The Real Market With Chris Rising – Ep. 55 Ross Gerber
The Real Market With Chris Rising – Ep. 55 Ross Gerber
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Welcome to The Real Market with Chris Rising, the only podcast that brings the real estate conference panel to your headphones. You’ll hear from superstars from every realm of commercial real estate: the biggest brokers, the most well-known architects, the largest investors, and the most visionary developers. Learn what they do, how they do it and what drives their success.
We’ll discuss the latest trends across regional markets, capital flows, both national and global, and we’ll explore technology’s role in shaping all of them. We’ll take a clear-eyed look where we’ve been, where we are now and what’s to come. Real conversations, real experts, real insights. This is The Real Market.
Welcome to The Real Market with Chris Rising. I was very excited today to have Ross Gerber on the podcast today. Ross is the founder and CEO of Gerber Kawasaki, and I thought he’d be a great guest because he started his business, an independent registered advisor, out of the last downturn in the great financial crisis.
His business focused on being an online business and being a business that’s focused on millennials and Gen Z and having a full digital presence. So we have a long talk about this, how he started the business, how he started investing in tech stocks and Tesla early on. It’s a very engaging conversation. I think you’re only going to really like it.
Yeah. Thanks for having me. Actually, I’m a big believer that real estate is going to be one of the most disruptive businesses over the next five years of any of them.
I think there’s a lot of cause for argument for it. I think the issue will be that since real estate is such a leverage defined business with really generation upon generation of how you institutionalize the leverage in the business. That it’s more than just like a destroyer that’s got to turn. It’s the biggest ship in the whole Navy that has to turn to meet some of these things.
Right. And it’s one of the reasons why there’s been so little innovation in real estate is because it’s such a big ship and the ship is run by very old people, typically. It’s one of the few industries you go to where almost every CEO is like in their 70s and stuff. And so you’ve got a very old industry with people who are not computer savvy, who’ve controlled the industry. And now you’ve got this new generation of real estate investors who are coming into the industry and it’s just a huge potential goldmine in my mind to disrupt this industry.
Well, when we came out of the Great Financial Crisis, the GFC, there was a big push because of the jobs act, because of where we were going with crowdfunding. I made some bets in that and they haven’t come to fruition either way yet. But I invested in a group called Funrise, and I really saw the potential for raising money through that.
But at the end of the day, what really happened over the last 10 years as the market went up is they kind of created “E-REITs.” But it wasn’t really the vision of, hey, I’ve got a thousand bucks. I’d like to own a piece of a cashflow stream, which is what we were talking about in 2010, 2011 and 2012. There’s going to be tremendous disruption out of this crisis and this recession. I don’t even think we’ve hit the recession yet. I think we’re at the beginnings of…
I agree with that, too.
Yeah. And so I think there’s going to be a big change. What I was interested about having you on the show is you saw something coming out of 2008, 2010. Correct me if I’m wrong, but you came out of Sun Life and AIG, big, big companies. And you said, hey, I think there’s an opportunity to communicate with new clients and new investors in a different way. So that’s what I understand the story to be. Prove me wrong, prove me right.
Yeah. I mean, that’s part of the story. It was really a combination of things. One was the fact that the industry itself had failed. And so the brands that were super strong at the time, AIG, Merrill Lynch, whatever, all of a sudden we’re like poison. So it was like, oh, wow, there’s finally an opportunity where people don’t know you is actually an advantage, on top of the fact that millennials and Gen Z are not really brand loyal.
They want new brands to try where previous generations felt comfort in using Tide and Colgate and the brands they knew. And so we thought, wow, this is a great opportunity. But then the second side of it is exactly that. We knew because of the way the internet and social media was growing and becoming that it was an opportunity, even though we were small, to look big, if we were able to do it on the internet.
So if we were savvy in the way we built our website and then ultimately jumping on social media, we could build a big audience of young people and seem like a big firm, even though we were small at the time. And most of our competitors just really had no digital strategy and no social media strategy. So we figured this is the future. Why would you do any other type of marketing?
And so we jumped on Facebook. And I’ll never forget that first day. It was a crazy day. We got a thousand fans our first day. We just shared that we were doing this and it was so cool. And now we look back and we have tens of thousands of fans all over the world on social media. And we get leads every day, like hands full of leads. I mean, we just had a meeting about the fact that many of them were so high quality we can’t give them to our newer people because it’s just like the quality level has been amazing.
So it was kind of my dream to be able to do that. And now we finally achieved this where we do get leads on a consistent basis, high quality, all over the internet. And we run our business completely online, top to bottom, totally mobile, totally efficient. And now the pandemic rolls around and we’re the perfect business model. So it’s been great for us.
Well, let me ask you this, because it had to have been a little scary. Any of us who have read anything from the SEC or heard anything about blue sky laws, when you first started putting it out there, there had to be some concern that the big, bad government was going to come shut you down very abruptly.
It wasn’t actually the government. It was the broker dealers compliance departments. We didn’t even get as far as the government. Our biggest issue was that the custodians or broker dealers we were using at the time didn’t allow it. It was just like, you can’t do this. One of the things that happened though was… Well, there was a couple of things. One was we followed the actual loss.
So the strategy wasn’t like Uber or Bird, just break every law and then figure it out. What we did was we said, well, if the law for our seminar is this, or if the law for a phone number is this or a phone call, then it should extrapolate out the same on the internet. Okay? So if I do a seminar for 50 people, I have to follow certain procedures. So if I do the same thing with the internet, then how am I breaking the law?
And so we kind of made our own rules, which ironically ended up becoming the rules. But it just made sense to me with disclaimers and things like that. So we didn’t approach it like let’s just break the baby and hope that they like us. We approached it as like, how do we follow the rules that haven’t been made for this? So if we get in trouble, here’s our defense. And that’s exactly what happened.
