The Production/Production Capacity Balance

The Production/Production Capacity Balance

Jason Hartman starts the podcast show talking about the P vs PC balance. He explains that you can’t go full P(production) or full PC (production capacity), you have to find a balance. Similar to investors, we have to find a balance between action and education. Jasons ends the show with a segment from the Profits in Paradise event, where he discusses the 3 forms of power.

Investor 0:00
Hey Jason, it’s mark, living here in Europe, the Czech Republic. I’m down at my Airbnb in

Investor 0:04
Austria right now. And I just wanted to congratulate

Investor 0:07
you on 1000. Show. Congratulations on all the shows, you probably don’t hear from only a fraction probably don’t hear from most people. Just how much the shows have helped, how much we listened to them, how much we appreciate them, and just all the best Congrats.

Announcer 0:24
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you Follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 1:14
Welcome to Episode 13 of 39 1339. Thanks for joining me today. This morning. I’ve been watching a little bit of this documentary that is has been on my watch list for a while my Netflix watch list, which is entitled Park Avenue, Park Avenue as in Park Avenue in New York, money, power and the American dream and it’s pretty much addressing the income inequality issues and it’s quite fascinating. I recommend it. I’m just about one third of the way in but definitely recommend it looks really interesting. And you know, this is the thing we have to realize, we have some of us at least have this knee jerk reaction. In fact, I tease my mom about it. I say mom, you are a knee jerk. capitalist. And that’s because we operate on these old beliefs that, hey, you know, anybody can get ahead. It’s, you know, it’s the American dream, it’s more power to them. Right. And I agree with that. I firmly agree with that myself, right. But the game has become so rigid. It has become so skewed and the balance of power in the political arena and in virtually every other arena. And with a monetary and fiscal policy has just morphed so much over the past several decades. And the welfare state, the welfare state, is largely to blame for the inequality problem. It’s just not what it used to be that concept of social mobility. It’s there to some degree nowadays, no question about it. It’s there. It’s just not there to the extent it used to be or It should be. So that’s the thing that’s changed. You just got to keep it in perspective. And perspective is such a valuable thing in general, what we need to realize with everything we encounter in life today, fiscal policy, monetary policy, gay marriage, gender issues, real estate investing, anything and everything, you know, liberalism, conservatism, all of this stuff, this is just a little blip in time. Okay, whatever is happening now is just a little blip in time. Okay. You know, you look back in time, and, and think, you know, what did people do 100 years ago, 200-500-2000 years ago, 5000 years ago, you know, what are the norms that we should expect, right? You know, this is just a little blip Okay, we got to keep it in perspective. You know, we look throughout history at the way you know, different cultures war at different times in the world, and All of these issues that seemed like such a big deal today, you know, and you know they are a big deal in their own time. Sure. And that’s fine. Nothing wrong with that. But I’m just saying we got to step back and see the perspective and see the longer view and the long game. Which leads me to another point. Well, before I get to my other point, and before we get to our live clip today from our recent profits and paradise event, want to talk to you about P versus PC balance, I have promised that and we’re going to talk about that today. And we’re going to talk about it as it relates to long term thinking. The way a grand master in chess would play the long game, they would think, you know, many moves ahead from the amateur. How does it relate to gratitude? How does it relate to our recent Thanksgiving holiday? But before we get into that, just to keep the flow here a little bit, let me play for you a little clip from this Park Avenue film. It’s really quite interesting. This is about the billionaire’s building right 740 Park Avenue and some of the residents there. And you’ll remember I’ve talked about some of these. These cheaters and scumbags. Hey, listen, I love the rich, okay, I’m one of them. But I’m not this rich. I have nothing against becoming super wealthy as long as you do it fair and square, and they’re not doing it fair and square. Okay, the game is just totally rigged. We’ve talked about commandment number three, we talked about how things are so imbalanced in terms of what the investors get versus what the C class gets the CEOs, the C CFOs. The CEOs and the boards of directors and all the insiders, right. It’s just an insider’s game. It’s just totally rigged. Right? So check out this clip. I think you’ll enjoy it.

