If people can live comfortably on basic income alone, the market and the entire world would be much better. Josh Jones is a champion of this belief, stressing how the US government should focus more on increasing wages instead of distributing vouchers. Joining David Metz, the Co-Founder of Gondola Ventures discusses how to make money through investments by sharing lessons as an early player in the crypto industry and bitcoin. He reflects on holding back on his bitcoin despite the market trends going a different way and losing millions due to theft in 2017. Josh also talks about his business ventures in the airline industry, why putting money into sports teams is reserved for the uber-rich, and the fundamentals of Kelly Criterion to increase the likelihood of winning bets.
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Josh Jones: Co-Founder of Gondola Ventures and Venture Capital Strategist
We have early crypto and startup investor, Josh Jones here. Welcome, Josh.
I appreciate you being here. This format is pretty simple. I’m going to ask you a few questions so those reading can get a feel for you and hopefully, a sense of your experiences, and maybe they can learn something from that. Let’s get started. You’ve had a wild ride in crypto. From making a fortune to having million stolen, I’m sure you could do a movie on it, but can you give the audience a quick summary of that ride and if anything, things that you’ve learned from it? It would be amazing
I got into crypto in ’97. It was eleven years before Bitcoin came out. My first company was a web hosting company called DreamHost and right after we launched, we got all these signups and I was excited. It turned out that two weeks later, I started getting chargebacks for almost all of our credit card orders. I didn’t even know what chargebacks were before that but it was all stolen identities and it was all fraudulent. Our merchant account provider started to threaten that they would take away our account because this was ’97. They had no sense that we were the victims here.
These are not our customers complaining and charging back because we’re a shady business. These are not customers. Their information was stolen. They sign up with our service to send spam or fishing, and then the original customer found out the bill. I was worried about us not being able to accept credit cards online. How would we take payment? I was thinking if we could take checks in the mail, but that is a lot of friction and sucky. Also, checks can bounce and checks can be fraudulent even. I was like we should, at least, take $100 bills in the mail. I would take cash in the mail if people want to send it. There are no fees. I know it’s legit. They can’t take it back from me.
I was then like, “What if there was digital cash? All the convenience of credit cards plus all the features of cash. There’s no middleman. There are no chargebacks. There are no fees. Once you have it, you know you have it and it could be anonymous or whatever. That’s the main thing.” My cofounder and I spent 1 day or 2 trying to think of how you could do that as a protocol. We couldn’t solve the double spending problem as they call it.
I was like, “It’d be cool if we could email someone. Attach a PDF and attach $20.” I was like, “How do we stop that person from then forwarding that $20.cash file to 50 other people? Who would have it? We’d have to have a centralized authority that kept track.” All I came up with was, “The US Treasury should do this. They should be able to log in and they should stop printing cash.” They should say, “You can log in to our site with your Social Security Number and then send it to someone else based on their Social Security Number.” This is my thing.
A few years later, PayPal came out and I was like, “We could have done it ourselves and had everyone do it with their email address.” I was always kicking myself for missing out on being close to PayPal a couple of years earlier. When I heard about Bitcoin in 2010, it was this flashback. I was like, “Is that the thing I tried to do many years ago? How did they do it?” I started looking into it and I was like, “Everyone keeps a copy of every transaction ever,” and that’s how you know if I’m the person who’s supposed to get the $20 or if these other twenty forwards are legit.
I went down the rabbit hole. It took me about two years because I was only interested in a payment solution. It wasn’t until 2012 that I was like, “Maybe I should just buy some.” If this thing takes off and there’s a fixed supply and I’m one of the few people into it right now who already had some money because everyone else I felt involved was a teenager. They were trying to make money with Bitcoin.
They were charging people 10% fees to buy Bitcoin and I was like, “That’s not the point. The point is no fees.” I ended up buying a bunch in 2012 and holding it for a long time. It was crazy seeing it. I ended up selling my company in 2013 and I remember the day I sold my shares after working on it for seventeen years. It was worth about half of the price of the Bitcoin I bought the year before.
I used to work on Wall Street and they used to say the difference between professional traders and amateur traders is amateurs hang onto their winners too short and hang on to their losers too long. It’s always a fear thing. When you make a little money, you’re like, “I want to lock in the profit.” When you start losing money, you’re like, “I don’t want to accept this loss.” Once you see yourself with a decent amount of money, how do you convince yourself not to turn that into something tangible and spend it because that’s what’s motivating you? I want to turn this into cash so I could go on vacation and buy that crazy stuff.
