with people that I absolutely think are idiots.
I shouldn't say idiots. That's not the right way to say it. That I absolutely disagree with. But, you know what? I have had some incredible conversations. I've made friends out of it and I've learned a lot by doing it. So my that's my personal challenge to go get in a fight with somebody in a very polite way.
Watson: Absolutely. I mean, that's a great way to steelman your ideas by playing them up against the folks that disagree. And I was trying to look up the quote, cause I just heard a great example of it, it was like, 'He, who only knows one side of the argument barely knows that,' was effectively the quotes. I think it's a beautiful one to live by in that spirit.
Brent, thank you so much for coming on the podcast. I really enjoyed speaking with you.
Johnson: Absolutely. I'm happy to come back anytime and I appreciate you inviting me in the first place.
Watson: Yeah. We just went deep with Brent Johnson. Hope everyone out there has a fantastic day.