Jason Hartman 5:50
equivalent of the oil people from the 30s these guys ruled the world. You know, they are multi billionaires of You know, the CEOs of major corporations in the world. This doorman once worked at 740 Park Avenue. He agreed to be interviewed under the condition that behind his face and alter his voice

Jason Hartman 6:12
to work at 740 you really need to know somebody within the business. You know, you’re working at the top building in the world. It’s only 31 units. It’s not a lot of residents, but they’re high tempered. And, you know, you have to have a thick skin to work there. You’re going to be dealing with detestable people and you’re going to be dealing with billionaires. You need to know everything about the residents. What time they wake up to go to the wall street cars, which likes to get their own door, who gets in the passenger seat who gets in the backseat? You know, these things don’t seem like a big thing to be in you but even a minor mishap, you know, you’ll be fired straight away

Jason Hartman 6:57
some of the key tenants in the building now

Jason Hartman 7:00
You’ve got john fain.

Jason Hartman 7:04
So john thing remember that scumbag? I talked about him as Merrill Lynch was collapsing during the financial crisis. And he spent one he spent over a million dollars decorating his office now, I don’t mean the building. I mean his office within the building. Okay. As Merrill Lynch was falling apart, investors are losing money. There’s this giant financial crisis. So many people complained about his disgusting extravagance. You know, he said he would pay Merrill Lynch back the million dollars he spent to decorate his office suite. These people are just so detached from reality. They’re complete scum,

Jason Hartman 7:44
the CEO who presided over the downfall of Merrill Lynch, Ezra Merkin, who was the feeder to Bernie Madoff, David Koch.

Jason Hartman 7:52
So remember, Bernie Madoff, of course, the biggest Ponzi scheme in world history about $56 billion and Remember all the talk about the feeder funds? Right? So that’s who they were just talking about, you know, that was one of the feeders to Bernie Madoff, right. These funds were investing in his fake fund and his Ponzi scheme and hey, as long as they’re getting rewarded on the way, you know, everybody will turn a blind eye to Bernie made offs crimes. And, you know, the question is, what are they pretending not to know? Well, past tense, I should say, what were they pretending not to know? And, you know, they just said, Well, we didn’t know. Our investors were getting returns, and we were getting rewarded lavishly out of proportion with reality. What are we pretending not to know?

Jason Hartman 8:38
Who is the richest person in the building? And of course, Steve Schwarzman the poster child of capitalistic greed in the last 10 years, billionaires Stephen Schwarzman, one of the kings of private equity lives in 740 parks most extravagant apartment Schwartzman was a managing director at Lehman Brothers before co founding the Blackstone Group. He’s one of the most prominent CEOs when it comes to lobbying for tax policies that favor the ultra rich. It was a it was a strange guy, Mr. Schwartzman.

Jason Hartman 9:10
So, I do want to say in shorts man’s not defense, okay, because, you know, I don’t know his personal dealings, right. But conceptually, there’s this ongoing debate, of course of the value of capital versus the value of labor and to make the economy better, do we give tax breaks to the rich? Or do we give tax breaks to the poor, right, while the poor don’t really pay much of any tax? So how can you give them a tax break when they don’t really pay much if any tax, so the real burden and the discussion should be about the middle class but on bounce, okay, you know, when you do give tax breaks to the rich, that money does not disappear and many times it has a multiplier effect. And when you look at like the Trump tax cuts right, immediately amazing Really after that, it’s hard to say that was a bad deal. Now I’m sure the liberals would say it was a terrible deal, right. But immediately after those tax breaks, money started moving back from offshore where these, you know, billionaires and companies had money offshore, it started moving back into the US. A lot of it came to buy back the company’s stock, which means those those insiders have faith in their own company. That’s that’s a good thing. Right. I don’t think stock buybacks are really anything terrible, like some people might argue. And then lots of jobs were created and pay increases like instantly companies, bonused employees, hired more people expanded factories. Look, folks, this stuff is complicated. It’s hard to really know. And then they never ask the question compared to what right say the tax break wasn’t for the rich say the tax break was for the middle class. Well, where would that money have gone? If all the middle class had more money in their pocket? Well, there’d be more consumer spending. Where are they spending that money? They’re spending it at the companies that the rich own right and a lot of the middle class and the rich own stock in. So economics is a profoundly complex discussion and tax policy and fiscal policy and monetary policy. All three of those things tax and fiscal are obviously closely related. But not exactly. All of these things are just super super complex. So obviously, this film like most has a left wing meant they all do. The media is all left left wing, pretty much and so you know, it’s debatable but here’s a little more on on Schwarzman