I had the idea and I wish I’d done it. Everyone has regrets. No one time is perfect. You could always go back and be like, “I should have mortgaged my house, borrowed all the money I could for my friends, put it all in the day I heard about Bitcoin and I should have held it all until November 15th, 2021. I should have sold it on this day, bought it back on this day, and sold it on this day.” That’s what you naturally do when you go back and look at the chart.Everyone has regrets. No one times everything perfectly. Click To Tweet
You are like, “I missed out on $3 billion here,” or something like that but that’s fate. Don’t fall down that trap. At the time that I finally decided to buy something, I was like, “I think that this thing has a decent chance, 25% to 30% chance of maybe in 50 years being the world’s money.” I had the epiphany of Star Trek or Star Wars or whatever. They’ve always got credits. It’s never dollars, euros, British pounds and yen.
When you think about it, it’s assumed that we would get to that, but I don’t see anyone working on that like I see flying cars, space travel, and robots. I don’t see anyone being like, “How do we get our universal credits?” I was like, “Maybe Bitcoin is out. We invented the thing that in 2100 is going to be our world universe money.” I was like, “If that’s the case and there’s only $21 million of it, I feel like there is a 30% chance in 50 years this thing will be worth 1,000 times what it was right then.”
That was always my thing. I was like, “There’s a 50-year bet I ended up buying 30,000 Bitcoin.” I wanted to hold at least 21,000 of it forever. I thought that would be cool to have 0.01% of all. If I needed to sell some, okay, but I would keep 21,000 forever. I thought that maybe in ten years, it would go to $1,000. I started buying it when it was at $4 or so. I was like, “This is probably good.” It went to $1,000 in 18 months instead of 10 years. It was weird because, I was like, “I was right about the $1,000, but it hasn’t been adopted at all.” A little bit of it was like, “Mission accomplished,” but on the other hand it was like, “Not mission accomplished at all.” I didn’t know.
I was like, “Maybe it’ll get adopted.” It was weird because it wasn’t following at all. Usually, it’s like, “These users are using Facebook. I’m glad I was a seed investor in Facebook.” In this case, it was like, “No one’s using it in the sense that I thought would be useful for actual money transactions, and yet it’s already nine years ahead of where I thought it would be on the price side.”
That’s the thing that made it harder for me to be like, “I would’ve never sold any if it was like, ‘We got $1 million transactions getting added every day.’” It was hard to see the disconnect between, “Why is the price so high,” but then it was like, “It’s still early and it will get adoption, but then maybe the price will be $10,000 instead of $1,000. I pulled $1,000 out of my ass.” Back to your original question, I still had a fair amount of net worth from the company I sold.
It wasn’t like if you had $1,000 to your name and you randomly had 1,000 Bitcoin, and then it went to $10,000 a Bitcoin, you’ve got to sell 30%. Don’t regret that you didn’t hold it to $20,000. It’s portfolio and risk management. It helped me that I already had a fair amount, but when it got to 90% of my net worth, you’re a little like, “I know it goes up and down. I think it’s going to last, but there’s still no basis for this value.”
None of the stuff that I thought would make it worth something has happened, and yet, it’s worth more than I ever thought. It was hard. 2017 is where I sold a bunch because it was an insane technical decision to not raise the block size. This whole argument, I felt like the whole project, and still, it has been taken over by idiots.
Bitcoin cash forked off, which was like, “This is what we should be doing. Why do we want high fees? Why do we want to make it unusable?” It’s so stupid and I didn’t understand at the time. It doesn’t seem to matter like it’s just a collectible. If it never gets used, it does not matter. I thought at some point being used for commerce or transactions will be required to maintain this value, but now I understand that like, “Nope.”
How often were you having this discussion in your head? Will you wake up in the morning and be like, “This is crazy, but maybe it’s not,” that kind of mental exercise? Did you also have a group of other crypto and bounce ideas and be like, “Is this going higher? Is this crazy? Am I alone in this world?” Did you have a group or was it mostly in an internal discussion that you were having?
It is pretty much daily. That’s the thing that sucks about it too. I’m like, “For the last many years now, Bitcoin never stops trading. It’s 24/7 so you don’t even get like, “I’ll wait until Monday and see what happens.” In the middle of the night on Sunday, it drops 40% or something and you’re like, “Great.” It consumes a lot of your mental cycles annoyingly. It’s hard to tune it out.
I’d considered doing a ten-year time lock on it all. It’s like putting it in a wallet and you can programmatically not allow a transaction to happen for N amount of time. I could have forced myself to hold it for a decade at least, 30 years, or whatever. It could have been my thing but I was like, “I don’t need to do that. I can control myself.”
That’s what Allen Iverson and his financial advisor did. They put $30 million in a trust that he couldn’t access until a certain period of time, but there are ways around that. Someone will lend you money off of that.
That’s the thing. You could show them the thing and be like, “Let me just borrow against it. No problem.” There’s no way to lock it away. I had friends who were into crypto and we talk about it all the time or whatever. It’s not an official peer group or something. In 2017, I was like, “Now, it’s gotten crazy high, especially with no usage and the fees are through the roof, so there won’t even be usage.”