So when we would get in trouble, we’d say here’s our defense. And then the compliance departments wouldn’t know what to do because there was actually no rules or laws or guidance from FINRA. And then the financial crisis came. And when the financial crisis came, AIG fired everybody who worked there and there was no compliance department for like two years.
And that was the two years that we were able to really get ahead, because nobody called us about anything for two years. And they used to call me every day upset about something I did. So then some very intelligent woman came in as head of AIG compliance and I thought we were done for sure. And she said, “You know what? I like what you guys are doing. FINRA is starting a pilot program for social media rules and we want to just put you in it. Here’s the procedures we’re asking you to follow. Will you do it?”
And we said, “Sure. We’ll help you make these rules.” So we went through all these hoops and got this done. And we were the first firm to really use Facebook effectively on the internet. So that is kind of the cool backstory behind all this was that we were able to get far enough along that it became let’s not stop them. Let’s just figure this out. And now everybody’s on social media.
Well, how do you look at it? I mean, I think there’s a lot of parallels to what happened 10 years ago to what happened in the legal industry in the early ’70s, when lawyers could start advertising and then you all have been able to advertise in the financial advisory services. Now the whole world seems connected and open to advertising, whether it’s through social media or other venues. But how do you define it for what you believe is your audience? Who is your audience and how do you feel you’re effective at getting to them within all of the rules of advertising?
So what you’re bringing up is actually probably the most challenging thing because, A, who is your audience? B, where are they? How do I get to them? And C, with all the other forms of advertising, why would they care about finance or what I’m saying? So when you start thinking about your marketing strategy, you have to think, number one, what’s the best platform for the information I’m giving?
Now, in my case, that was Twitter. Because I give information about companies that I own. I talk about the stock market and other things, too. I am an information giver. So information wanters are on Twitter. On the other side of the coin, you have platforms like Instagram. Nobody goes on Instagram for information. Instagram is like a catalog. So they want to look at pictures and videos.
So is this the best for finance? No. Not as good as Twitter, per se. Not to say not to use it, but you have to change your approach. What am I putting on my Instagram page versus what I’m putting on my Twitter page versus what I’m putting on my Facebook page or my website or on YouTube. So every platform has to be treated differently. So that’s why this is a very time consuming thing.
So what most people don’t understand is the commitment it takes to be successful marketing your business. I spend basically half my day marketing the business and another half of the day managing money and my clients and whatever. So my job is to do this. The other advisors in my firm focus on their jobs and I generate a lot of business for my firm.
Where most real estate companies fail is everybody’s an independent contractor. So they’re responsible for all doing their own separate marketing. So in essence, every real estate agent, even within the same company, competes against each other. So the firm itself, that marketing doesn’t help you. And that’s why these real estate agents spend so much time and money on marketing, each single one of them, and it’s super inefficient.
It’s super unprofitable and nobody can differentiate between one real estate agent from the next. And so I think those are the challenges. If I’m in real estate, for example, how do I differentiate myself from the other agents in a way marketing wise that’s unique? And I think the best example of that are the TV shows on Bravo, like Million Dollar Listing, which gave agents an opportunity to differentiate themselves.
And it’s helped those agents a lot if they are TV personalities, but most are not. So it’s not the best method. Plus you have to have a TV show. But that’s a creative way to build a business and a smart marketing method that has worked. So I think for real estate, the sad reality of it is it’s going to be a very difficult time as many agents will be put out of business by the agents who get marketing and who get technology over the next 5 to 10 years.
Yeah. Well, let me ask you this. You’ve been operating your firm seamlessly through COVID. But March the world shut down.
I was going to say mostly seamlessly.
Well, tell us a little bit about what happened starting in March and here we are in mid September now. How has it been running a business for you during COVID and what were the challenges you saw?
Well, I want to predicate this by saying I’ve been through hell as an investment person. I’ve been through the financial crisis. I went through dot-com. I went through 9/11 running a firm, big firms. So I’ve experienced a substantial amount of pain as a manager. And so when this thing started happening, we had some insight into it because we do a lot of business with the Chinese and knew that this was bad and that it was being underestimated.
And so fortunately we took a very conservative position at the beginning of the year in our investment portfolios knowing this. So we were able to mitigate some of the damage when the market dropped. So when March rolled around and all hell broke loose and the toilet paper battles were happening in the markets, the markets were down 35%. But fortunately our moves had cut our losses to about 20%.
So the losses were somewhat manageable, which was reasonable, but there was a tremendous amount of fear and uncertainty at my firm and around the country.And fortunately I have the type of depth and leadership at my firm with experience that when these things happen, we step up. My team is real good. We’ve been through a lot together. And working as a team really comes through during these times because you can kind of be there for each other.
And we did this in the financial crisis and like huddled up under the… Avoid the gunfire. So it was pretty chaotic. But we switched on zoom and we seamlessly transitioned to a fully digital world within days. It was amazingly easy for us to do. We’d always planned for this day and we were always kind of ready for this day, but we never thought that kind of something like this could happen.
But actually when we went fully digital, it was like, we’ve actually done better. So if you would’ve told me in March or April that the stock market would be at all time highs and we’d be back to where we are and all these things would be happening, I would have said there’s probably zero chance of that happening. So we were under a lot of stress and pressure because our business is based off the assets we manage.
And I had two days which were the biggest swings of my career, where we lost $100 million in one day. So I manage over a billion dollars. We lost $100 million in one day and we made $100 million back the next day. So within a two day period we were seeing a hundred million dollar swings in our portfolio. You can only imagine how difficult that can be. And fortunately I have some pretty well-trained loss mitigation stress techniques to keep us in the game.