Jason Hartman 11:38
lobbying for tax policies that favor the ultra rich. He was a he was a strange guy, Mr. Schwartzman. Thank you for the opportunity to address the 66th annual Alfred E. Smith Memorial Foundation dinner. We call it occupy Waldorf. You seem to be out of the public guy. But then these little spurts where he’d have his 60th birthday party. He had Rod Stewart play and it was all

Jason Hartman 12:08
now we had Rod Stewart play at the last meet the Masters event. But this is the real Rod Stewart. Ours was a tribute act and they were great. By the way, a lot of you were there and you were having a good old time. I remember some of you tearing up the dance floor. That was a lot of fun

Jason Hartman 12:24
over the papers, and he had a replica of his apartment built in this hotel and it was just completely ridiculous. He’d have his annual Christmas party and he’d have 25 Christmas trees come in these massive Christmas trees. Christmas tree. Yeah, I mean, every room would get a Christmas tree and be fully decorated. Steve Schwarzman lives in the apartment that had previously been owned by john D. Rockefeller Jr. But it’s a sprawling apartment. It’s 37 rooms.

Jason Hartman 12:53
lavish beyond your wildest imagining you know, 20,000 square feet

Jason Hartman 13:00
What’s been paid just under $30 million for this apartment? pocket change for wall street tycoon was over 5 billion.

Jason Hartman 13:08
So there you go. The whole inequality debate will rage on. But anyway, check out this documentary. And also while you’re at it, make sure you see the film margin call one of our investment counselors Kerry sent me a clip from margin call just the other day and you know, I saw the movie when it was in theaters years ago and talked about it on the show. But that clip just brought it all back. It’s fascinating, fascinating movie. Okay, let’s talk about the P versus PC balance. And then let’s go to a live clip from profits in paradise with yours truly talking about information and well some different forms of power and things like that. I think you’ll find it to be hopefully somewhat interesting. Just somewhat Hey, you keep listening and you keep writing nice testimonials by the way. Thank you for all those if you’ve got any comments or questions or suggestions, go to the Jason slash ask and please write a review on iTunes or whatever podcast platform you listen on. We always appreciate those and we read every one of them. Even the fake ones, okay? Because sometimes competitors write negative reviews and you know, we know what they do we know who you are, we know who you are, you’re busted. Okay. Anyway, P versus PC balance. As I have said many times one of my favorite books is the venerable Seven Habits of Highly Effective People by Stephen Covey, the late Stephen Covey, I had the pleasure of meeting him on a cruise ship in Russia many years ago when I was on a Forbes investor cruise. I used to teach his ideas all the time from the seven habits and from his other book, first things first, and principle centered leadership. Really all great book, Stephen Covey, awesome. One of the things he talked about is the P versus PC balance and basically that is probably summed up pretty well in the old quote, and I think