The politics around Bitcoin core development is now so toxic. They’ll never raise the blocks high, it seems. I had this compromise of, “I’ll sell some Bitcoin,” which will hedge against everything. I’ll keep a little Bitcoin. I’ll buy a bunch of Bitcoin cash, which is now my new long-term bet. If crypto ever gets used, maybe it will be Bitcoin cash and it was at a very cheap price. I’ll find a way to hedge everything.
I still have some Bitcoin cash, but so far, the jury’s still out. That was a bad trade in terms of Bitcoin cash. It’s not because now I understand that crypto may never get used and also, that might be okay. I was always thinking. The big questions were like, “Will it ever get used and does it matter?” I think the answer is no and no.
When you had some of your Bitcoins stolen, was that before or after 2017?
It was after.
What was that less painful because you had sold some? Did you lose faith in where you were storing it? Was it only a mental error on your part?
We would probably need to have my lawyer. I’m still in some legal stuff related to this. We shouldn’t go too deep into it or if we did, I’d have to get my lawyer to approve it getting released. I can say it was a very bad day and it would’ve been worse if I had all. If hadn’t sold any, it would have been so bad.
I haven’t looked it up, but are there any figures for how much crypto has been stolen in dollars? Does that exist anywhere? Is there a number?
I don’t know about the total number, but it’s in the billions. It depends on what you mean because it’s like at the time it was stolen or what it’s worth now or whatever. There’s the Mt. Gox hack where they stole probably 750,000 Bitcoins or something like that. It was over the years though. I don’t know what the average value was when it was stolen, but now, all that money would be very big. There was the Bitfinex hack. Did you see how a few years later, they recovered it and arrested the guy and his girlfriend or whatever who are somehow probably responsible for it? It was $4 billion worth right now that they recovered. That’s got to be the biggest recovery of stolen cash ever.
Does it get returned to the owner?
They’re going to have to exchange also. It was 30% of all the value in that exchange was stolen. I guess there’ll be a whole process of paying it back to people based on what their balances were at the time of the theft. It’ll probably take five years to process. There is a blog that’s called Web 3 Is Going Great. Have you seen that?
She’s got a pretty good tally going. It’s Web3IsGoingGreat.com. She has $11.282 billion there at the bottom. That’s her tally of the thing she’s posted about since she started blogging, which is only a couple of years. I don’t think she even has the Mt. Gox or that other one maybe. She’s got the scams. She’s got a value for each one. That’s pretty good but counting now, it’s probably $30 billion. It puts it in perspective. It’s like, “How much Elon overpaid for Twitter?”
It’s like taking a 180. I’ve read that you champion basic income. I’d love to know how you got to that philosophy and also if you think it will ever happen.
It was like Bitcoin. I got to it thinking it up myself and then with UBI, I found out afterwards someone else thought of this hundreds of years ago. I was thinking about how Republicans have some things right but they are wrong about other stuff. The Democrats have some things right and are wrong about other stuff, in my opinion. I am like, “Why isn’t there a party that has everything right?” Most people even agree and no one has a problem with saying that governments are inefficient. That’s not a very controversial view. I feel like it’s more than 50% of people who would say that a government bureaucrat or the DMV is crappy or something like that. I feel like that’s pretty safe.
In a nutshell, I feel like that is one of the conservative points of view. Most people will agree that sometimes people need help. Let’s not let someone die or we don’t need to be total law of the jungle anymore. We have survival of the fittest. It’s cool but it’s been thousands of years and we don’t need to be like cavemen. It’s weird though because I felt like there was this disconnect between why does the government have to do this stuff? Everyone needs help so the solution that’s come out of most of the things is if somebody doesn’t have enough education, then we’ll make sure that there’s a free school. If someone doesn’t have enough healthcare, we’ll make sure there’s free healthcare.
If someone can’t afford a house, we’ll make sure there’s free housing or if someone doesn’t have enough food, we’ll make sure there’s free food. I was like, “The government doesn’t have to do it though. The government’s bad at doing stuff.” Just because you think that everyone should be able to get this, it doesn’t mean that you have to provide it. First, they could have vouchers. They have food stamps. They should be giving people everything like food stamps, school vouchers, housing vouchers, and healthcare vouchers and then let the free market do it.
I was like, “They could have a universal voucher,” because some people might not need as much food, but they might need more schooling. They could have a universal voucher that’s good for housing, school, and healthcare and then I was like, “We have one of those that are called the dollar.” I was like, “They could give people money and then they could use it on whatever they want.” I was like, “You could just give it to everyone because then people wouldn’t complain about it not being fair.” Also, who would vote against that, because everyone gets free money?
