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VIDEO - DUwHF #896 - Mark Kleive
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AUDIO - DUwHF #896 - Mark Kleive
Dr. Mark Kleive earned his D.D.S. degree with distinction from the University of Minnesota School of Dentistry in 1997. Mark has had the experience as an associate in a multi-clinic setting and as an owner of 2 different fee-for-service practices. For the last 6 years Mark has practiced in a beautiful area of the country - Asheville, North Carolina.
Mark is a Visiting Faculty member with The Pankey Institute and a 2015 inductee into the American College of Dentistry. He is also a regular contributor to the Restorative Nation website. Mark has lectured at numerous state and regional dental meetings including Hinman, Yankee, Texas, Minnesota, California, Florida and the ADA’s annual session. He also teaches a financial management course for dentists in Black Mountain, NC.
www.blackmountaindentist.com
Howard: It is just a huge honour for me today to be podcast interviewing Dr Mark Kleive all the way from Black Mountain, North Carolina. He earned his DDS degree with distinction from the University of Minnesota School of Dentistry in 1997. Mark has had the experience as an associate in a multi clinic setting and as an owner of two different fee-for-service practices. For the last six years, Mark has practiced in a beautiful area of the country, Asheville North Carolina. Mark is a visiting faculty member with the Pankey Institute and a 2015 inductee into the American College of Dentistry. He is also a regular contributor to the Restorative Nation website. Mark has lectured at numerous state and regional dental meetings including [0:00:49.1 unclear], Yankee, Texas, Minnesota, California, Florida and the ADA’s annual session. He also teaches a Financial Management course for dentists in Black Mountain, North Carolina. How are you doing today, Mark?
Mark: I am fabulous, Howard. It’s a pleasure to be with you. Thank you.
Howard: I asked you to be on my show and you gratefully accepted. You didn't ask me, but the one thing that really piqued my interest and why I wanted to get you on the show is I feel bad because 30 years ago when I got out of school nobody walked out of school with $350 000 of student loans and we thought we were martyrs because we had thirty-five thousand or fifty thousand. My mom and dad never gave me a dime to go to college. My dad said, “If I pay for your dental school you’ll just go there and drink beer and you won't pay attention, you need to be a self-made man.” And I pouted about my student loan debt, but what do you say to kids who come out with $350 000 dollars in student loans?
Mark: I think students today have to be prudent. I've heard in previous podcasts before you’re talking about people that come out. They’re now kind of [0:02:02.9 unclear] a dentist. And the first thing they want to do is live the dentist lifestyle which is you buy their BMW and live in a big house and start paying lots of real estate taxes. I think today students need to be more prudent than ever. The thought process that I have is students today have to quickly learn to live on less than they make, because the thought process with student debt is it’s going to take time. Dentistry is a fabulous career. Be very disciplined with where you decide you want to practice and in what environments you want to practice in, but dentistry is a fabulous career, and yet you have to be prudent. As you stated before it's like somebody just gave you your credit card balance that says you got $215 000. You just got to be careful with that.
Howard: It's kind of.. I notice exercise leads to mental health. When you stop exercising your mental health kind of goes down and then you start eating crap.
Mark: I do the same thing.
Howard: When you exercise a lot you're more mentally healthy jacked and then you're more disciplined to say no to all the carbs. Same thing with spending. The dental students that come out and buy a big house and a BMW. Now that makes him take big vacations and makes us eat out at big restaurants and makes them big Christmas presents and big Rolex watches. It's a disease. But the person who comes out and lives prudent then that prudent rolls out then they're like, “Well, instead of going on a vacation to London, why don't we just go take a tent to the lake and instead of eating at a five-star restaurant, why don't we go to the Waffle House?” I mean it's a lifestyle. It's either a spending lifestyle which spins out of control or a prudent lifestyle. I've never heard anyone say Christian does as a dentist. I love it.
Mark: If you look at the statistics that I have read state that the average American or the percentage of average Americans that continue to live the lifestyle at retirement that they're used to is 3%. Now dentists have way higher income potential overtime. Do you know what the percentages is?
Howard: What?
Mark: 5%. 5% of dentists based upon statistics can live the lifestyle that they have into retirement. If the goal is, “I want to have a nice even lifestyle, and I want to do this over a long period of time, then I'm going to need again learn to be prudent in what I have.” And probably that never became clear to me that when I read the book The Millionaire Next Door.
Howard: I was just thinking the same thing. Written by two PhDs.
Mark: Yes, and basically what they say is that people that amass money and save money over time, we’re getting beat by the plumbers, we’re getting beat by the electricians, we’re getting beat by the people in the trades, because they don't have a lot to do to try and keep up with the Joneses. Dentists, if they're trying to keep up with their neighbors and the guys down the street who's a dentist or an oral surgeon or an orthodontist or a physician or whatever it is, you've got a big task ahead of you. You can’t spend your way into affluence, that's for sure.
Howard: I love that you can't spend your way into affluence. The most mind-blowing thing of that book was humans hate inconvenient facts. And here was what profession had the highest percentage of millionaires at retirement and it was schoolteachers, because when you become a school teacher, you know you're poor, you're definitely lower middle class. So, they buy smaller homes and keep them for the rest of their life and retire and they pay them off and they do their savings. “I'm a poor teacher so I'm not going to expensive restaurants and vacations. I'm not getting a big diamond ring and a Rolex watch.” And since they’re teachers, they don't spend, and they have the highest percentage of millionaires at age 65. That's crazy. You’ve always talked about your five hurdles for dentists, and number one was what we’re talking about. People spend too much money. What would you say to a millennial driving to their corporate associate job right now with $350 000 of student loans?
Mark: There's a quote out there that says, “You can be the greatest investor ever but if you can't save money, you're doomed.” So, if your thought process is “I want to save money and I want to build wealth and both accumulation”, then you have to understand that the first hurdle that you have to cross is you've got to live on less than you make. It was a turning point for me. I came out of dental school in 1997. I took a first course at the Pankey Institute in 1998. Now this course could have been any other place in the country. It just happened to be where it was, but one of the things that became clear to me was that I didn't have a good understanding of finance. I grew up in a family. My dad was a welder. My mother was a nurse's aide. There’s six kids in my family.