And so we kept everybody in the game and we made investments because we’ve ridden this pony before. And I suspected that people were too negative. And now it’s turned out to be the best year of my career, partially because we’re huge investors in Tesla. So the fact that we’re one of the biggest investors in Tesla has been hugely beneficial. So I’m real grateful right now because for what I consider one of the hardest times that could be faced. We’ve managed to pull this off. And in my business, that’s the whole game.
So in March, pretty traditional, wear a suit and tie kind of the office, everybody comes in and works and 8, 10 hour day. Then you go to you’re wearing sweats and flip flops and your day is even longer because the Zoom calls go longer and all of that.
Well, especially when the market is down 35%. We had no night. We have 7,000 clients. It was like Dunkirk, everybody trying to get off the beach.
So now that things are a little bit rosier and you’re feeling good about it, when you look back over that time, is the office coming back in your mind for what you do?
Well, we’re back. I’m not one of those people who just buys what everybody is telling you and the media kind of thing. When June rolled around and we kind of saw what was going on, I said, we’re going back to work in the office. And everybody’s like, what? And I was like, dude, there’s no reason why we shouldn’t be working in the office. We’re better in the office. Us staying at home is a nightmare for everybody, between our kids and the gardener and our wives.
We all don’t want to get divorced. Well, some people were scared to come back. And I said, okay, well, what are the rules? What are the laws? So we had a team put together all the suggestions for safety. And then we did our own research and safety. I determined that our building was real safe to work in because we have a lot of outdoor space and balconies in our office and things that made it a really good place to work.
And so we made a bunch of procedures, we put them in place and we’ve been back at work now in the office for two months. We test fairly consistently. We’ve had no issues. And we’ve just asked people to maintain a bubble. We’ve created our own bubble. So we’re like the NBA where we’ve asked all our young employees not to go out and party. I’m a big partier.
So I’m like, listen, guys, this is no harder for you than it is for me. I have a band. I have a music company. I have events every night I could be at that are super fun. So don’t tell me that you can’t sacrifice a little right now. So we all determined we were going to focus on our work and not go out and get sick. And everybody’s been real mature about that.
I run another company, too, with six other employees in the music industry and we haven’t had any issues either following strict protocols. So I think it’s ridiculous people aren’t back at work. And our business soared the minute everybody got back in the office. Humans need to be around other humans. I get some people work from home and they’re productive and I get certain people are independent contractors and I get customer service people can answer the phone at home or whatever.
But when you run an investment firm that’s collaborative, there’s no question. And we’re still doing all our meetings on Zoom, but we’re back in the office. So it’s kind of funny we do our meetings on Zoom, even though we’re all in the office. It’s fine.
We’re doing the same. I hear you.
Yeah. But it’s stupid for us all to get in one room. That doesn’t make sense. Let me finish. The last thing was we’ve now stopped seeing clients in person. And because of Zoom, we’ve been able to see clients, do meetings, do seminars. And I don’t have to wear a suit every day anymore. So for the first time in my career, we’re all wearing what we want to wear everyday at work. We’ve lost no interaction for our clients.
We put on a nice shirt when we do our calls. It’s crazy cool how this has become. Now, I don’t want to minimize the human cost of COVID because we’re talking about business right now. We’ve been very fortunate in the way things have worked out. And part of that is our business strategy. And part of that is our adaptability. But not as many people are as fortunate. So we are trying to help a lot of business owners right now make this transition successful.
Well, as someone whose business relies on people paying their rent, I can tell you it’s been a little stressful, but for the most part, people have been. Outside of kind of the restaurants and the sundry shops that serve a working population, people have been paying rent.
Yeah. Our restaurants are doing well now. The ones that have outdoor space now are doing well. A couple of the guys I talked to are doing better than last year. But if you are a small indoor restaurant, you’re out of business.
Let me ask you this, has there been any demands made on you and your technology by your clients? Are people expecting more in a world where they don’t have to come in and see you than they did in the past? Have you decided to make any upgrades to your digital latforms?
It’s actually the opposite. What it is, is that clients now are okay with this. So before, if we were like, “Oh, we’ll just do a Zoom call.” They were sort of like, “What? You don’t want to spend an hour to see me?” Or drive out and see them at their office. Or they would come into my office and have to park and all this kind of stuff. But if we were like, “Oh, we’ll just do a Zoom call.” It was sort of like a lesser appointment.
But now clients of any age category are perfectly fine doing Zoom calls, and we found them to be just as effective as in person meetings, minus maybe 10% of the humanist interaction that we sort of get when we see humans for real. But when you think about how efficient it is to now just do Zoom meetings all day versus having people come and go and park and be late and all this kind of stuff, it’s been great.
So the fact that especially older Americans have become more tech savvy and understand how to use what I consider easy to use products like Zoom has really helped us because we always were advanced with technology. But in a lot of cases, our clients didn’t really use DocuSign, not all of them, but just a few of them didn’t get DocuSign or they didn’t want to do Zoom or whatever.
Now all the clients get it, use it, no matter what their age. I did a Zoom call with the 85 year old the other day. She loves it. And it’s great because it’s so easy to do. So I think it’s more the clients have gotten more tech savvy.
So when you started the business, when you started Gerber Kawasaki, did you start it from the beginning knowing, hey, I need to understand technology better than anybody else to start this business or did it kind of evolve over the first few years of starting the business? I mean, what is the technological background of your firm? Did you tie up with Microsoft early on or Google?