Jason Hartman 15:04
it was

Jason Hartman 15:06
Abraham Lincoln. I’m gonna say, maybe Abraham Lincoln. It goes something like this. If I had seven hours to chop down a tree, I would spend six hours sharpening my axe and what that means is the education, the preparation, the production capacity, that’s the PC Okay, is sharpening the axe or Stephen Covey says sharpening the song. He gives the example of a person with one of those old lawn mowers I remember I used to push one of these around to make extra money. When I lived in Los Angeles growing up, it was one of those lawn mowers you might remember it had two big wheels one on each side. And it was not powered. It was powered by me yours truly. And it had one of those blades that spun around as you pushed the wheels and it was cut the grass, then you’d have to rake up all the grass and stuff like that. And I used to mow people’s lawns in the neighborhood and try to make extra money and I used to mow your own lawn. And one of the examples Stephen Covey gives in his book that I could very much relate to was he said, Look, you know, say for example, you’ve got this old manual unpowered lon more like that. And it’s doll. Well, what do you do you know, in the lawn needs mowing. Do you just take it and mow the lawn? Or do you sharpen the blades before you mow the lawn to make the mowing more efficient to make it faster? So mowing the lawn is the P its production, getting prepared to mow the lawn by sharpening the blades. That’s PC production capacity. And this P versus PC balance is something we have to think about. in so many areas of our life. We’re constantly faced with this decision. Do we focus on p or PC right? You know, this example for real estate investors might be something like this. There’s that person and hopefully you are not that person. I have certainly been this person for various things at various times in my life. And we don’t want to be this person. This is not good. But you know, we’ve all been there to some extent, hopefully not too much. There’s that person who is the, I’ll call them the seminar junkie. They’ve been to every real estate investing seminar. They know all the Guru’s, they’ve read all the books, they’ve purchased all the info products and all the coaching programs, and they know everything. They’re really smart. But guess what? They haven’t done any investing. See, they’ve been focusing on the PC, the production capacity, but they haven’t focused on the actual production, which is actually going out and doing it actually investing. You know, you can read as much theory as you want. You can get super educated. I mean, Take, for example, the concept of and this one, you know, pardon me, I know it’s a family friendly show. But this is the best example. And I heard someone use it in talking about something like this. Take the example of making love, right? You can read all about it, you can study it, you can know everything about it, you can take college level courses about it. But if you haven’t actually done it, right, you know, it’s a completely different thing, right? The theory and the practice the production versus the production capacity. Whoever says it like that, right? is completely different. Now what production versus production capacity, this balance that we all have to face. I remember when I used to train traditional real estate agents years ago, I noticed that there were these types of people that would just go out and do it. They would just kind of cultivate what I call and I recommend rational recklessness They would just get busy. And right away, they would just go out and prospect and make calls and knock on doors and get listings and help buyers buy homes, and they would make great money. And then there were the people who were the seminar junkies, they were always what I call, getting ready to get ready. They were working on some marketing program, they always had to learn another thing before they could start. They were always warming up. They were never going out on the field. Okay, there’s a balance, because the person who just goes out there and focuses only on production, they hit a ceiling, they don’t get beyond a certain point. So focusing on just production is not recommended. But focusing on just production capacity is not recommended either. There’s a balance. That’s why it’s called the P slash PC balance. We have to balance these two in a rational way. Now how does this apply to Thanksgiving last week, how does it apply to gratitude? And how does it apply to chess? Okay, quickly before we get to this live clip, here’s the thing. You know, you have a lot of folks out there who are focusing on the short game, and you’ll be in a transaction with them. Maybe they’re your property manager, maybe they’re your employee, maybe they’re one of your vendors. And they’re trying to get get get, take take take their focusing on the transactional nature of the relationship, rather than the long game and the big game. Now, I think all of us who are mature people know that we always get more rewards and make more money in investing or business or just anything in life. When we focus on the long game, the chess player that focuses on the long game, you know, in other words, looking the Grand Master, focusing on several moves ahead, they’re going to win, they’re always going to win. That person is always going going to win the game. You know, there’s the concept of you might win the battle, but you’re going to lose the war.