Howard: That means yet to be Catholic or Mormon if you have six kids.
Mark: It was Catholic.
Howard: See? I know my homies. So, your dad was a welder and your mom was what?
Mark: A nurse’s aide.
Howard: Nice. My oldest son is a welder.
Mark: It's a fabulous trade. Even today it's a fabulous trade.
Howard: You know of any special [0:08:25.2 unclear] why he loves it? His favorite hobby was rock climbing and then he found out that in welding everybody wants to stand on the ground when they weld and the rarest thing was who will climb out a thousand-foot cell phone tower and weld a new platform to switch out a new Verizon box? And nine out of ten people who applied for a job after they get about thirty feet up they go, “Screw this I'm standing on the ground. I want to weld a pipe. Something on the ground.” He climbs a thousand feet with a welder and a Verizon box on his [0:08:59.2 unclear]. Shout-out to all the welders.
Mark: In our family we didn't talk about one. We almost never. It wasn't until I started dating my eventual wife and going to a Thanksgiving dinner at her house that everybody in her family like your father who owns Sonic restaurants everybody in her family was in business and they talked about money openly. I left Thanksgiving dinner and the first thing I told my wife when we were driving home was, “Oh my gosh, all they talk about is money.” It was totally different. But one of the things that I learned early and that I think your listeners need to understand too, is that the cost of capital is different when you own a business versus when you don't own a business. The cost of capital for a business loan is different than for personal debt. If you're out there trying to prioritize “Well, I've got this much in credit card debt and this much in personal debt and this much in student loans and this much in business debt.” If you don't realize that there is an actual simple formula out there to determine what that is. It can be hard to figure out what do I want to start paying off first. That formula the stated costs times one minus your tax rate gives you some indication of what your business loans, because they're deductible, what they actually are going to cost you. If you use as an example the stated cost is 10%. So, you have a business loan today for your dental office at 10% and your current tax rate is 35%. You take one minus the 35% and you get .65 is the actual cost. So, you take 6.65, times that by ten and your actual interest rate on your business loan was 6.5%. So that was just an example of not coming out of school with any real knowledge on finance. That's what I'm telling young people today is learn to live on less than you make. Hurdle number one is learn to live on less than you make and understand the cost of capital. Understand the cost of the debt that you have, because I think it makes it easier and clearer to understand what you're going to pay off first and how you're going to prioritize your debts.
Howard: There’s two don’ts. I live and practice in Phoenix, Arizona and we have two dental schools in a suburb. One on the west side is Midwestern in Glendale, Arizona and the one on the right side is AZ in Mesa and I see these kids come out of school $500 000 in debt and they're born and raised in this town, their parents live there, and they don’t want to go move in with their parents and then they go out and buy a $350 000 house. I'm like, “Dude, why didn't you go back home and live with your parents like I did.” I'm a doctor and they're driving a BMW and they complain about their student loan debt. This blows my mind. They complain about their $350 000 student loan debt, but they're working at a corporate dental chain and then they go buy a $350 000 house and they’re still unemployed as an associate dentist. What do you think about that when you have student loan debts and you buy a house before you buy a dental office?
Mark: In my own personal story I did buy a house in 1997. I was an associate dentist. I did buy a house in 1997 before I bought a dental practice. My first dental practice I bought in 2000. So, I did the same thing, but I suppose if I sent you a picture of my house you would realize that even not today twenty some years later is that house worth three hundred and fifty thousand. I think it was a hundred and twenty-six thousand or something like that in 1997. So, if you were to look at your total cost of living expenses and all sorts of things. I was fortunate in that I married well from the standpoint that I married someone that had a value for money and a value for saving money and a value for not living beyond our means. When I first met her, she had a fancy sports car and she drove that fancy sports car for thirteen years. So, before we had our first children. I get the impact and I get the idea of wanting to keep up with the Joneses but keeping up with the Joneses has some liabilities long term. At some point you have to look at your net worth statement just as a negative with a whole bunch of zeros behind it. I just think it cracks motivation sometimes.
Howard: I've seen this in dentists and employees over the last thirty years and friends. If you're a spender and you marry a spender, oh my God. That marriage and everything's going to crash and burn. If you're a spender and you marry a saver, there's a lot of conflict, but it helps a man. When a saver marries a saver. Oh my God, is that just bliss. And you also see the employees because some employees every time their bank draft’s overdrawn, every time their financial insanity, they always fall into your private office wanting more money more money more money.
Mark: Yes.
Howard: And then the savers are on cruise control, they’re not stressed. They bring it up during their yearly employee annual. We have our annual NRA chart of our annual employer review and it's all formal and it's all written up and notes and everything. The savers only talk about money during that one-time annual review, but if some high genesis as a receptionist follows you in your private office. They're probably a spender and they're probably married to a spender and that's just the disease, isn't it?
Mark: And every decision is based upon “What’s the monthly payment?” So, they know exactly what they make per month, but every single item that is purchased, this is my experience with team members in same way is that any experience for the spenders, it's all based upon what's the monthly data. So as long as I can get that monthly payment on that card down and string it out through eight years I get to drive a new car. And it’s a liability long term.
Howard: Well, your five hurdles. Hurdle one we just spent too much money and you’ve got to know no one spent their way to affluence. You've got to spend less than you earn. You’ve got to be a saver, but hurdle number two says we need an accurate understanding of finance. We can control risk, cost and time. What do you mean by that? And if she's driving to work right now listening to you saying, “Dude, I got an A in chemistry and trig and geometry and biochem and I can tell you the Krebs Cycle, but how the hell do I learn finance? What would you say to her?