No. So I’m a tech expert in the sense of I’m not an engineer, I’m an investor. I get consumer technology. I’m not necessarily a guy who can tear down an Intel chip versus an Nvidia chip and tell you which one’s better. But I can tell you that Nvidia makes great chips for what we’re investing in like video games and AI and so on and so forth. So we rely on management and other things when we’re analyzing those companies.
What it was, was I had a vision of where I thought technology was going to go and I wanted to just be there. And so the issue we had was the technology wasn’t good enough. So our systems weren’t good enough. LPL systems weren’t good enough. There were too many rules. There were too many lawyers telling me I couldn’t do stuff. And so we had to fight through all this where our system technology finally got better.
Broker dealers and custodians upgraded their technologies. Rules changed. More people used social media. It became more effective. We made adjustments to our business model so we wouldn’t have to deal with compliance people anymore. So as we grew, we had to adapt to all the curve balls thrown at us. But I always saw from the beginning where I am now was the goal. That was clear to me.
For example, automating portfolio management didn’t exist when we started. We wanted that and we helped design that. But now what we can do is phenomenal. We placed like 25,000 trades in one trade the other day. It’s crazy. It’s so cool. So the scalability was the issue. Could we scale to 7,000 clients with 25 advisors and manage them so that everybody feels like they’re special?
And that was a technological challenge. And so now the technology is good enough between client relationship management, between automated portfolio management, between social media, email, everything. It all now interconnects into this wonderful thing that we’ve built. So we’ve worked with a lot of the custodians and helping them with their technology and building their stacks and what services are most effective and efficient in applying our services.
And I think things like real estate is kind of where we were 10 years ago, where it’s like here’s all this real estate and all this new technology is coming for real estate, but nobody’s really sure how they’re going to implement it, including Zillow and Redfin at this point. And so there’s just a huge opportunity if you have a vision for where you see real estate in the future. And I see it more like a real stock market and more like my business in the future than the way it looks now.
And knowing that it’s just a matter of time of plugging in the right technologies as they advance, if I was a real estate agent, for example, so that I would be prepared for these changes as they happen.
Yeah. Well, let me ask you this, when you were running your… Everything you said, I agree with, by the way. I didn’t mean to cut…
And by the way, 5%, 6% commissions are over. So if you’re a real estate agent thinking you’re going to make 5% forever, you have bought the wrong apples. Because real estate is going to be a 1% or 2% business soon. You’ve got to figure out how you’re going to service your clients differently when you’re not paid on the transaction.
I think that’s going across not just residential real estate, but across commercial as well. But taking it back to your business, is there anything unique about how you run it? I mean, do you use Slack? You’ve mentioned Zoom several times. Do you all use Zoom?
Yeah. We use Slack.
How do you keep your team connected? In a digital world…
Well, one is we’re all here in the same office. I used to run a company with 15 offices, the old real estate model branch-and-spoke. You have a main office. You have all these little branch offices everywhere. You’re paying rent to all these people. You’re paying assistants to all these people. And then somehow they’re all somehow independent contractors.
Another amazing real estate scam is how all agents work for one company and are considered independent contractors, even though they have a desk in an office and work for the agency, somehow they’re independent contractors. So this whole idea of the way real estate is set up is hugely inefficient. So the first thing we said is we’re just going to have everybody in one office, if they have a laptop, and we can do business all over the world by getting on a plane and just flying there with a laptop versus having branch offices.
And then they came up with this idea called WeWork where they actually just will rent you space for the hour. We work in San Francisco. So we have an office in San Francisco. And when we have business in San Francisco, we go up and we use our office space and we pay by the hour. This is huge, huge efficiency. So essentially your agents or your advisors, the way we looked at it, could work on a national level, but we don’t have to pay 20 rents, 30 rents, 40 rents for locations everywhere.
And so by leveraging technology, we were like let’s just have one thing. So then the second layer is digital communication. And you’re absolutely right. We use Slack. I don’t personally like Slack that much, but advisors do. So they use it and I’m all for it. We use Zoom all day, every day, pretty much, whether it’s with clients or for our internal meetings. We’re big on internal email, too. Lots of emails.
But because we work as a team, that communication along with our services team is huge. But because most of my firm is younger, it’s no issues integrating communication. They all communicate. No problem. The younger generation is real good with it. So that’s the whole thing. If you make it easy for them, they communicate great. So that’s why Slack, I think, is effective and those kinds of things because they’re used to that. It’s like text messaging for them or whatever.
So your business had a lot of success around technology companies, specifically Southern California based technology companies like… Well, Tesla is Fremont, but SpaceX is down and you’ve got Snapchat. You’re around a lot of tech companies. You know how a lot of tech companies think. What’s your take on Twitter and a few of these others basically saying you don’t have to come back to an office anymore, at least for a while?
You know what’s funny? I just had a whole debate with people on Twitter about this issue. Because I’m like Reed Hastings. I think teams work better with people together. Okay? I just believe that. That’s how I am. So I think a lot of these tech companies it’s a game to see who could spoil their workers the most because they all overpay for talent because there’s only so many engineers and they all want them.
So if you’re like a high level engineer at Twitter or at Google, you can almost do anything and they won’t get rid of you because you’ll just get a job at the competitor. So the employees are the ones saying we don’t want to come into work because basically we don’t want to be accountable. And they like working from home. And I’ve always said, when employees like something too much, it’s probably not great for the company.
I mean, you want them to be happy, but there’s a certain balance. And so I think that it’s a shame. Hopefully the landlords get paid, which I think they are getting paid. So I find it amazing as a shareholder. I’m an Activision shareholder and they’re next door to me and they haven’t been at work yet. Now, granted, the company is doing great. They have a whole building, literally a whole building empty.
And it just seems like such a waste of money at this time to not have people back in the office and it’s not efficient. So I think it’s just an example of sort of the hubris of technology. They’ve made so much money. They don’t even care. These guys make so much money. We work with these people.
