Peter Webb - Passive income, Betfair trading & Warren Buffett on Betting and Insurance!
So, this weekend there are two big events that take place that always get my, attention. One, is the. Guineas and, the. Guineas is a big meeting that really, sort of kick-starts. The flat season proper it's, the first classic, of the season but it also clashes. With, the berkshire hathaway AGM that, warren buffett has in. Omaha nebraska and. I thought it may be interesting, for you to, listen to and get my views on, passive. Income, Betfair trading, warren buffett all, of those things mixed into one because there are very clear, links, between each one of these and actually, managed to get to ask for an Buffett a key, question, about, the dovetail, between all of those different, things so, if you want to learn what that question was and what his answer was and watch the rest of this video if you're. Interested in learning to trade on Betfair then visit the BET Angel Academy where you have detailed, structured, Betfair, trading courses or, why not visit our website where you can download a free trial of bet angel professional, but, also visit the forum where, you can get detailed images, examples, and downloadable. Files and don't, forget to subscribe to our You Tube channel and click on the bell icon if you want notification, of new videos as they're, released. So. A passive, income is defined, as, a, way of earning money with. Minimal effort and minimal. Upkeep and, it's. Obviously a dream of many people it was it was a dream of mine when I was young and the. Story behind, how. I sort, of learnt, about a passive income was. Through. Some work that I was doing many many years ago as its I discovered. What. A dividend was and what investing, was and eventually that would lead to me meeting Warren. Buffett many years later. I. We. Used to do a bit of moonlighting, I had a really low paid job quite, a few years back and the. Problem that I had with it is that I never really got the income from it that would allow me to do anything interesting and I, sort of felt a bit locked in to. What. I was doing I needed. A break basically, it, was the upshot. Of that particular moment, within my life so, I used to go and moonlight and once, i moonlighted, for. A low called financial advisor he. Was. New to technology, he wanted somebody to come in and teach all. Of the people within his company how to use computers, and word, processors, and exciting, things like dot matrix printers, and he. Wanted a network set up and stuff like this so I would go finish my normal, job and then, go round and meet this guy afterwards. And then he would just say all today I'd like you to teach them how to do, the following and I would give. Them instruction, give him some tuition and then return the following week and tidy. Up the. Loose ends and the rough edges, but. When I was there I started. Trying to sort out I mean his system, was a complete mess or a sorting, stuff out and, I started going down the list of things and, saying. To more you know I what's, this thing here and there, was a regular, stream of payments. Coming into his company, and, I said two more of these and he said all those dividends, and I just went to him what's a dividend and he, went on to explain to me what a dividend was, so. Income. Is basically. By. Definition something, that you yield off of, an investment. And you. Know let, us try. And encapsulate, this in a better sense. You. Know somebody, that's invented, a fancy, new widget he, wants to start his business so. What you do is you. Have a discussion with him you lend him some money and he goes off and rents, a local, business, unit somewhere and starts creating his widget which turns out to be one of the best things that's ever been created in the, universe ever. And, all of a sudden he needs to get a bigger factory, and and stuff like that so at that particular moment, in time typically. Time is of the essence when you have a great, idea and you. Could sort of incrementally. Grow the business over a very very large number of years and then gradually, it begins to take off or, you. Go to an investor, who you borrow money from who, invests in your business but. Of course they expect to return and there. Are sort of two ways that you can get a return from. A, business, or investing, in a business or part thereof and, that.
Is That you. Hope that the businesses this size here and then in ten, years time it's this size here or maybe even bigger, so. That steak. That you have within the business will actually, be worth a lot more they. Invest the money from, the business which creates a profit which they then reinvest in the business which creates more profit and in the process continues, onwards and upwards from there so your original ten thousand pound steak the business has grown tenfold, and, now has a valuation much, higher you'd that ten thousand pounds now what a hundred thousand pound or a million or if you invested in Google Apple Facebook Amazon, any, one of those companies hundreds. Of millions so. What, you're looking at there is capital growth so basically that is an. Investment that you make in a business that gets returned by selling an asset at some point in time so. What. I want to do in this video is States is trying to split out for you the different types of ways that you can sort of earn money and whether it's passive, or active and, all of these sort of definitions, as well and. Because it all dovetails in it will all make sense by the end of this video so. Yeah you know if you invest in a business and then sell the business or your share of the business at some point in the future it, will hopefully be worth a lot more so, if you go into the stock market and you buy an, investment in a company, then. That's effectively, what, you're doing so I bought shares, in Berkshire. Hathaway which is Warren Buffett's company. That. He runs that. He's famous for running many. Many years ago in, the I, think it was mid 90s early to mid 90s was when I bought a share in, Berkshire. Hathaway you'll notice I'm using the word Burke instead of Berkshire, which is I I live, on the border of Berkshire or near Berkshire, but. In America they pronounce it Berkshire, so that is the correct correct. Pronunciation. So if you want to sound clever or stupid use, the word Berkshire. When you're talking about Berkshire, Hathaway and Warren Buffett but. Yeah. I bought shares in Berkshire, Hathaway many many years ago and what. I was doing then was. Figuring. Out that they would be worth a lot more in 10 15 20, years time and of course that's exactly what happened if you look at the stock price from, when I bought them to where they are now there's, been an absolutely, massive, run-up, and that is because Buffett. Is a great investor, and a great businessman, he, takes any spare income that he has from his business that has generated and profits in the prior year and invests. Them in the company or buys other companies with them so you get this almost exponential.