Mark: Finances are in the Marketplace, and the messages always make it incredibly confusing, but the reality is that finance can be incredibly simple. And if I had the DDS and I had thousands of hours of education and I come out and I think that I can’t, I'm not smart enough to manage what I need to do to understand finance. I think that's completely wrong. I think there is lots of fantastic education out there that can be read in a couple of simple books. But you know in reality any accumulation of wealth over time you have to manage risk, you have to manage cost and you have to manage time. So, if your thought process first is, “Well, I’m going to stick all my money in a savings account.” You know your savings accounts is going to earn half of 1% and inflation is going to be 2% percent over time. We don't know what the future stands but that's in the last twenty years what it has been. You're going to lose money over time. So, you need to understand that the stocks and bonds of the types are the types of investment vehicles that are going to help you accumulate wealth over time. And if you're looking at things like risk you manage risk if you say, “You know what? I am a 100% into the stock Market and I'm going to give it a go all the time and I don't need my money for thirty years.” I think the stock Market's in a great place to put your money. If you're risk averse then you need to look at just adjusting your portfolio so that you are going to have slightly more bonds than a full 100% in stocks. Time is an amazing thing. Everybody talks about compound interest. Few people understand it but compound interest. I used to think of saving money and the curve being linear for my life I'm going to save money over my life that curve is going to be linear but compound interest shows us that that linear curve changes at about twenty years. 20 years in as an investor and at twenty years you only have about 20% of the time. If you create a goal of “I'm going to have a $ 1000 000 and you saved for the first twenty years. At twenty years based upon compound interest curves you only have 20%t of the total amount that you plan to have in forty years and over the next twenty years that's when your money hits the compound interest parabolic part of your curve and all of a sudden that's where you get 80% of your money. So, you have to figure out your risk tolerance and you realize that the earlier you start investing the better that first twenty years. It doesn't matter whether that twenty year starts when you're twenty-five, thirty-five or forty-five. You have an MBA in Finance, Howard, you know this very well. That first twenty years, that curve doesn't jump and so you have to decide even young dentists out there have to decide what they want for their future and have to start saving. People talked about when I graduated from dental school, “I will save $10 000 a year.” And by the time you're forty you're going to have a $1500 000 or whatever that number is. Well the first few years of school I couldn't manage $10 000 a year, but we started saving what we could at the time that we could do it, and that worked great. So that's risk. Risk as managing stocks and bonds and portfolio type stuff. It doesn't have to be complicated. You’ve got to start saving something at some point and just understand that that first twenty years, one of my mentors calls that the “desert period” where you think, “Oh my God, I've been saving for twenty years, but I only got 20% of the money that I'm hoping to have.” The next twenty is where it really matters. Today I will look at cost completely different. When I first came out of school I talked to my mentors. What financial advisers did you use? Who did you talk to? And I started using some of those people, and you I was paying $6 000 a year for their advice, but I could only save $10 000. I was like, “This is just not smart.” So, I think for the first twenty years dentists really need to think about just managing using really low-cost bonds and just save, save, save. Don't let it be complicated. Don't let somebody talk you into like I was. You know your portfolio should have thirty different funds for diversification and stuff. Now I just don't believe that today. I just don't believe it today.
Howard: My favorite quote on compound interest is from Albert Einstein. He says, “Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn’t, pays it.” And when you were talking about that twenty-year desert period, let's just take the reverse of it. Now if you don't understand something just flip it around and what's the reverse? So, when you buy a $100 000 mortgage for thirty years on a house the first seven years it's basically interest only. Your $1000 payment would be like $990 interest and $10 of debt reduction.
Mark: Yes.
Howard: And they didn't really pay off the house until the end and the same thing with savings so that first meant the opposite. The first is all principle, almost no interest. And by the time you get to the end it's all interest. It's no principle. And there's types of people. You take these dentists. It is absolutely insane. They'll be fifty years old and buy a new mansion on a thirty-year loan. I'm like, “Dude, you're fifty. Really? You're going to do that?” So, you're either paying interest on other people's money or you're earning interest on other people's money. And to get from the side, “I impulsively have to have my car today, so I'm going to buy it today and finance it for sixty months. I have to have my house today. I can't afford the fifteen-year payment, so I'm going to get the thirty years.” It's always an impulse control dysfunction. It's instant gratification.
Mark: And purchases made on a monthly payment model. This is how much I make. This is how much I can pay per month. So therefore, I can take this and go to my real estate agent and say, “This is what I can afford.”
Howard: And then Warren Buffett. Warren Buffett is the outside man, but there's an inside man Charlie Munger. They’ve been Batman and Robin the whole time. So, Warren Buffett gets all the show because he's like that. I went to Creighton in Omaha. He’s just a great man. But his buddy Charlie Munger says, “Understanding both the power of compound interest and the difficulty of getting it, is the heart and soul of understanding a lot of things.”
Mark: Along with compound interests I think about this from hurdle number five and we’ll get there. As long as we brought it up that there's all kinds of discussion about compound interest. And but few people talk about the compounding of fees when it comes to investment mutual funds and those sorts of things, but we'll get to that part. But Warren Buffett his passion has always been keeping things simple, keeping costs low. Just this year he had a fantastic shout out to John Bogle who was the founder of Vanguard saying, “Here's a person that has done a lot more for the financial industry in his eighty some years than the next five people added together.” Warren Buffett was a frugal person.
Howard: He still lives in his starter home. I drove by in Creighton and he lectured at our business school at Creighton university. Another other thing he said is, “What you have become is the price you paid to get what you used to want.”
Mark: Yes.
Howard: You’re still paying today on something you wanted a long time ago.
Mark: You use the term “instant gratification”, but at some point, you have to decide what your preferred future is going to be and then be disciplined enough to get there. It takes time and again in investing you've got to be in it for the long haul and you've just got to be disciplined for a long time.
Howard: Hurdle number three you say was we must learn the history of finance. There is no success in timing the Market.