I also think there’s some games going on around trying to attract talent and things like that.
Oh, for sure. It’s not because of COVID.
Well, there’s also all this concern about liability, too.
And this is a perfect example. Somebody could trip and fall in your office too, but you don’t shut down the offices. We have a young staff here. We’re taking every precaution. We would have no liability. We have a 40-page thing that people had to read and sign about what they’re supposed to be doing.
I hear you. And I agree. I do want to get back on the technology mentality of it all because I’m glad you brought up Reed Hastings. I just read a post of his recently.
I love Reed.
Yeah, talking about what to expect when you deal with him, which made me think about it too with our team, which is maybe I should be a little more clear about my expectations and just put it out there on my webpage or something like that. Creativity is so important to what a Snapchat does and Activision does. I mean, at some point, it just doesn’t feel like this little bubble that we’re all in can last forever. I mean, how do you bring in the young person? How do you mentor anybody? How do you get through conflict?
And working from home sucks. I don’t understand the attraction. And I have a big, nice house. I live in a nice place. But I also have kids. I have a wife. I have a gardener. I have construction people. And it’s like, I’m trading a billion dollars. I can’t have all this stuff going on. My kid runs in because his brother took his toy or something. It’s like I’m managing a billion dollars kid, leave me alone. I get if you have a very straightforward computer type job that you don’t really need to be in the office. But that’s a very specific role.
Yeah. And that doesn’t even hit like 90% of the businesses, whether they’re government businesses or they’re actually building stuff. I mean, you got to be in an office.
Yeah. Totally. I love my staff. Listen, the construction workers are out there every day, working on houses and buildings, 20, 30 guys and gals. There’s no reason why people can’t be in the office. It’s absurd. Some of the buildings are just not really well set up for COVID. So I get that. And maybe you need to look at different space. Luckily, my building is great for it because it’s a low rise building. We don’t need to take elevators. It’s great for it. But that being said, I love my team. I love my staff. I love seeing them. I just can’t tell you the importance of this for business success.
I agree with you a hundred percent. And as the second largest landlord in downtown LA and a large building owner…
Oh, you are? Yeah. You’re going to be so loud negotiating.
Not really, because the leases are pretty damn clear even…
I know. But I’m just saying like, moving forward, let’s say somebody is going to try to get office space, it’s really just how you lay out the office that matters more than whether you’re going to need one or not. But I don’t see a world where we all just get up in the morning and work from home and then go to bed. We might as well just not even be humans anymore.
I agree. Let’s circle back a little bit and talk a little bit about, so you went to Brentwood High School. Then went to Penn and came back from Penn and you were lucky to work for Eli Broad and SunAmerica.
And it was ’94, like the beginning of the tech boom.
That’s right. I was going to lead you in two ways. One, did you always want to be a financial advisor? And two, how did you bridge yourself over into the tech focus, given that ’94 that was pretty unique?
Well, truthfully, I never wanted to be a financial advisor. I still don’t really want to be one. It wasn’t really like that was the way it happened. I’m a musician actually. And so I was thinking I was going to be in the music business. I was hired by Disney out of college. So they had a record label. I actually wrote a letter to Michael Eisner and got hired directly by them.
So I was thinking I was going to be Mr. Music business guy. And I got to the music business in ’94 and Napster was killing everybody. And I was like, “You guys have heard about this technology called Napster, right?” And they were like, “Leave us alone. We sell CDs. Get out of our way, kid.” And I was like, “Oh, you guys are all dead. Boy, there’s big disruptions coming.”
The tech boom was just starting and they were telling me to stop paying attention to this stuff. I remember the day, this woman was my boss and she loved this band that was horrible. And I asked her what she knew about music, like if she knew how to read and write music, or she ever played music. And she was like, no. And I was like, well, how do you know if it’s good or not then?
And she was like, “Why am I dealing with you, kid?” And I was like, “Well, because I can read and write music. Don’t you think that should be maybe something you should know?” And I was like, I’m out of this business. So I got out of the business and the only other thing I was good at was trading stocks. So I used to trade stocks since I was a little kid. And in college they started online stock trading with Charles Schwab.
Well, it was right after college. I opened up a Charles Schwab account in like the early ’90s. And I started trading my like five grand that I had or whatever. And so I turned that into like 20 grand and I was like, okay, this is better than working. Why would I work? And in ’94 rolled around and I stopped making money in the stock market and it was a lot harder.
And I said, maybe I should get a job because I’m going to get pretty hungry. So the great thing is I grew up pretty privileged, but my parents were like, “We’re not giving you anything more. We paid for your college. You’re done. Go make your own money.” And I was like, “What? All my friends, their parents give them money. What do you mean?” And my dad’s like, “No, no, no.”
My dad has earned everything in his life. So he was just like, “Kid, I paid for your college. Go get a job.” I was kind of upset, but it was the best thing that ever happened to me because I was poor for a good six months of my life. I was pretty much broke and I was trading stocks. And I was like, okay, I got to get a job. And all the other jobs sucked. And then I got this job through SunAmerica Securities, which was just to get licensed, just to see if I could do this for a living.
And it turned out that I really liked seeing people and talking about investing. And it was the beginning of the tech boom. And I saw what was happening with AOL and Dell and Gateway. And I was like everybody’s going to have a PC. I just thought everybody was going to have a PC. I didn’t think it was that smart. I just thought everybody’s going to use AOL and everybody’s going to have a PC. So why don’t we just invest in this?