Do you vote for money? Who cares if everyone else is getting it? You’re getting $10,000 a year. Of all the things you can vote for, very few of them are going to affect you day to day, but, “I would like to get $10,000 a year the rest of my life for free, yes or no?” I thought that would pass in most elections but it turns out people are insane about it, where they’re like, “I don’t think everyone should get this.” I was like, “Don’t worry about it. You’re going to get it. Why are you so mean to everybody else?”
They’re like, “How is this going to get paid for?” It’s going to cause inflation and there’s going to be higher taxes. It’s too good to be true. I’ve learned that those are the big two things. The argument that everyone shouldn’t get it is less. That’s a smaller minority but the question of like, “How is it paid for?” is more the barrier to getting it passed in general. I’ll ramble on here. I was always like, “This will be cool and it’s the perfect thing government should do, but it’ll take 100 years before we could afford it because we’ll need so much automation, this and that and whatever.”
Thanks to COVID, I come to a new realization. I was like, “You can do it now. You just print the money. It’s fine. You don’t need to balance the budget.” They don’t balance the budget anyway. It’s more efficient use than what the government already does, and it doesn’t even cause inflation. There’s inflation now and some people are saying, “It’s because we printed all that money.” I would say inflation only comes when the people getting money and spending money is voting on what they want. It’s a vote that gets the price up.
It’s someone’s putting the money there and they’re saying, “I love Applebee’s or whatever.” It only makes prices go up when there’s more money. If the supply cannot adjust, all of a sudden people are like, “Everyone’s buying Applebee’s gift cards.” The price of Applebee’s gift cards will start to go up unless Applebee says, “We’ll ship as many gift cards as people will buy. Don’t worry about it. We’re going to keep that 30% discount or whatever. Sell them gift cards. We can print gift cards.“ Those gift cards are not going to inflate.
If it’s Bitcoin or asset things like the gold or NBA teams or something, where you can’t add more supply, if there is more demand, then the price goes up. If it’s for video games, Netflix, the price doesn’t go up because for Netflix, they can make as many streams as they need. The price goes up when there are supply chain disruptions because of COVID or wars in Ukraine and energy prices now because you can’t make more energy fast enough to meet the demand.
Printing more money might cause things like crypto to go up in value where the supply can’t go up but it doesn’t cause real important inflation. It’s more like the supply chain, energy constraints, taxes, and things like that. I think you could make the perfect government. There are no taxes even. We print the money we need and we give it to the people. Everyone gets $40,000 a year and then we print an extra 20% to run the military.The perfect government is one that does not collect taxes and prints money to give to the people. Click To Tweet
The other argument would be demotivating. For me, if I sit on my couch for more than five minutes, I’d go crazy. I’m sure you’re the same. What’s your pushback on that argument?
I have a few. First of all, all the arguments come down to what would you do. “I would go back to school. I would finally get to be a dress designer or whatever.” Other people are going to sit on their couches, do drugs, and watch Netflix or whatever. It’s funny because I’ve never met someone who’s like, “I would sit on my couch, do drugs, and watch Netflix,” but everyone thinks everyone else would do that. It was that same thing of, “I would take the $10,000. I would use it wisely, but other people would waste it.”
You’re the perfect business for this because I try and use the model of you trying to decide what other people want is inefficient. That’s the whole problem with why the government’s inefficient. A little bit of it’s not their money. Maybe not as much direct feedback on they lose their job if they don’t do well. There’s that thing but also, it’s centralized planning. They’re trying to decide where to allocate resources for millions of people without being those people.
You can see it in the gift card market. It’s the example I use. The discount on gift cards on a secondary market is a measure of how badly people misjudged other people’s desires. “I got you an Applebee’s gift card. I thought you loved Applebee’s.” Now you’re like, “I’m going to sell my Applebee’s gift card for $0.50 on the dollar.
“My aunt doesn’t know me. I don’t like Applebee’s.”
Amazon will sell it at a 3% discount because they have everything. It’s cash. There’s going to be something on there that you can use. You see that it’s a good quantitative measure of how much waste there is when people decide for other people what to do with their money. That’s a good measure of everyone is not going to quit working.
Also, like we were talking before we started, I’m fine with a ton of people not working. I don’t think the UBI is going to be $1 million a year. It’s enough to have healthcare, education, food and housing. The main things you need and be fine and not worry about not being a slave to, “I have to go to work at this crappy job because otherwise, I am homeless or I can’t pay for my medicine.”
The problem with the whole dollar or the way you vote is if you have no money, then you are forced into bad choices. Not bad choices, but you have no choice so you make these bad decisions like payday loans. The people using payday loans are not stupid. They don’t have money right now and that’s their only option. Now, if they had a safe amount of money no matter what, nobody would pay 40% weekly interest.