Jason Hartman 21:06
Remember, you don’t want to win the battle and lose the war. The war is what’s important, not the battle. And winners of wars constantly lose little battles here and there. But are they winning the war? What’s the war? And, you know, unfortunately, that’s a sort of a negative, saying, you know, they they won the battle, but they lost the war. But it’s really illustrative it makes a lot of sense. So if you’re in business with a person or a company that is constantly nibbling at you and driving you crazy, maybe you got a property manager who’s nickel and dime you to death, and they’re not playing the long game. You know, you got to tell that person look no more. Okay? I’m just not going to do it or get them out of your life. You know, last year, a year ago about this time, one year ago, I said to you on this show. That the concept of Thanksgiving, right of being grateful, great concept, grateful people, when in life people who are thankful people who are grateful are winners, the people who are always unappreciative, and always over entitled, they’re the losers in life. Okay? And think about it. When it comes back to the P versus PC balance, it takes delayed gratification, it takes discipline, it takes more intelligence to focus on the PC side of that equation, versus the reckless production only side of the equation. So a year ago I said to you, if you’ve got people that you’re dealing with, or companies for that matter, because some companies you know, every company has its own personality to that are not grateful for the money you are giving them or the time you are giving them. Get them out of your life or Teach them how to treat you better, right? That’s what we’ve got to do. If you’ve got this property manager that’s nickel and diamond, you if you’ve got a seller in a deal who’s not doing their part, first of all, the first thing you need to do with them is you need to feel sorry for them. Why? Because clearly, they’re not very intelligent. They’re not intelligent enough to play the long game. If they were smarter, they would delay gratification, they would look at the big picture, they would look at the value of the relationship, the lifetime value of the customer, as they say in business, and they would play the long game. So first feel sorry for them, and then either get rid of them or tell them you got to have it another way. So P versus PC balance, check out Stephen Covey. Check out the documentary I recommended really good stuff. We are going along again. So let’s get to a short clip from profits in Paradise and we’ll play more of this later on it on future episodes as well. Okay, here we go.

Jason Hartman 24:04
A great book that I read many years ago is called powershift. By Alvin Toffler. He passed away, I never had a chance to interview him on the podcast. But he and his wife, Heidi had a bunch of great books that they did together. But powershift was really interesting because it talked about the three forms of power. Throughout the history of the world, there have been basically three forms of power, there might be a fourth, you know, I’d be interested to hear your thoughts on whether a fourth is around the corner, or maybe it’s already here, and we just haven’t kind of named or identified it yet. But the three forms of power are the ability to inflict violence. That was the crudest form of power, and it was really the first form of power. Okay, so primitive people living in caves would fight for resources, and those resources were atoms. They were things that were made of material Spike Lee food, right? So the second form of power that really had its heyday in the industrial era, and Mary Ellen is back there, venture Alliance member, and we just went we’re on our cruise last week to Newport, Rhode Island when we saw those mansions of all these incredible industrialists, the Rockefellers, the Carnegie’s the melons, you know, all the vanderbilts. All of these people, they really were the first that really made the next form of power, super famous around the world, that form of power was capital, capital money, right? And so with capital, that was a less crude form of power than violence, because with capital, you could exert control over things. But it wasn’t perfect. Because, you know, if you want to hire someone to do something, they’re only going to do so much for money, right? Money is not everything. mean, yeah, you can even hire Hitman to kill people for money, right? But you know, money is got a limited it’s a limited form of power. So the ability to inflict violence, capital or money and the third and highest grade form of power is information. Okay information. Now the interesting thing about information is that when someone gives you information, they don’t lose it.