And boy was that good. And so I started to seeing clients and I became very successful. I was the top producer in the company when I was 25. So in my second year I was already top producer in the company. And by my third year, they gave me an office of 30 people. And by my fourth or fifth year, I was overseeing 250 people. And so it was a great run until the dot bust. But it wasn’t really like I was like I can’t wait to be a financial advisor.
So it turned out I really love helping people. That’s actually what drives me every day. It isn’t really being a financial advisor. It’s the fact that I have this ability to change people’s lives. And I’ve changed a lot of people’s lives for the better. I’ve paid for people’s homes, their kids’ colleges, their retirements, their dreams, their dream house, their dream vacation. It’s the best part of what we do.
And if you do it right, you can make people money over the long term, if you’re smart and you’re conservative. And so I love that part of this job. I love it. We now help over 7,000 families and I have 25 advisors. And we have no minimums, none of this elitist crap. If you come to us and you want to invest, we’re going to help you and give you a real advisor. And we sign up lots of young people so that pays off over time as well.
So I really love it, but I still don’t really think of myself as a financial advisor. I think of myself as an investor who built a financial advisory company. We’re in the helping people business is the way I look at it.
So how would you describe the difference between Gerber Kawasaki and the person that I’ve known for 30 years, who’s made a career out of being at UBS or Morgan Stanley or JP Morgan? What’s different in the kind of services that you provide and what do you think is more appealing to a younger generation about what you do?
Well, there’s the standard sort of answer, which is we’re a fiduciary and they’re not. So they’re selling you products. And we work for our clients’ best interests, where UBS, Merrill Lynch, JP Morgan, they work for their company and their brokers. There’s a big difference and that’s being much clearer defined now by the SEC as time goes on. So first that independence is probably a big difference I would say between us.
But really there’s no difference in the products and services we offer. We all kind of can buy the same Apple stock, right? I think the biggest difference between us is that when you work at UBS, your ideal client is a 70 year old with $5 million or more. Okay? So that’s what you’re looking to do. When you’re at Merrill or JP, you need not a million dollar client, you need a $5 million client.
Now, what we’ve found is that that’s a very, very, very small slice of society. And with wealth inequality, it’s an even smaller slice of society. So here you have a business, 400,000 advisors out there, brokers. They are all chasing the same 100,000 clients in America. So there’s literally four brokers for each really wealthy person in America. Now, I thought that was a horrible business to be in.
What a horrible idea? Let’s chase these few really rich people. That’s dumb. Well, it turned out that 99% of the rest of people really needed financial advice. And what our experience has been is 50% of people don’t save money, spend everything. There’s nothing we can do to help them. We can’t solve the overspending problem in America, and it doesn’t matter how much income you make.
So you can be a low income earner or a high income earner and still end up with nothing. Okay? Because it’s how much you save that matters. But what we found was that the other 50% of people did save money, but there was nobody really helping them. So the difference between us is we turn people into millionaires where those firms wait for you to somehow become a millionaire before they’ll even talk to you. Okay? So we make people millionaires here. That’s the difference.
If you’re not a millionaire, you’re not going to retire comfortably in LA. So how do I make you a millionaire? And that’s wealth accumulation strategies. How do I build my wealth? That’s what Gerber Kawasaki does. If you’re not a multimillionaire, you call us, we’re going to show you how to get there. Okay? Saving, investing, using your retirement plans, buying real estate, whatever. We’re going to show you how to build your wealth from the time you’re 23 years old with no money till you’re 85 years old and hopefully very wealthy. And that’s what makes us different.
And outside of just trading stocks and bonds, do you have opportunities for your clients to get into, whether its private placements and startups or real estate deals or buying any companies?
Yes and no. So we have the opportunities to do all those things. We don’t for one reason. Number one is scalability. We’re a scalable business. So if I have to fill out a separate form for each investor, for each investment, it’s not scalable. So a lot of private investments it’s like I need to open 500 accounts with you. You see what I’m saying? Private firms can’t do that.
Private firms just want one guy with $3 million to invest. So that’s not our business. Our business is a scale business. If somehow they can make it so that private placements and real estate and things like that are not having to do paperwork, then we would do it. So this is constantly an issue we have where it’s like somebody will pitch us a potential investment that’s private, but I’m like, dude, I don’t have time to go around and pitch each client this investment. You see what I’m saying?
It’s all about scalability. So there are some platforms that are being built to make private investments more like public investments, which would be great. And that’s what I think real estate needs to do, too. There’s no reason why real estate shouldn’t have a traded market where I can buy and sell pieces of real estate. Why not? I can do it with REITs all the time, right?
So then I have a second philosophy about private investments, which is basically most of them fail and I’m not in the money losing business. I’ve actually never met anybody who earns higher returns than me. So that’s another problem. So I actually earn higher returns than everybody, like literally everybody I’ve ever talked to. I’m just saying this from an actual like I can prove it, not from a ego perspective.
I’ve given money to other people. I’ve done it over and over again and I constantly kick myself for doing it. And it’s like you show me real estate that can go up as much as Tesla. It’s just not going to happen. It’s just a different thing. So when you invest in technology, you’re trying to make 10 times your money on something. When you invest in real estate, you’re trying to make 7% a year.
It’s just a different game. And so I have been successful at this game. I think technology compounds at 20% a year over time. That’s what the NASDAQ has pretty much done over the longterm. And so it’s like, why would you invest in anything else?
Well, let’s drill into how did you…
Really just diversification just to get lower returns in other places.
I see. Well, let’s talk a little bit about your Tesla investment. I’ve listened to you on another podcast…
I know. I’m in a good mood on that one.
You’ve talked a lot about it. I mean, I remember when it went public, when it IPO’d. There was a whole lot of things to read about it that didn’t make it feel good. Now, listen, I’ve driven a Tesla now going on seven or eight years. So I’m a big fan. And I’ve had investors from that PayPal mafia, not Elan himself. So I’ve kind of been around it, but you dove in and you made some big bets early on Tesla. So why don’t you tell us a little bit about that?