Curve Because. He's taking money that the business is earning and reinvesting, it and I think that he can do a great job of that so, I've given him my money and. Hey presto that's, where your payoff is, now. What you're doing there is that that, is a sort, of passive income. But. It's not as well because what you're looking at there is capital growth you're investing in something and then selling it at the bigger point in the future and so. What you're actually looking at is a growth. In an investment, which. Is entirely different from a passive, income or income. From dividends, because one of the things that berkshire hathaway does that. Is unusual, or not common. Is that it pays no dividend so, typically when you invest in a company all. You tend to do is you it give them some money and you'll. Eventually get a payoff at some point in the future but, for, being an investor, they, will often pay a dividend, to you so. Going back to this job that I did moonlighting, many years ago that's. What you get on a regular basis that's what I could see on, his income. Statement, that's all of those ledger entries, that were coming through his accounts, were. Dividend, payments, from companies they owned so, I also own other, companies, such as I own a company called AG. Bar I own, Disney, stock, and. They paid evidence so basically I'm. Sat here now. And. The, Disney Empire is running away in the background for me an. Ag bar you probably never heard of the company but you probably have heard of the product that they produce which is a drink called iron brew and I've, invested, in AG bar for a very large number of years so. The, perfect investment that you can make is one that, grows, its business overall so it reinvests, its profits really really, well but. One perhaps that pays dividend as well so that's the true definition of a passive income there is a dividend payment from a company that you've invested in I, sort. Of quite. Like investing, in companies that have dividends because if. You don't think that they can reinvest, it in their core business to grow the business. At a fair, old clip then they may as well return the money to shareholders and that's how they do it they pay off a dividend so, whether I'm here I'm asleep, in bed I'm out riding my mountain bike whatever the. Disney Empire is working. For me in the background I will. Receive a dividend from them or. People, drinking. Normally in Scotland are drinking iron brew and. That's. Generating, profits for the core company and they are returning some of that cash to me as a, shareholder so. If you want a true passive, income I, think that that's the best way to do it you invest in a business it doesn't have to be a public company it could be a private company or something.
That Pays dividends, and it. Works a way for you overall I think it's actually a very democratic way, of, running. A. Country. Because, you actually have an investment, within. Companies. That, have. A sort. Of are. Involved in the whole mix as it were so you expect to get rewarded for that and you. May get rewarded through capital growth but, a lot of companies pay dividends to make sure they guaranteed. Some sort of a return now. I could go into great depth about, all. Of that but essentially, you know price, is what you pay value is what you get if you can buy these companies at a reasonable, price then, hopefully they'll grow their business they'll grow the dividends and that's, where you get your return on investment but. I think that's the true definition of a, passive, income, now. Obviously. You know I sort of wear two hats really because I do some trading and I, do investing. As well so money that I make from. The. Trading side of things I will invest and that's been something that's been a mantra of mine since day one any spare capital, that I've got that I don't need immediately, once. I've paid for all of the other things that are going on I. Invest, with the intention, that you. Know if I don't need the money now I can park it take, a little bit of risk on the investment, and then get a payoff at some point in the future so that's been the way that I've done everything for. As long as possible so I do actually, have a passive income I get, the passive income typically from all of the investing, that I do but. Obviously I do the trading as well and when. You look at trading it's very distinct, or. Gambling, in in general because trading. Is a more complex form, of gambling. You. Don't have, such, a thing specifically. As a passive income because there's no yield what, you're doing is you're speculating, on something you're basically saying that you know a little bit more than somebody else and. That you will net a profit, from there but, the, problem is it doesn't actually, potentially yield, anything you're just saying that you're better than somebody else or you're better than the market I actually, think if you strike. Out errors or you avoid making really, chronic, mistakes, you're, actually doing better than most people, within a betting market because, a lot of the money, in the betting market for want of a better word is fairly, dumb it doesn't do. What it should do it's not rationally. Optimized, unlike the stock market which is fairly efficient, we see with the stock market companies. Tends to grow over. A period of time especially if, the economy, is growing and. The sector in which they're in is flourishing as well but, the gambling market is typically flat if you look at a lot of the big markets, I measure the top-line number and by top-line I mean how, much money is bet into the markets over a period of time how much money is matched on a bet fair trading market and that. Doesn't grow the same way as a company company it, can grow exponentially, it never quite does because you know at, some point that, their, product. That they're often becomes unpopular, gets superseded, and then the company, sort of you know starts to sort, of fade away but then a new company will come up behind it so you know if, you get a dividend you couldn't take it from the old company and invest it in the new. But. Yeah that's that process, that, curve continues, on for a long period of time but, in a lot of betting markets, the, growth is pretty much flat or sometimes they're into decline, so. The problem you have with that is, you, know you can't reinvest, the, money into the market if the, markets been flat for 10 years and inflation, has gradually been creeping up and effectively the market is shrinking so if you are able to get something out of the market then, you'll generally not be able to put it in because eventually you would grow so fast that you would become the market, see I tend to take money that I make from, the gambling and their fair trading and I, tend to invest.