At the very least, it simplifies things. It’s the flat tax or whatever. The only people that make money there is the HR block. The more complicated, the trickier it gets.
People want to do stuff and if they don’t want to do stuff, why do you care? It keeps them off the street at least, or whatever. You’re worried they’ll be at home and watching Netflix. Why do you care if that’s what makes them happy? I don’t think the economy’s going to grind to a halt.” COVID happened so abruptly. I was like, “It’s like we’re doing a worldwide, US-wide UBI. No one’s working and everyone’s getting free money.”If people don't want to go to work and stay at home to watch Netflix, let them be. Doing what they love will not grind the economy to a halt. Click To Tweet
A lot of people use that to say, “This proves UBI will never work. Look how much wages have gone up and look how it’s so hard to get workers for these crappy jobs and stuff.” I’m like, “Maybe that’s how it should be. Things will be more expensive, but everyone has free money and we’ll have to automate all the crappy jobs and everyone will be happier.”
The argument is, is it inevitable that we’re heading down that path? Automation means that every ten years that go by, there are fewer jobs and this is going to be a problem one way or the other. When do you address it?
That was Andrew Yang’s take on it. I was a max donor to him as soon as I heard about it and everything, which was too bad. I came to realize I was like, “UBI, that’s all that matters.” With politicians and politics, it’s always the person. It’s not their platform. I even asked them. I was like, “Are your people more like, ‘UBI, I’m in?’” or are they like, “Asian-American guy, a lot of cool stuff and whatever.” It’s more about me. The platform gets some people there, but no one’s going to vote for him if he’s this weirdo.
I call it the American Idol prospect. If you ever watch American Idol back in the day, the best singer never won. It’s the most likable person. I read years ago that one of the most telling stats when it comes to the presidential election is like, “Whom do you want to have a beer with?” That is a bigger indicator than, “Whom do you trust with your money?” or anything like that.
Who has a track record of good policies, the budget, and careful discussion and building consensus among them? It’s a popularity contest. I thought that was weird because I’m like, “I don’t think we’re in danger of there being no jobs. Although maybe with this new AI art and stuff, I’m starting to be like, “Maybe it’s going to be here sooner than we thought.” I think UBI fixes it. It does handle that.
I am doing another 180. Have you ever heard of the quote, “If you want to become a millionaire, start with $1 billion and buy an airline?” You’ve briefly got involved with the airline industry. Is that true or is it not true or TBD?
TBD, but I did put that quote in my pitch deck. We were buying the airline. In April 2020, the regional airline of Alaska, Ravn, went bankrupt due to COVID. Because of my involvement in a startup in LA, I had an incubator for startups based on my alumni from my college, Harvey Mudd. Long story, we ended up and I’m the main guy winning the bankruptcy auction in this airline. Tom and Rob, my CEO and President, I’m the chairman of the board, moved to Anchorage the next day and started getting it back up from LA and Maui.
They moved right up to Anchorage and have been running it for a few years. It has been a lot different from my original business which was web hosting and Software as a Service. Luckily, I bought some crypto and didn’t sell it too early. I’ve done other investments and random little projects. I made some money on other things, but this is a whole different can of worms where it is very competitive.
In the software space or in the startup space, you have your competitors, but we only hope this whole industry gets huge. If I’m Uber and you’re Lyft, let’s hope we’re both IPO. In the airline space, it is very much more of a fixed-pie mentality. It’s like war games, partnering, boxing out, and delaying, and your other airlines or your competitors. Every passenger we get is one passenger they don’t get. There is induced demand and prices get cheaper and more direct flights between routes. Between locations happen, it does grow the pie but that doesn’t feel like the default mindset of the industry. It is a 100-year-plus industry versus a few months old industry. That was in the general sense.
If you have endless money during the railroad wars, the Vanderbilt. Let’s say you would lower the prices to nothing because they had endless cash and their competition couldn’t keep up. They’d go out of business. They’d acquire and they’d raise the prices. You saw that early on with the ride-sharing. From what it costs now with Uber and Lyft to what it did years ago, it’s night and day. Keep it low. Win the market. Capture as much market as you possibly can, and once you have that, then you can start working on profitability. Does that mentality exist or it’s too mature of an industry now?
The problem is that it’s a mature industry, which is very weird. There are a lot of capital costs, physical stuff, and regulation on it. Everything is so slow. We’ll be like, “Let’s get a new airplane.” We won’t have a new airplane ready to fly for, the best case, 6 months or worst case 18 months or something like that. There’s the process of owning it, adding this and finding one, getting the deal done, getting the right pilot to train, and adding one of the same kind even. You can’t be like, “This new opportunity came out so we need to jump on it.” It’s hard to jump on things. Everything is like a big battleship. It’s an aircraft carrier in terms of getting to things like placing orders for airplanes four years out.