Well, that goes back into the vision of where we think we see the world and companies that are pushing in that direction. And in Elon’s case, there was two things: one was the product and two was the person. So first of all, I was like, if you could build an electric vehicle that’s as good as a regular car, boy, that’s a great opportunity because we’re going all burn up and die, which is what’s happening.
My stepfather actually was very involved with the climate change stuff. About 15 years ago, he did some work with Congress. And I’ll never forget going to his presentation. And it was basically like we’re screwed in the next 30 years. Now, this was like 15 years ago. Everything that he talked about then has now happened in half the time. Do you see what I’m saying?
Climate change is the biggest issue affecting the world. So I figured if you could build EVs, this would be a solution. Wow. And this car was great. So when the IPO came out, we didn’t touch it. There was no vehicle ready. There was no sales. We waited two years watching the stock. It moved from 17 to about 35. And then the S was coming out. And we went and checked out the S.
And when I saw and drove it, I was sold. And then I had a conversation with my mom because my mom and stepfather who was doing stuff for climate change also was doing stuff for NASA. And they were deciding back then whether or not to use SpaceX. So my mom and stepfather went to dinner with Elon Musk and my mom came back and said, “You’ve got to pay attention to this guy.”
My mom meets a lot of important people, a lot of smart people. And my stepfather, probably some of the most important smart people in the world. And she was like, this guy is the real deal. It turned out Elon and I went to Penn together, same time, same year. He lived two blocks away. I never knew him. And I started looking at his background. I was like, wow, this guy really is smart.
So we invested in Tesla and it paid off right away. So that was part of it. We’ve never really had a bad experience with Tesla until recently. But it started off real well. We went from 35 to about 180. We took profits back then and we’ve been riding it since. Last year was the hardest year though when Tesla was being attacked by the short sellers, the oil industry and everybody.
And then Elon was like shooting himself in the foot the whole year. It was real tough for a while. But I went to Tesla and went to Fremont, met with management, really got an idea of their vision. And this is what’s really worked for me over the years. If you can really understand the vision of these companies and the people pushing those visions and you believe in those people, then it’s not that hard.
The hard part is finding the people that can really make those things happen. It’s kind of like this NiKola guy, Trevor. This guy talks all this stuff, “Oh, I’m going to do this. I’m going to do that.” He doesn’t know how to do anything. And then you got guys like Elon who say, “I’m going to do this. I’m going to do that.” And he does it all. Maybe it’s a year late, but he does it.
And so we bet on Elon, just like we bet on Tim Cook with Apple 10 years ago, just like we bet on Jensen Huang and Nvidia. You meet these people, you know they’re winners and you bet on them. And that’s the secret to this all. In the Tesla investment, I just think we need solutions for climate change and this is a great one and it seemed pretty much… If you’re investing with the genius of our time, it seems pretty straightforward.
Well, how do you identify the next bet then that you make on someone?
So it starts with a macro thematic idea of where I see the world. I see the world a certain way, and I would say that I’m probably only half right. My version of the world isn’t actually the real world. I wish it was. But I see things. And so for example, one of the great things I see happening in the next 10 years is the rise of cannabis. Cannabis has been a drug that has been classified like heroin for ever as a way to put African-American people in jail.
It’s what we call a Jim Crow laws. So back in the old days, actually, marijuana was legal until the ’50s. And they were like, oh, we can jail black people if we make these Jim Crow laws like marijuana. So the fact that part is legal is a joke. Now, over the last five years, most states now have some form of legal cannabis, and I’m here in California where it’s completely legal. And these businesses are like crazy busy. I have never seen anything as good as this cannabis business. But the laws are a nightmare.
The politicians are a nightmare and taxes. They’ve killed the goose. But now with the pandemic, these states need revenue and they need jobs. And cannabis creates farming jobs. It creates trucking jobs, manufacturing jobs, retail jobs, it takes up mall space. It solves so many problems. But here’s a drug that’s basically harmless. It’s basically harmless and it helps people, mostly. And it’s illegal for whatever reason. And the minute these laws change, this industry is going to explode. It’s just going to explode.
I mean, that’s a tough call, given where the federal government is on this.
Well, the current federal government only cares about money. So when it comes down to money, if Trump gets reelected and he needs jobs and they go stay at the Trump hotel, it’ll be approved.
What do you think what’s happened with MedMen though with its total tank and its stock price?
So what happened with the cannabis companies is you gave a bunch of basic criminals way too much money because the industry took off. And you see this a lot. It’s like Bitcoin the first time around too and whatever. And then all these people get greedy, steal the money, don’t really build the business right and then they fail. And so that’s what we’ve been through with cannabis.
But now you can see the real good players start to emerge. And that’s why the opportunity is so good right now is because that first stage of taking the money, losing it and screwing people over is kind of over. The management of MedMen has being kicked out. There’s a new company running med men. And not to say that you want to own MedMen, but there are, in my mind, three or four cannabis companies that have the potential to be $10 billion plus companies.
And right now they’re in the mid billions, $1 billion to $4 billion, maybe $3 billion. So I think there’s hundreds of percent return to be made in cannabis over the next five years. I think it’s obvious. I think there’s no justification for the way it’s being treated today. You can’t even open an account at a bank. So think about how inefficient that business is to what it could be.
I also think it’s one of the businesses that leads itself to delivery as opposed to stores. I mean, getting a license in a city like Pasadena, where MedMen a license, and then they tried to take it away after they had the management change. It becomes such a public discussion that they’re better off just taking the Amazon route and just delivering to people’s homes.