Jason Hartman 26:30
But when someone gives you Walmart gives you but inflicts violence upon you, they take a huge risk because they could you know, the old saying, right, nobody ever wins a fight. They’re both losers, right? You know, you you go to a bar and you see, you know, two idiots fighting Well, they both lose because both people will definitely get hurt. Even if one wins in quotes, right. You know, nobody wins a war because war is just destroyed resources. So there were pretty bad deal all around. So we got the violence asked The capital, and even you know, even the wealthiest people with the biggest wallets will eventually run out of capital. It’s not limitless, by the way saw the movie limitless, wasn’t that great? Can you see it? So capital, very powerful, but not powerful enough information, the most powerful, the cleanest, highest grade form of power. And so with information, you can give the information away, but you still keep it, you don’t really give it away. So very powerful form, and the value of the information can be much higher than its actual cost. Doug and I were talking a couple of days ago, about this weekend, and some of the topics we want to we want to cover with you. And one of them is one that I brought up to Doug and I said, Doug, you know, we really should talk about something called while he knows what it is but something called the power law. Okay, and the power law Peter teal, probably the smartest guy in Silicon Valley wrote a lot about it in his book zero to one How many of you familiar with Peter teal or his book? Yeah, it’s great book zero to one. I went through it like three times and I don’t I still don’t know if I got it. Okay. But he talks a lot about the power law and with income property. It’s a pretty darn powerful asset class. Okay. He talks about his applies to tech companies and tech companies when they work now keep in mind, we only really see the ones that work. We don’t really see the ones that don’t work too often. Okay, because the failures are never heard about too much. Except for we work what a disaster that was. That guy’s a total crook. With we work it’s interesting though, because they want it to be considered a tech company bits and bytes, but they’re really an Adams company real estate. Okay, and real estate has a high cost of fixed high fixed costs. overhead. So they lease all this office space around the world. They sell some memberships, try to be considered this cool tech company, get this insane valuation, try to go public. And then, you know, all the financial people, the investment bankers figure out this is a complete scam. It’s the company’s worth nowhere near what they say it’s worth. But why did they at first get that really high valuation? They got it because Bits and Bytes all the investors know that the bits and bytes have the information product has a much more unlimited value with very high leverage, right. And that’s why these tech companies have these insane valuations. Right? They, you know, oh, well, I think, you know, this company’s worth 300 times earnings. When a regular real company that’s an actual real business that makes money and makes profit is you know, 20 times earnings and if it’s not a public company, you know, for small businesses sell for three to five to seven times earnings maybe. Right? So you put the information wrapper on it, and it suddenly becomes a lot more valuable. So with income property, well, I’m going to go back to calling it real estate, I normally call it income property. But the concept of real estate is that it’s what it’s real, right? It’s atoms. It’s not bits and bytes. But part of the equation is bits and bytes. It’s information. And that’s what we’re talking about here this weekend, that information. The weekend’s format will be quite a bit different than any of the other events you may have been to how many people have been to our events before. Okay, most people in the room well, thanks for coming back to the Star Trek convention.

Jason Hartman 30:52
So this will be quite a bit different. We’re going to do a lot of fireside chats. Okay, we have comfy chairs up here, and it’ll be a little bit different. Less on the presentation, and more on the fireside chat and but I want you to think throughout the weekend of how you can use information, bits and bytes to increase the value of your real estate portfolio. And one of the ways you can do that, that you can sort of put that wrapper more on your business of atoms of of hard, you know, hard physical stuff, right? That you can put that wrapper on it is by using technology in your business and all of you. Even if you just think, well, I have a business, I have a job. I do a little investing on the side. That’s not it. Okay. You are in the business of being a real estate investor. This is a business and if you treat it like a business, the rewards will be much higher. Okay, many people treated just like an investment. They don’t want to pay attention to it. And, you know, they think it should just run itself. And you know, it largely does. I mean, it’s not certainly not without its problems. There are problems with everything. But like I say, there’s no such thing as passive income. There is no such thing as a passive investment. There’s a scale, okay? You know, of degrees. And this one is more passive than most, but it’s certainly not completely passive. So keep asking yourself, how can you use information in your business, whether it be the part that you use internally, in your inside reality, which means you running your portfolio running your business, that would include learning about the trade, the craft the business, and then it would include the systems within your business that you use the software products, you use everything from Skype to Google Earth. Look at your properties to Street View, you know, to using Zillow and postlets, if you’re self managing to market your properties, and even if you have a property manager, maybe listing the property yourself on these sites, and you can forward those emails to the property manager and say, hey, look at all these leads for my property, right? and becoming a little more involved from that perspective. There’s the internal thing, right, the kind of the education component, the systems you use, but then there’s the external stuff that your prospective tenants would see. And your property manager would see, and the marketing of those properties, right. So a lot of that is information. Very little of it is the physical product, but that physical product is super powerful. Why? Because it’s hard to duplicate. Thank you so much for listening. Please be sure to subscribe so that you don’t miss Any episodes, be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.