Is it hard for you then to maintain your enthusiasm? “I’m excited now.” You’re like, “This can get done in nine months.” You’re like, “Nine months?” Fortune has been made and lost in the last several months especially in crypto.
The good thing is that the saving grace of it all is that it’s so big. We’re like, “1757 will make $30 million a year,” or something like that. You’re like, “I can wait nine months to add $30 million a year.” That keeps you enthusiastic a little bit. The other thing that makes it hard is that I’m not that enamored with it for its own sake. I’m not a pilot or an airplane buff or anything but there are a lot of rich people who are. It is like a billionaire will buy an airline and then be like, “I lost money for five years. I give up or maybe I won’t give up. I can keep doing this forever.”
Historically, it’s almost like a government subsidy thing because of these people who want to get into it so they overpay and lose money. It distorts the market like trash collection, sewer maintenance, or something like that. The less sexy the industry, the more profitable it typically is because there’s less demand for getting into it. Nobody wants to do it except for the money. That’s another aspect that comes in and makes it a difficult industry, in general, but it can make money.
The other thing is that the airlines historically always screw up on things that go well, maybe because you can’t be nimble. They add a bunch of routes and planes and try and expand. By the time that goes live, there’s a little bit of a recession or something happening at the time. Everyone does it at once, so there’s a glut. The prices crash through. It’s very volatile with airline prices spiking up and then crashing down. As a consumer, you can see that where you’re like, “I can go to Hawaii right now for $52.” Later you’re like, “It’s $2,500 to go to Hawaii. This doesn’t make any sense.”
Also, with oil prices going up. Do you view airlines as a commodity now? It’s all about price. Airlines are pioneers and innovators when it comes to rewards and loyalty. How much does that factor in or do that only factor into the 1%? For everyone else, it’s about price.
There’s the big United, Delta, and American levels where they’ve got their elite statuses. They’ve got their huge network flying everywhere. They’ve got business travelers, business accounts, fancy lounges, and that world of the big $5 billion a year plus type airlines where rewards are big. People start to become loyal to go on United or whatever. They have a credit card. It gives them that and everyone else is just about price. What happens is two things.
Some people and some things, it’s, “Okay” or if it’s corporate travel or whatever, then they’re like, “I don’t even pay for it myself. I don’t care.” I have miles because of my card. Price would be a caveat. I think everyone has the do not fly list of, “I will never fly on Frontier,” or something like that. I had 1 experience or 2, and now they’re struck off the list. “I’ll do the cheapest one that’s not Frontier, Spirit, or American.”
Seeing that, a few months ago when there were a lot of delays and stuff, there were a lot of people of that notion that were born. “This has been the third time with X airline. I will never fly with them again.”
That does happen. You can win them back slowly. You give them a few years and change a lot of stuff. Everyone’s like, “They’ve been good. Give them one more chance.” If there’s any other choice of where they’re flying and it’s only a $10 difference, they will be like, “I’m not flying with that airline again.”
I agree but if they’re in a pinch and they need to get to Orlando this weekend and they’re 30% cheaper.
They’ll do that but it is funny how loyalty did come out of airline stuff. You could do a loyalty program in any business, but it’s something about travel and airline stuff. It’s expensive and it’s some mystical thing. It’s everyone’s dream of like, “When I retire, when I have my summer break, or when I’m rich, all I’m going to do is travel.” It’s not like, “All I’m going to do is eat at Applebee’s. I can’t wait to become an elite Applebee’s member and get all that free Applebee’s the rest of my life.” There is not as much loyalty because you don’t care that much about the experience of most products and services. You’re not like, “I’m a Best Buy guy. I am so loyal to Best Buy.”
Those are things. With Applebee’s, you are buying food. With Best Buy, you’re buying electronics. For me, with what money I have, I always believe in spending on experiences and not things. Those airlines, that’s where it’s getting to you. It’s getting to memory from experiences and things that enrich you. That’s why it probably has that emotional grab on us.
Hotels fit in that. People are pretty loyal. They get their points and they’re like, “We can stay at this fancy hotel and we can fly first class. We get an upgrade.” It’s like, “It’s just money. You can convert it.” If you do it in your head, it’s points and money, but there is something. The whole math is interesting too, because of the fact that this stuff is used or lost for the business.
They’re these super luxurious things, but they might not have sold all their first-class seats on this direct flight from LA to New York or LA to Paris tonight. A last-minute first-class international flight will be a pretty good deal with points with miles because if you’re going to pay cash, it’s $12,000. They’ll be like, “It doesn’t cost us that and we’re about to lose it so here you go. Here’s your great bonus perk for being loyal.”