Mark: I kind of chuckle because this is a hurdle that I tripped over him in 2009 quite nicely. You know a person like yourself remembers the roaring 80s where the Market went from two thousand to sixteen thousand. I was investing from 1998 to 99 and on. But in 2007 when the Market got to sixteen thousand and then in two years, a year and a half, dropped to eighty-five hundred and nearly at the bottom. I personally like panicked and pulled my money out and I said, “This whole Market thing isn’t for me.” And I waited. I kept reading about it. The Market hasn't hit its bottom yet and all that sort of stuff. Around about 2010 I got back in and my own personal portfolio lost about 28%. And the greatest part of this story was that my wife had her own funds and she was doing her own thing with her stock. And of course, it never even crossed her mind to pull her money out. And she had more money in her funds that I had in my funds, so the good news was I lost 28%. She didn't lose anything. She gained. She was constantly putting money into the Market at the low periods. And so as a family we were successful. That’s the great American story is when your wife is a better investor than you are. But you know there’s plenty of people and there's plenty of media saying you know you just pick up a time magazine or a money magazine and go back and look at what they were saying two years ago. Most of it is complete dribble and there is not a wise investing mind like Warren Buffett or John Bogle or William Bernstein that say that there's any success in tying the Market. And examples that they show of people who have done it. Year and year and year again. They got to one point and within one year or two years they lost all the gains, because they felt they were they were doing better than the Market. John Bogle says, “Don't do something, just stand there.” Instead of “Don't stand there, do something.” I think that the advice that I would give people is that just continue being an investor. Don't think that somebody that you hire or somebody that you read from that says, “Well, I think the Market's going to tank.” There were plenty of people in the election that said, “Well, I'm taking my money off the table.” And what's happened to the Market since the election? There's so much noise in the Marketplace, there's so much noise in the media about you're at risk right now and I think we bid a little high, there’s going to be a bump and maybe with war in North Korea the Market is going to change. There is no brilliant mind in finance that believes that any of that is true. That's what I read. That's what I believe.
Howard: Oh yeah. When Warren talks about timing the Market, he says “Time is your friend, impulse is your enemy, take advantage of compound interest and don't be captivated by the siren’s song of the Market.” And it's funny how the richest investor in the world lives in Omaha and all of the other ones try to slug it out in Manhattan and lower Manhattan.
Mark: Yes.
Howard: And they're all thinking they're getting stock at the urinal or at the coffee shop or Starbucks and Warren, here he has $56 000 000 000 and lives in that house that he bought for a hundred thousand back in the day. It's still just an old brick house. And I mean that guy is just amazing.
Mark: And he has a business model for Berkshire. He doesn't find the Market. He doesn't. Everything that he looks for in his philosophy is buy and hold, save for the long term. There’s no success in timing the Market. He said that over and over again.
Howard: Yeah. Hurdle number four: your biggest enemy is the one in the mirror. There is considerable noise in the media that we need to ignore and we think we see patterns that don't exist. They really do think they see things in their Ouija board, their stars, their patterns. The only pattern they should focus on is the pattern of spending less than you earn and saving.
Mark: Well, there's a couple of statistics that are interesting. One is the tongue in cheek statistic that says that 80% of drivers believe that they're above average drivers. 80% of low cost funds beat what the advisors suggest. There's a lot of advisers that suggest actively managed funds. And the reality is that 80% of those funds get beat by low cost funds that just match whatever index they're being referred to. The biggest enemy in the mirror are those of us that believe that the random noise that's happening in the Marketplace, it convinces us to do things that we wouldn't normally do. And that’s what happened to me when I pull money out of the Market in 2009. It was like I thought I'm reading stuff that says that we're in trouble and you know the we're going to hit a bottom. It's going to be really big and I pulled all my stuff and all that stuff, the gloom and doom, didn't come true. Here two and a half, three years later the Marketplace rebounded successfully and all that stuff that I read was complete dribble and these folks even in the investment industry believe that they convince themselves that they see patterns that are happening in the Market and just again those that are in the know, the people that we give the most credence to, they say that's total dribble.
Howard: My homies are driving to work right now to help find our gas I retweeted your last Twitter and you're @MarkAKleive. So, it's Mark, your middle name is A. What’s “A” stand for?
Mark: Andrew.
Howard: Andrew, are you a hurricane?
Mark: I was in 1992.
Howard: Yeah. So, you're Mark A Kleive as K-L-E-I-V-E. What is “Kleive”? Is that Scandinavian?
Mark: Well it's actually Clive and it is Scandinavian, it's Norwegian. My grandfather came over on a boat. He left his three older brothers behind. And a little-known fact in Norway it's “Kleive”. And a little-known fact it was a couple of years before our daughters were born that my wife and I went back to the same small fishing village where my grandfather grew up. It is about five or six hundred people. The contours of the land around is just stone and grass. There is no cattle, all the houses is fishing industry and he was a musician and he came to the US to play. He led an orchestra and stuff. My grandfather died when my father was like nine years old so I never got to meet him, but the Kleive family still owns that house that my grandfather grew up in and we spent ten wonderful days with them in July which is about twenty-two hours of sun and we fished for cod out of the ocean. So Kleive is Norwegian.
Howard: So, your Twitter is @MarkAKleive and I just retweeted, “Do you realize the enormous drain the retirement fees have on your prized [0:34:39.7 unclear], the crushingly expensive mistake skills from the Atlantic. When you talk about company interests the difference between just a simple index fund with very, very low fees like from Charles Schwab versus something that your employers give you. It's predatory on the smaller businesses. Twenty-five employees or less or fifty employees or less. And that’s where these brokers make all their money is on the employee pensions and you're really not only screwing yourself over, but I have 401k for all my employees and oh my gosh, so many small businesses like dentists do this for their employees. And the difference between fees could be the difference between your assistant retiring a millionaire or are a $100 000, right?
Mark: You know it was interesting. I spent a lot of time figuring out my team's 401k plan and when I went to the local Edward Jones person and said, “Okay, these are three different options. This is the one that I think I'm going to go with.” And when I showed it to him he's like, “There's no possible way that I can compete with this. But if that's the direction that they've gone, they go to their neighbor and I’m just picking on Edward Jones as an example, but if they go to their neighbourhood investment advisor and say, “I want to start a 401k plan”, but they don't understand the implications of the fees or they don't bid that out in some fashion based upon knowledge. You can end up with vastly different options for team members. John Oliver did a fantastic retirement plans bet.