It, However. There is a sort of way that you, can get a passive income although I'm loath to. Call it income because income, for me as a yield on an underlying asset whereas. Really when you're talking about gambling you too about better trading, what, you're actually doing is you're speculating it's, you against other people the. Market doesn't have a yield within it as such and it doesn't grow in the same way as a typical, investment, so. It's your skill your ability your strategies, your tactics against, others within the market. And. Therefore I wouldn't, necessarily classify. That as an. Income of sorts because you're just speculating, that's what you're doing you're trading in and out and you're tracking trying, to take advantage of, inefficiencies. Within, the market if you look at something like matched betting, that, is, you. Know doing it at a very low level that's, basically saying there's a price over here there's a price over here there's a slight mismatch and therefore. I will you, know take advantage of that mismatch. So. That's arbitrage, effectively, but it's still not income it's, still an element of speculation, because a book. He could Welch on you you may have misread the rules there could be an error but. Technically. You're looking at arbitrage rather than sort of income, on that, situation. And that's. Really, more on the speculative side of things so, there's there's a degree of separation here, between like, a passive, income and. Something. That is speculation, so you had I think you have to draw the line between the two speculation, is something that you do where, you're thinking, about what the price should be or where. Will be or, as income as a yield on. An investment typically, however, I mean you know if you look at the, way that we've developed bet angel over a period of time. You. Can you can tell, that we've pushed it more and more down the automation route and. Part of that is a response, to many different factors but also, if you have a bet fair trading strategy or a gambling strategy or something that you know you. Can speculate on that does yield something then. Why not automate, it why not get it to run in the background for, you so, rather. Than sort of saying that that's a passive, income it's a sort of a speculative, passive, income or. It's. A passive, speculation. Is probably the correct words to use so. Better, angel runs it's doing it now actually there's some racing has started early today it's active, in the background, you can't see it doing it because it's sat, on a server, and. It's basically, active. And in that market for me so, I don't know how it's due but, I know that over a period of time it will probably end, up, and. This pretty much runs 24/7. For me now so once, you've solve, a particular problem in, a particular market, there's no reason why you can't transplant, that to another market may not work exactly the same but if you've got the fundamental. Basis. Underneath, then, that will actually allow you to, run. That pretty much 24/7, on a variety of different markets, or on certain types of markets, and that. Will produce something for you so. I often run stuff. On. Events. That are running overnight so, best angel sits there does. All of its magic, and then I wake up in the morning and the first thing I do in the morning is get, up the other pad press, a button and hey presto you know there are my results from overnight and it can work particularly well but, obviously you've got to get a lot of work in to, get yourself to that point it's not something that you can just switch on and go hey you.