Especially a hotel room, if they don’t use the room, that’s nothing. With a flight, you’re burning fuel. You have to sell those seats. On the entrepreneurial front, I’ve asked this a couple of times. If you were to go back in time and talk to your 22-year-old self, but your 22-year-old self doesn’t know it’s you from the future. You’re like, “What is this old man telling me?” You have to give them advice that will have an impact on their life knowing what you know, but also know if they will follow the advice. A lot of times, when you’re young, you don’t realize how important that advice is. With those caveats, what advice would you give them? If you give them one piece.
You could do something tricky and it’d be like, “Sell Bitcoin at $65,000.” I’d be like, “Bitcoin? What’s he talking about?” When Bitcoin came out, he’ll be like, “That weird guy said this Bitcoin thing. I should buy some and sell it for $65,000,” or something like that. “Bitcoin will hit $65,000 and that’s when you should sell it. He’d be like, “Thanks, weird guy.” Let’s see if I remember that, but maybe I would tell them, “Go work at Google first instead of doing your own company because you would’ve been 1 of the first 3 employees.”
Knock on the garage door and say, “Don’t pay me. I only want equity.”
I’ve done pretty well so I don’t have too many little specific things. I have 3 or 4 bad events that I wished never happened and warn about that. An epiphany I had is when I heard about the Kelly criterion. You might know about this if you were an investment banker before.
What is the Kelly criterion?
It’s how much to bet or invest in something where you know essentially what the chances are of success and you know how much you would make if it worked out. It’s good for a sports bet or something like that but you don’t know the odds but you feel like you do. It’s just the right number too. It’s a percent of your bankroll that you should place on this bet that would maximize your final future value and also prevent ruin. You’ll never go bankrupt following the Kelly criterion because you’ll always only do a percent of your bankroll. You never bet on everything.
What is that percentage?
It’s a pretty simple formula. It’s the chance it works out minus the chance it fails. The chance it fails is divided by if it’s going to be more than double.
First, it’s the reward. If it’s a high reward, you get it.
If there’s a 60% chance of doubling your money, you should put 20% of your money into it because a 60% chance of doubling your money minus a 40% chance of losing all your money equals a 20% chance. If it’s a 60% chance of tripling your money, 40% of your money goes into it because it’s 60% minus 40% divided by two because you’re tripling your money. It hurts the risk.
You’ve been able to backdate it and say, “If I took this and applied it.”
I would’ve put even more into Bitcoin based on my mental model. To hedge little, you could do half Kelly, which gives you 75% of the upside and half of the downside. It’s a better risk-reward ratio. You will get a little bit less reward, but you have less volatility on the way. Half Kelly is a more common way to go. It’s also interesting in startup investing in general. In that case where the thing is like Bitcoin, I think there’ll be 1,000 times.
That destroys the risk side, and all you do is look at the reward. There’s this very outsized reward that could fail. You have to think about what’s the percent chance it’ll succeed and that’s how much of your bankroll you should put in. If you think there’s a 10% chance of this thing making 1 million times your money, you should put 10% of your money in. If you think there’s a 20% chance of it making 1 million times your money, you should put 20% of your money in.
Those are the lottery tickets. I’m spending $1 to make $10 million. The reward is amazing, but I am completely fine if I wake up in the morning and the numbers don’t hit. I lost my dollar.
Another epiphany of mine is doing those sorts of asymmetric bets. First of all, they’re usually the things with the highest expected return. Lottery tickets don’t usually, although the Powerball right now is a positive expected return at $1.5 billion or whatever. Typically, asymmetric bets have the highest expected return because there’s a very low chance of it happening. Most people don’t want to do it, but when it does happen, it’s so big. That’s the one good thing about that but then what you’ve got to do is allocate the right amount to it because even if it’s a great bet, there’s still a 95% chance you’re going to lose everything.
You don’t want to put half your money into it, even though it’s a great bet theory. The Kelly criterion fixes that for you and tells you to put 5% of your money in. The other nice thing about doing asymmetric bets is you don’t have to worry about downside protection, which is all like insurance, lawyers, trust, following up, and like, “How do I negotiate this so that the banks don’t or whatever?” because you’re all worried about downside prediction. You don’t have to think about buying the protect your iPhone plan or whatever because you’ve already written it off.
It de-stresses a little bit.
It’s better to do 101% crazy moonshot and 1% of your money into 100 different crazy moon shots. You’ll make more money. You’ll be more interesting. People will be like, “I can’t believe you bought an airline or you bought Bitcoin.” You suddenly become exponentially smarter. You don’t talk about the other 98%. You were an idiot. There’s nothing you have to stress about because you’re like, “I can’t control this anyway.” You’re putting half your money into something that you’re like, “I think there’s a 30% chance this is going to make 40%.” You’re like, “If it goes down 20%, it’s right on the cusp. I got to watch this like a hawk.”
The last question’s a fun one. You can either own an NBA team or a major newspaper like The New York Times or Wall Street Journal or something.