Howard: On last week’s night.
Mark: It was unbelievable. He’s a fantastic comedian. But the truth in what he was talking about was is that's what the fifth hurdle is. The financial industry has no obligation to you. There’s a whole bunch of information on truth and lending, but there's very little information on truth and investing. And as soon as John Oliver makes a point that as soon as the financial industry fights their fiduciary responsibility. They’ve been fighting, fighting, fighting their fiduciary responsibility to act on our behalf. And like you say these small businesses like dentistry are getting raked over the coals with regards to their fees. And the difference between if you invest for forty years the difference between a fund that is 1% and a fund that is point 0.9 percent. What you were talking about low cost fees, Howard. The difference in those expenses over forty years is almost $600 000. That's what a team member would pay or a dentist would pay in those fees over time. So again we have some understanding of what compound interest is, but we’re not understanding what composts fees are. And just as you say there is a huge difference between providers of 401k plans out there and providers for dentistry. And we just have to be smart enough to go out and look to see what those differences are.
Howard: Yeah, and it's hard to get a grasp for numbers. Even simple numbers like I still don’t think people know the difference in a million a billion and a trillion. To put in perspective a million seconds ago was twelve days ago. A billion seconds ago was thirty-two years ago. A trillion seconds ago was thirty-one thousand six hundred and eighty-eight years ago. It’s the same thing with compound interest. They don't realize in a thirty-year loan the first payment is 95%. In fact, when I was in MBA school, do you know what they called every loan over 24 years? Interest only.
Mark: Right.
Howard: So, if you flip that around and you start spending less than you earn and you start saving. Basically, every payment is only interest. So you flip that savings account around and you start saving at twenty-five when you're sixty-five, those last years all your earnings is from compound interest.
Mark: Right.
Howard: And they just don't get it.
Mark: Let's make an analogy to a casino. I've heard you talking about casinos on your podcast before and if you walk into a casino. This is my understanding of what I read. I don't have lots of experience in casinos. I think I'm down like $1in Vegas from playing the dime slots in the airport or something like that. But the house edge of a casino is somewhere between 2% and 10%. So the thought process is if you go to a casino and you think, “I have a chance of making money there's a day [0:40:03.4 unclear] to do 11% over your 2% to 10% over you right away. If you go and talk to an advisor and an advisor puts you into funds that have a certain amount of fees in them and in debt you have an 80% chance of paying a higher fee. Boy, the casino’s actually looking pretty good then. If you believe you are going to walk into a casino and are going to make money and your advisor signs you up for fees that have an 80% chance of getting beat by a low-cost index fund. I don't know. Every time that I would dip my hand into a pocket that has eighty red balls and twenty black balls, chances are I’m going to pick a red ball. I think that we need to be as dentists, as small business owners, as people that are in charge of our own wealth accumulation. We’re not working for Apple, we're not working for Facebook, we're not working for Google. We're in charge of our destiny. We've got to be prudent.
Howard: But they're driving around and you've mentioned Edward Jones.
Mark: Yeah.
Howard: They see these on every corner. What are your thoughts on Edward John? When I was little, it was actually a Merrill Lynch story. You drive around the area and find these little Merrills. Now they're mostly Edward Jones. What do you think of Edward Jones in particular?
Mark: Well, this is uncensored, right?
Howard: Right. Hell yeah.
Mark: So, here's my belief. I think you're not going to have a fiduciary responsibility. They're not going to sign a document accepting a fiduciary responsibility. Edward Jones is known to have kickbacks in the finals and things that they recommend to other people. I think they can do a great job of getting people started that have absolutely no knowledge. But I think you still need to understand that you if you’re paying based upon assets in management, you're going to pay a price for that over time. And I think that in the first twenty years. Let's just think about somebody who has twenty years of experience like I do. I think in the first twenty years, particularly when your net worth is a minus and a bunch of zeros after it, you want to try and be as prudent and low cost as possible. So why not choose incredibly low-cost funds like Schwab target retirement funds or Vanguard target retirement funds and do that for twenty years. Do that for twenty years. You have an 80% chance of that being successful over anything that anybody at Edward Jones could advise for you. And my guess is that when you're forty-five like I am and you've invested for twenty years you can decide at that point whether you want to go into some adviser who is going to be paid upon fees and have a fiduciary responsibility to continue to maintain things based upon your behalf. That's what I think the younger generation of dentists needs to be focused on. I’d love to hear your opinion on Edward Jones based upon the things that you know about.
Howard: You said it perfectly. Somebody has to pay for your broker and that broker is getting paid every two weeks for the whole time you're investing. Who's paying for your broker? And I've always been a big fan of my [0:43:49.9 unclear]. You know people come to me with dental ideas all the time and I would say, “Well, is it faster? Is it cheaper? Is it higher in quality? And is it lowering costs? I mean watch Shark Tank for one season. It’s just so obvious. And I like the fact that the only secret to lower prices it to lower costs. So what Wal-Mart do instead of buying through a middleman? They only bought from the manufacturer.
Mark: Absolutely.
Howard: And then when they forced returns back on their suppliers if a customer brought a shoe back, because a heel fell off Wal-Mart didn't care because the guy selling me shoes is going to take it back and give me an exchange for free. So, Wal-Mart didn’t even have to pay for the exchanges. And if you're not going to exchange your shitty product for free, I'm going to find another distributor. He just turned the tables on everyone and annihilated Sears, Wal-Mart Gibson's, TG&Y. Southwest Airlines, number one airline, low cost, why? They only fly one plane they don't do hub and spoke, they only fly direct. I think Charles Schwab is that guy. I think Charles Schwab sat there and had one eye on the customer, one eye on costs and he's used his three-and-a-half-pound walnut brain his entire career to drive down costs. So, did Vanguard. Yes. So, they beat 80%.