And that’s what’s happening. Even still, the stores are amazing, too. The stores are amazing. The products are amazing. They’ve spent so much time and thought building what I consider an industry that has tremendous potential. We were arguing about this versus online gambling. A lot of people are talking about online gambling and we have an investment in the MGM hotels, which is one of the bigger investments I’m making now, not as much for online gambling, which is part of it, but mostly that I do think Vegas will come back one day.
That’s kind of my real estate play actually. I like Vegas hotels. I think they’ll come back. I started buying them in March, April at pennies on the dollar. Now they’re close to about 60% of the value I think they’re worth. So you can buy casinos in Vegas for probably 30% to 40% off still. And so that’s what we’re doing right now. But the cannabis business as well, it’s grown in Vegas tremendously and it’s gone to delivery, but the stores there are ridiculous, too, like a hundred thousand square foot cannabis store.
So online gambling is another opportunity, but there’s a huge cost to online gambling in that when somebody loses their money to online gambling, there are social woes that go with it. So you can create jobs and you can collect taxes, but the states then have to put money back in to take care of the victims. Where with cannabis, you don’t really have a huge amount of drug overdoses, or people going to prison and stealing. Cannabis doesn’t really have those negative effects.
I mean, if you get into it now, you’re still early given the federal laws, but also the banking is the biggest one I know in the business. And it’s still a little bit of the wild West on how they get that money to a credit union and all that kibd of stuff.
It’s a lot of the wild West. And they have actually the Banking Act going in front of the House I think next week. So they’re actually going to start voting on this stuff next week. Again, it just makes no sense to me that it’s illegal, but I can smoke a cigarette or vape until my lungs explode. It’s like crazy. And we think the same thing will be with online gambling. We like the business, but I just don’t think it’ll get through regulatory as easily. I think there’s a lot of social woes that come along with it. So we like that business too, but not as much as cannabis.
So let me ask you this. You’ve got a Gerber Kawasaki, which has got a hundred percent of your time. You’ve got your music business with employees that takes a hundred percent of your time. How do you structure your day? Tell us about your family, your wife, your kids. How do you make it work in this world of being on 24/7?
Well, first of all, I try not to be on 24/7 because I think it’s bad for me. How would I say this? I’m fortunate because I run my own companies, so I don’t have to be anywhere. I decide. And now with the digitization of both of my businesses, essentially I can be anywhere. So that’s a huge thing. When you work for other people, you don’t have that ability to have the flexibility that I have.
So that’s one thing that allows it to exist. I can work from home if I want and be around my family and be with my kids. I don’t travel a lot for work. I think a lot of people miss a lot of time with their families in the old days traveling a lot. I actually don’t like to travel for work at all because I like being home with my family. So I’m with my kids a ton. I love them.
I waited a long time to get married and have kids. I was single till I was 41. So I really enjoy this right now. And I don’t care that much… For example, with the pandemic, I’ve gone to a million parties. I love parties. But for me to spend a year of my life, it’s probably not that big of a deal. So it’s been a really special time in a way because the kids are not in school. So I’ve had more time with them.
And I’ve been home more, so it’s been great. I love my family. That’s probably the thing I’m most happy about in my life. Not that it’s easy because I think marriage is super hard with kids. It’s easier without kids. And I don’t think anybody has an easy marriage. I think that’s the challenge of life is trying to keep your wife happy and yourself happy.
But it’s also the most rewarding result from the challenge. So that part of my life is super important to me. My wife goes to bed before me. That’s for sure. My wife sleeps later than me by a couple hours. So let’s say those four extra hours I’m up in the day that most people aren’t up. I certainly use productively because I still play guitar for an hour and I work out, every day almost.
And this is my problem actually is I don’t have enough time to myself. And that can be draining and hard sometimes. So I’m trying to figure it all out. I can’t say I’ve mastered this yet. I don’t believe in working so much that you lose your social life, your family and everybody else. But I work substantially more than most people. But I love what I do so it doesn’t… I don’t know how to say it. It’s hard to determine what’s work or what’s not work.
Well, that’s a good thing. That means it’s not going to jail every day. You’re excited. You’re going and you’re pumped now.
I have a great life. It’s exactly how I want it. I’ve made it this way. It’s only my fault if I don’t like it. I can’t blame anybody for anything. I think people, if you’re not happy with your life, make it the way you want it to be. It’s not easy to do that, but you should do it.
I agree. Ross, this has been a great conversation. We just kind of went a mile a minute there and I really appreciate it. Really interesting to hear how the last GFC or the last recession with the GFC, you said, okay, I’m going to create a business and where you’ve grown it. So excited to watch from afar to see how you do it over the next 10 years.
Yeah. It’s pretty cool it’s worked out. That’s the fun part about it. Especially with all my partners, we’ve worked hard. They’re great people. And I would say this, that none of my success has been because of me. My greatest skill is I definitely have great partners and employees. So a lot of the way I can operate is because I have such great team players. And I’ve given up a lot, whether it be income and power and things like that to have that. But I think that’s one of the secrets of life is trying to surround yourself with great people and it’s super challenging.
Ross, thanks so much. That was a great conversation. Boy, did we cover a lot of turf there in a little bit over an hour. So I really appreciate it. For those who would like to follow Ross on Twitter, his Twitter handle is @GerberKawasaki. So G-E-R-B-E-R K-A-W-A-S-A-K-I. He’s also on LinkedIn and puts out a lot of materials from blogs and such on their website at Gerber Kawasaki. As always, please don’t forget to subscribe to the podcast. You can follow us on Apple or Spotify or any of the other podcast platforms. And don’t forget to follow me on Twitter at Chris Rising. Thanks so much.