NBA team, 1,000 times. I like basketball. During COVID, I had an opportunity to buy a percentage of the Miami Heat. They were selling 15%. Apparently, the guy who owns it owns Carnival Cruise Lines and he was in a tight spot. They have the Forbes valuation. Forbes puts out their list which is what it usually will sell for. In this case, it was a minority stake. I learned all this from this potential transaction. We ended up not winning the bid. We sold it to some friend or something.
You were interested.
I said, “Yeah.” Minimum ownership is 1% but it was one of those things where I was like, “Airline is another thing. An NBA team where it’s these billionaires who buy them and they’re not good businesses. They’re doing it for the collectability and the fun so you can’t compete too well unless you are a bajillionaire.NBA teams are not good businesses. For billionaires, they are just collectibles for fun Click To Tweet
What does that get you like? If you’re a 1% owner now, on a random Tuesday, you come and show up to a game. What are you entitled to?
I asked that. I was like, “Would I even be counted as an owner at 1%?” and he was, “You’d get the owner suite. You’re the owner of the perks.” You get to go free and go to the owner’s suite and you’re one of the owners. Especially, in that case, he owned it all and his son had a 5%. In this new group, whoever came in with the 15% would probably add 6 or 7 people to that. Now, instead of the guy and his son, there are also these six other people that are owners of the Heat. They’re tiny owners, but they are owners of the Heat. It was crazy because it was at a billion valuation.
Miami’s not a terrible town and the Heat are not a bad basketball team. It was like, “You could buy 1% for $10 million.” I was like, “Okay, I’m in.” This is the one where instead of an airline, this is something I would do as a stupid thing even if it weren’t going to make money, but I was looking at it. They think of them as real estate. They go up 5% a year. Heat is one of the ones that make a little bit of money and would distribute about $34 million a year. You’re getting 3% and it was at half. What I figured is like, “He’s the guy who started the Heat and he’s getting older. He is selling 15% now.”
I’m like, “If he sells in the next few years, you’re not going to get the 5%. It’s worth $2 billion. You got it for one, and it will go up 5% a year. If sometime in the next few years he sells the whole thing, that’ll be at the $3 billion price. You get that capital appreciation plus a 3% annual dividend plus you’re an owner of the Heat. An NBA owner who can go to the games.
That’s a win-win.
I was like, “I’m in.” I had to think about it for a day. I was like, “This is an idiotic thing,” but I was like, “This is great.” We didn’t win so we didn’t get it. The one thing I did learn from it is that I hadn’t realized when I thought we might be getting it, all of a sudden, I was watching the Heat. It’s like you have a $10 million sports bet that rolls over every day. It’s like Bitcoin again.
I finally get it. I’m like, “Why do these rich people buy a sports team? It’s such a stupid whatever,” but I got a taste of that for 1 day or 2 and I was like, “I see now.” You’re like, “If the Heat won the NBA finals, I’d make $30 million,” or something like that. It’s like you’ve put this huge sports bet on forever. I could see why it’s a hobby of billionaires.
Do you know how close you were to winning? Did you just miss it?
I don’t know. There was a broker guy who’d reached out to my account and said, “You might be interested.” I was like, “Yeah,” and then he was like, “Okay, we got it,” and then later he was like, “They chose this other group.” We were paying the same price. It was a group that had like ex-Heat players in it. We were just randos.
Josh, this has been a ton of fun. I’ve talked to a lot of people and usually, they’re very industry-specific. You have brought crypto to airlines to professional sports. It is an interesting life and you’re still young. I can’t wait to see what the next twenty years are like. I appreciate you taking the time to chat.
It was great. Thanks for having me.
About Josh Jones
Josh Jones is a successful tech entrepreneur, having built dozens of companies, from software start-ups to international airlines. He is best known for innovation, creativity and commitment to successful business and community outcomes.
In 1996, Josh founded DreamHost – a Los Angeles-based web hosting company that has grown to employ over 250 people. He also founded HMC INQ, a venture fund that supports, cultivates, and finances start-ups created by Harvey Mudd College alums. Most recently he assembled top executives in the airline sector to successfully relaunch Ravn Alaska (and coming soon, Northern Pacific Airways), the largest regional air carrier in Alaska. The bulk of Josh’s fortune is attributable to his investment in Bitcoin back in 2010. He invests into startup businesses and partnerships out of his family office, Kill Capital.
Josh’s entrepreneurial vision and strategic partnerships have positioned Gondola Ventures to be a leading force in advancing urban aerial and point of interest (POI) gondola systems in North America. This vision has led to securing financial interest and agreements for both aerial transit and POI systems planned to be built and operational over the next several years – including iconic large-scale projects in Los Angeles and Ontario as well as the Mighty Argo system in Colorado.