Mark: And why does Warren Buffett say, “For the average investor invest in the S&P 500.” Low cost funds, stay in the course and keep it simple. Those are the things that I think are going to bring more wealth to your listeners than walking down to Edward Jones and saying, “Okay, over forty years I’m going to pay you nearly $600 000. So, you better treat me nicely. I think there's a big risk in that, Howard.
Howard: And what you just said happened to you when you were little. I hear from dentists all the time, “Well, I went and I paid $2500 for this investment analysis and this plan.” It's like damn, I wish you'd just sort of put the twenty-five hundred in an index fund and then at age twenty-five and you would know where it would be at sixty-five.
Mark: I don't I don't want to up those numbers, Howard. I don't want to add up the numbers that I paid when I was younger to a fancy CPA firm to tell me that I need to continue investing in that way.
Howard: So, you also you teach a financial manager of course at Pankey and for dentists in Black Mountain, North Carolina. Tell us about that. And is your financial management course information the same? Is that blackmountaindentists.com. Is it on that?
Mark: That’s my dental practice website. I could post that through Twitter and help people get information to the investing course. I do that with one of my mentors. He has an MBA in Finance as well.
Howard: Is it a separate Twitter?
Mark: No. I can do it through my name or we'll figure some other way.
Howard: Well how do we find out about your financial management course? What would be the best way to take it?
Mark: Well, probably the easiest thing would be to e-mail me. That would be the easiest way.
Howard: What’s your email?
Mark: It’s “M” as in “Mark”, all the letters in my last name K-L-E-I-V-E as in “victory” at Gmail dot com.
Howard: markkleive@gmail.com?
Mark: Yes, sir.
Howard: So mkleive@gmail dot com?
Mark: Yes, sir.
Howard: I can always tell the age of a dentist when his email is at AOL. That's when he's over seventy. But yeah by the way, baby boomers. Last year the oldest ones turned seventy. Now they're turning seventy-one and it is amazing. My gosh, it's amazing how many of them are still paying interest on other people's money. So tell us about your course. If they email you Mkleive which is K-L-E-I, “I” before “E”, but after seeing it in German, so that's why I know you're not a German and you're Scandinavian, because lecturing around the world you really get good at name origination. What's your course like? Is it one day today, how does that work?
Mark: It's a two-day course, Howard, and basically the goal of the course is to help people get some foundations and understanding of their financial situation. So, we want to give them access to retirement calculators. The premise of the course again is similar to exactly what we've talked about. Keep costs low, keep it simple, stay the course. We want to help people understand how to kind of start imagining what that [0:49:01.4 unclear] looks like, the principles how to get there. We talk about the different types of retirement plans that are available to them, whether it be for early investors a lot of times it's just starting with a simple IRA Plan. And then their office may decide to do a simple plan and then move to a 401k. I can show them examples of different options out there between what you can get at Edward Jones versus what we do in my practice or what the ADA recommends. We talk about tax efficiency portfolios and how as a dentist and owning a dental office, how to maximize your dental [0:49:41.0 inaudible] to help you manage your retirement. The accumulation of your nest egg.
Howard: And you also teach at the Pankey Institute?
Mark: I do.
Howard: That’s a prestigious gig to apply. That's the world class preeminent institution. How did you get that gig? How did you get that? And how often do you teach there? Seriously. Congratulations on that, dude.
Mark: Thank you.
Howard: My colleague up the street here in Phoenix Leanne Brady teaches there. I went through all six weeks of the Pankey Institute. I went there for six weeks in Key Biscayne, Florida. I hope Irma, you’re hurricane Andrew, I hope your twin sister Irma doesn't water surge flood them, because they are on the ocean. I used to take my four boys with me. In fact, my boys my used to ask me, “When are you going back to the Pankey Institute?” What was that hotel across the street from it? What was the name of that one? The big tall one, the nicest one?
Mark: Well, years ago right on Cranden Boulevard. I can't remember the Ritz Carlton.
Howard: Oh my God, but we're in Phoenix, which is a desert.
Mark: Cape Colony was the condos that was across the street when I went there. And then the new institute was built around 2000.
Howard: Oh my God. Phoenix is a desert. And I go there for a week and be Monday through Friday. And they just cried when they had to go home. They just loved sitting on that beach playing, while my dad was in there learning. How often do you teach down there and what's the course called, and how do you get in on that?
Mark: Well, the teaching that I do at the institute is in most of the times that I've been there it's usually one or two times a year. And I'll be teaching with Dr Brady in April of next year. But the coursework is just for students that are coming into the initial curriculum. Their coursework is just around all the basic stuff that we've talked about today, helping people understand compound interest, helping people understand the cost of capital. Really simple financial principles that can be built on over a period of years. And so there’s nothing complicated about it, Howard. It's just I like to go and be able to share information of the things that I had gleaned over the years, the times that I had to stub my toe and those types of stories are what dentists need to hear about. They need to hear that. Not that any person that stands up to the podium is perfect. It's about all the times that we have stumbled along the way and things that we've learned from it. I went to the financial advisor. The advisor told me that I should be involved in a whole life policy. And the good news was I only did that for one year and realized that the cash value of my $10 000 policy was only five thousand bucks. So there's lots of good and simple information out there and that's what I want to pass on.
Howard: That is so true. How you learn from your mistakes is always the best. The best book I've read lately was Misch’s last book Avoiding Complications in Oral Implantology. You learn more from reading eight hundred pages of every damn implant that failed. That's how you learn. Not by learning eight hundred pages of how to place an implant. You're drilling a hole in bone. I get that. Show me eight hundred pages of everything that failed. It was also my favorite business person who wrote Good to Great, Jim Collins. He wrote Built to Last, Good to Great. But my most mind-blowing book from him was the opposite. He decided why am I always talking about how the good ones get great? Why am I not talking about how the great ones go boss and he wrote a book called How the Mighty Fail and it was the shortest book. It was the most succinct [0:54:13.7 inaudible] and it was just like, you read that and it’s like, “Okay, you know what you shouldn't do.” It's like when you go to McDonald's and she says, “Would you like cheese on that?” She shouldn’t even ask you. You know what the answer is. So you say, “Actually, make it a double cheeseburger.” You know what to do. You just don't do it. You know Dentaltown has fifty categories, root canal fillings, crowns, whatever. But one of them was finance and under finances, accounting, bookkeeping, equipment acquisition, practice financing, once patient finance plans. One's personal finance and one's taxes is a very robust deal. I think that student loan debt, the dentist living beyond their means. It's amazing how you can have eight years of college and in my opinion, you can still be pretty crazy like a lot of dentists lately. What do you think about Bitcoin? There is a lot of dentists on Dentaltown. I think that's the next big thing. What are your thought on Bitcoin?