Know Magic, like. The example we gave on the, dividend, income from an investment, it's, something that you need to chip away and. Work at refine, improve. And then deploy, because. Obviously if you're going to leave something to run completely automatically, it may be you. Have to sit in front of it for a while to make sure it's doing exactly what you, want but, that's sort of why we've, got the manual trading we've got the automation and we've got the servants as well so you've got the best of all three worlds you can always progress from a manual strategy. To, partly automating, it with a servant, to then making it completely passive, from your perspective, and completely. Fully automating. It so. There is a line that needs to be drawn between, what. You would consider an, income. And speculation. Because one is complete, speculation and the other is that, a form of investment that you would expect to yield in a conventional, term so. When I went to the Berkshire, Hathaway meeting one year I, actually. Thought, it would be fun to ask Warren Buffett exactly. What. His thoughts were on gambling, because for me when, you look at gambling it's, a form of speculation. But if you look at the insurance industry, which, Warren Buffett is heavily invested in that, was a form of speculation. As well they're, basically taking in the, premiums, which, could be their income, and. Then they're paying out when people, may call on those particular premiums, when there's a major earthquake a, hurricane. Or. Some, natural disaster or maybe you just bumped into somebody's, car, nonetheless. You are gambling. Effectively. You're. Going to a cheaper payoff so I thought it'd be fun one year to, actually go and ask Warren Buffett exactly. What he thought about you. Know did he feel that gambling was, you, know in he's. Very anti gambling it makes me laugh actually when people quote, him on gambling videos because he just does not have. Anything to do with gambling and will not have anything to do with gambling and I but I must. Ask him why, he has that view when effectively, the insurance industry, is doing exactly it's. Gambling it's speculating, with, somebody's money. In. The same way as. The. Insurance. Industry. Creating. Risk that don't need to be created. I mean if you. Want to go out gamble. On whether. The wall is going to fall on the, wheel was revolving, that. Is not something that, is Creek I created, a, creative. Risk, whereas. If. You've got a home or. A business you. Know coastal. Area. The. Risk is there. It. Wasn't. Created. Intentionally. And. Then, the question, is who bears are so there's. A transfer. Of. The. Case of cat coverage, large. Existing. Risks, as opposed. To the. Creation. You. Can watch a football game without without. Benefit, but. You can't live in a house you. Know, for. The coast without. Having a risk that your entire investment. Disappear. So that. Basically. Right. The house wins, in both cases. House. Advantage. Is. A very interesting one, in. In modern, Commerce a lot of the investment, management. Operations. Which. We're. Not ordinarily, spoken. Of in the past in croupier tournaments, but. The terms of a lot of private equity investment, now I. Think. The I, think. The proprietors. In speak of. The partnerships, are taking a house. Age that looks a lot like the rake of the croupier a Monte, Carlo, except. It's bigger. So. That. Was Warren's view on. How. The insurance industry was different, from, the gambling industry basically, he's saying that there's risk, to be mitigated, in the, insurance industry whereas. The risk is made up in the, gambling industry now. From his comments he was talking more specifically, I think about casinos, because, if you've ever watched a football match you. Know and you've, ever watched an England match you have fun thinking maybe. I could mitigate some, of the risk here by having, a little side bet on. The Sun you know to reward. Me if everything goes terribly wrong, so. I think you are sort of mitigating, a bit of risk but I think his his main angle on it really was that it's manufactured, risk and they're. Encouraging, people to take risk, rather. Than attempting, to solve a particular problem. Which. Is fair enough I suppose. But, yeah I thought it was an interesting question to ask especially being a shareholder. Of Berkshire, Hathaway. Because. The two looked very similar to me you accept a premium, from. A. Customer. And then you speculate, whether, something is going to happen or not and I don't think that's too, much different, from gammy sometimes wonder whether, I should, have done something in insurance, as well and in fact I've always sort of viewed a betting. Exchange, as an insurance, market, for sports risk I think. You know the idea could have been developed and matured a, little, bit more from there but. Anyway the point of doing this video is that.
When. You look at, the. Betting. Exchange, market, you. Are looking at a. Certain. Type of risk it's not the same as something that you if you invest in a stock where you get an income off of it you're, purely, speculating, and. You may profit, from that and if you automate it, then. That will allow you to do that in the background while you're busy doing other things that's like the perfect goal, that you could have and there, is no reason why you, shouldn't be able to do that because if, you have a strategy that works manually, then. There are some strategies that sort of sit more, neatly within that, capacity. But, there are some that sit beautifully within, automation, but there's when. You look at the way we've designed a product it's designed that if you trade manually, then you could probably automate, someone with a servant and if you can automate some of it with a servant then, you can probably completely, automate it so we give you those three options in terms, of how you wanted to do that I have, stuff running all of the time and. That allows me to yield, something even, if I'm not at my desk or I'm doing something else but, obviously I can sit here and actively, trade as well but on top of that I've got all of the investments, in things, like Berkshire, Hathaway and. All of the other companies and that, provide a little bit of an income stream for me as well and I, think that that's a pretty beneficial way of, running. Your affairs that's probably, the goal that you should be aiming for because, I think you could get sucked into one thing or another and, find yourself not in the position to be, able to do one or the other words ultimately, I think if you can have, all. Of those things together, then. You've sort of got the perfect scenario you can have, a bit of fun you can do a bit of training but you can also have a bit of income coming in from elsewhere, but. I think there are distinct lines to be drawn between running. A business, investing. In a business, and. Actually, doing some speculation, because, you could speculate on the stock market very short term and what we're doing in when, you're Betfair trading is just speculating. A betting market, very short-term which, I don't would, particularly. Classify, as income because that would be more related to an investment that you made that, you get paid for holding effectively, anyhow. I hope that's been useful for you we've, covered a number of different topics but it's something that's popped into my mind especially. As this weekend, we're at the guineas and the guineas is always when they have that Berkshire Hathaway shareholders meeting. So the two sort of dovetail quite neatly in, between from there anyhow. I hope that that video has been useful for you. You.