Mark: They talk about the curve with their [0:55:25.6 unclear] and then there are early adopters and then late adopters and I'm just a conservative investor. If I was going to invest in Bitcoin I would say, “Okay I'll take 5% of my investing portfolio and I'll put it in Bitcoin because that's speculative.” I'm not going to speculate with anything more than 5%. So, I could be way off in twenty years from now people may say, “Boy, I wish Mark would have suggested that I invested in Bitcoin.” But you know those types of speculative things, I’m all for it. I have my eye on a target twenty years from now, Howard and Bitcoin is not in my portfolio right now at zero, but things that are speculative to me. I wouldn't go beyond 5%.
Howard: Here's the most asked talked about question under finance industry.
How would you answer that? She says, “I got out of school when I was twenty-five, I practiced as an associate for three or four years and I'm going to set up my practice. And when that when it all gets opened I'll be 30 and I'll probably practice. So, she's sixty or sixty-five. Should she rent or own? You're talking about stocks and bonds and saving money in a 401k index fund. But what about real estate?
Mark: Are you talking real estate to live in or real estate to run your business in?
Howard: The dental office. Should she rent her dental office for thirty years or should she buy the land and building? Because it's a big chunk of change. She's already three fifty in debt. She's bought a practice for seven fifty and the owner’s saying, “Well, do you want the building, too? It's another five.” I mean she's like, “Jeremy Christmas.”
Mark: Okay, so I can only do this. I can only share two stories that I have, okay? So, my first story is that I bought the first building that my dental office was in. So, I bought the business in 2000, I bought the building five years later in 2005. It was the absolute height of the real estate Market. And within two years that building lost 50% of its value.
Howard: Nice. Where was that? In North Carolina?
Mark: No, this was in Minnesota. I've been in North Carolina for six years.
Howard: How come you don’t talk like a Minnesotan?
Mark: Just ask me to say “coat” or “Minnesota”. But that investment in real estate I lost about 50% of now. So, you're talking to someone, who is likely never going to make any money out of real estate. Now I bought that dental building that I'm in down here in North Carolina. I think I bought at the bottom of the Market on this one. So that's my hope for. It's interesting. Real estate again can be part of our portfolio. It's just not going to be more than 50% of my portfolio so if I don't have any money, I'm probably not going to be buying a building if I'm a new dentist. I would think about renting first. But you know every person's history and every person's willingness to risk is going to be different. It's interesting that one [0:59:05.0 unclear] once told me that Dr Pankey never believed in buying dental real estate. Now he happened to own some of the real estate that he had his dental practice in, but what he would tell most dentists was, “Don't buy the real estate.”
Howard: I also want to say something else. You've quoted some amazing people. We're talking about Warren Buffett and we're talking Charlie Munger and who were the ones you quoted earlier?
Mark: John Bogle from Vanguard, the founder of Vanguard. William Bernstein actually has a free book out there, that takes about thirty minutes to read it. It's called If You Can. You can Google it. The five hurdles that I shared today are all based upon his simple little book.
Howard: And what's that guy's name?
Mark: William Bernstein. B-E-R-N-S-T-E-I-N. The book title is If You Can.
Howard: So, what's the opposite of John Bogle, William Bernstein, Warren Buffett, Charlie Munger? You see these people under financing, talking about things like, “Oh, I just read that legendary investor Jim Rogers said we're ready for the biggest Market crash of all time.” And then a five second Google search shows that he said that in 2011, 2012, 2013. Okay, so in 2011 the chance of crisis worsens, 2012, it's going to get really bad after the next election, 2013, you better run for the hills, 2014, sell everything and run for your lives, 2015 we're overdue for a stock Market crash, 2016, $68 000 000 000 000 biblical crash, 2017 the bottom line, expect the worst crash. A broken clock is worth twice in a day.
Mark: Some people are paying for that advice. Howard.
Howard: I know.
Mark: I guess you asked for another opposite. I always think of Jim Cramer's mad money thing. I mean his thought process on index funds and stuff is, “Oh, you should have a stock portfolio and I'll tell you what to buy.” And, ”You call into my show and I'll tell you whether it's a good buy or whatever it is.” Again, the people that I read and the people that I respect and the mentors that I have say, “Block out the noise, keep costs, keep it simple, stay on the course.
Howard: I love that guy and I love that show because he's a bald guy and I got to support all the old, fat bald guys. But I think of those shows as entertainment because he's bringing up a stock. He was on the conference call, he knows interviews, they probably get paid to get on. I mean I just watched the interview with the CEO of Invisalign was on his show and Stan Bergman the CEO shines on the show, but I don't see that as journalism I see it is more as just entertainment. But when you have legends like Warren Buffett and Charlie Munger you and you have these legends. It's like people, they just search Google and Facebook until they find someone crazy enough to say what they actually believe. It’s kind of like when you're getting advice. When you're in college, you know if you ask Eddy, “Gosh, should I stay in this study tonight or should I go out and get crazy?” And Eddy used to say, “Come on, I'll go with you.” What I did is I modelled. So, when I was at Creighton first day of school there was eight-eight guys on the ninth floor of Swanson and I sat there and I thought, “Okay, the smartest decision you could do is just make friends with the ones you know, no questions asked, they're going to get into dental school and don't start hanging out with people who you know are never going to make it into dental school, med school or law school.” And I chose Gary [1:03:04.1 unclear] Randy Kirwin, John Leese. Guess what they are all today? They're all dentists. And it's funny because I knew I was here to get into dental school and some my friends would say, “Come on, there's a big party, I want to go.” So, I’d run down the hall and say, “Randy, Gary, are you guys going to go to that party?” And they go, “Hell no, we have a biochemistry test Monday, you idiot.” Then I’m like all sad because I already had committed and I was going to follow their advice.
Mark: You had mentors. Even in dental school.
Howard: Oh absolutely. Because you have to model the success rate when you’ve got Warren Buffett. He just had he just had a show on HBO. You know someone followed him around for an hour and it was on HBO and I watched that. I've met him, I've done all that stuff, but it's just amazing how old he is and he's still living in that little house and his wife gives him an envelope with $3 and every morning he drives through the drive through at McDonalds and just gets whatever his $3 can buy. He’s just one badass, cool dude.
Mark: There was an interesting interview recently. It was in the [1:04:20.5 unclear] magazine. I had to flesh it out from a neighborhood retirement community, but John Bogle again from Vanguard was interviewed and he is the only investment company that’s investor-owned. He does not own personal stock in Vanguard. They estimated that his worth if he done it would be $28 000 000 000. And they said, “What do you think of that?” And he says, “I've got all that I need to live off of right now.”
Howard: And what I used to love growing up in Kansas, there's all these older guys that grew up during the Depression. When I was a little kid and half the grandparents lived in Depression. And even the ones that made it, and I mean made bank and had $3 000 000 in their savings account. They wouldn't go to a restaurant and if you ever did drag them it was the First Communion, it was some event or whatever. They'd be sitting there at the menu saying, “$12 for a steak? We could go to Dillon’s and buy a steak for $3. Why are we sitting here?” And someone younger from the next generation say, “Look, I'm going to pay the bill. Just don't look at the prices, just eat the damn steak, we're here, it's a family.” But they're just old school man. And another thing I picked up on those guys, they didn't wear blue jeans because back to the Depression when blue jeans come out it was for the poor. That was a poor man's pants and the upper class wore plaid pants. So then here was a gazillion years later and these millionaires are walking around in plaid pants and you know everybody else looks at them like, “God damn, don't you have enough money for a pair of pants?” But in his walnut brain he was looking to you in blue jeans thinking, “Oh, you must be poor wearing blue jeans. I'm the rich guy here wearing plaid pants.”
Mark: It's like the guy they interviewed in the Millionaire Next Door. They asked him, “What kind of beer do you drink?” And he says, “I drink two kinds of beer: free or Budweiser.
Howard: Man, that was the fastest hour ever. We went over. I want to tell you Thank you so much for coming on my show. I know my homies, they just love dentistry, they just want to learn bleaching, bonding, veneers. They just want to learn Invisalign and if they wanted to learn everything you're talking about they wouldn't have been dentists. They would’ve been business majors MBAs, they’d be in banking, they'd be working at Edward Jones. It’s really tough to teach someone something they're not interested in and if you don't get interested in the business of dentistry, money, banking, insurance, financing, I don't care what your trade is. I don't care if you own an Italian restaurant or a dental office. Life's going to be much harder.
Mark: Well, I’ll tell you what. I’ll upload one book for dentists that dentists can read. It's called Bogleheads Guide to Investing.
Howard: Nice.
Mark: The book isn't written. The foreword is by John Bogle, but the book is written by three of his disciples, who are just average people. But if dentists wanted a book that they can read in five hours and really get some concrete financial principles, it's probably the best, simplest book out there.
Howard: So, did you find that? John C. It’s called the Bogleheads.
Mark: Bogleheads Guide to Investing.
Howard: Nice. I have not seen that book. I will actually read them myself.
Mark: It's simple and it's fantastic and it would be required reading if I was teaching finance in a dental school.
Howard: And another thing. If you're not a book reader, because it's hard to take a wild animal. Imagine taking a chimpanzee or an orangutan or a baboon and say, “Sit in this chair for five hours.” We're not born to do that. But my gosh, if you're not a book reader, check out audio books. I mean gosh darn. I know people that do all their chores Saturday morning, they clean the house clean all the laundry and everything for four hours and my friend Lewis Core is like a ten-time iron man. And whenever he has to go on his four, five, six-hour bike, I know you're a cyclist, too, every time he goes on a six-hour bike ride he kills another book. I mean the guy’s one of the most well-read guy dentists I know. And it's all done while he's cycling for training for an iron man. So, if you can't sit down and read a book because you're a homosapien and that's what you would expect, try audio books. And Amazon is reporting now they're selling more audio books than they are hardcovers. Have you heard that?
Mark: That's why I listen to your podcasts, Howard, because I can do that while I'm doing dishes. I can do that while I'm doing laundry, or washing the car or something like that. So I get to kill two birds with one stone.
Howard: Just don't get killed on that bike.
Mark: I try and be very careful.
Howard: Well buddy, thank you so much for coming on my show. Thanks
for giving me the heads up on the next book I'm going to read.
Mark: Fantastic.
Howard: I will get that book on barnesandnoble.com. I used to always plug Amazon.com. I have a book on Amazon.com and I have one on Barnes and Noble. Barnes and Noble is just an easy street for a deal. Amazon's just bat shit crazy. My God, they change the price. Everything about ordering my simple, stupid book on Amazon is always a cluster. Barnes and Noble is like dealing with another dentist and Amazon is like dealing with a crack whore behind the dumpster KFC. I mean I'm serious. I mean it's just crazy. I can't believe how successful Amazon is because I only have one experience with them and that is, my God, It's crazy. So, Jeff Bezos, I hope you hear this. Jeff Bezos just look into one customer listening, trying to sell a book. It's crazy. Barnes and Noble is how your dad would run his own business. Amazon.com is like some drunk casino blackjack dealer. Crazy, but I’ll order that book on Barnes and Noble today. Thank you so much for coming on the show I hope you have a rocking, hot day.
Mark: Thanks, Howard. You have a great day as well.