 Good day fair investors! A friend of mine that lives in London just sold his apartment for 2.4 billion pounds. That's not strange. The interesting thing is that he bought that apartment exactly 20 years ago for 160 000 pounds. So he made 15 times his money on his apartment in the 20 years. That's more than he made by working in London in the 20 years. A similar example the former Republic of Yugoslavia is selling a penthouse on Park Avenue bought in 1975 for 100 000 dollars. The selling price now is 18 million. That's 180 times the initial purchase price. Similarly the SAP 500 stocks went up 25 times in the last 45 years. Those are all extreme returns. But those returns become more and more often. So we have to position ourselves in order to be exposed to potentially reaching those returns. We need to have a mindset for that and we need to look for those extreme returns because the world is getting more and more extreme. And today we'll discuss exactly that. How to find extreme investments that look normal. An apartment in New York stocks an apartment in London are normal investments. But they can lead to extreme returns. Now the concept of extremistan and mediocristan have been introduced by Nicholas Nassim Taleb the author of The Black Swan. Big trader that turned philosopher. Now he states that we all see the world or we all want to put the world in something linear something that is not extreme. However everything in the world is extreme. We look at statistical averages of stock prices that go up of home prices that go up. But there are prices in London or in New York that went up 180 times. But there are prices somewhere else that didn't even beat inflation. So it's not just investing in real estate is not just investing in stocks is investing in stocks or real estate or similar investments that can become extreme. And that's what we have to look for. For example US real estate prices went up only 6.66 times in the last 40 years. However the New York penthouse went up 180 times. This means that there are plenty of real estate in the US that didn't even move or didn't even beat inflation in the last 40 years. And that's the point of extremistan and mediocristan. We look at the mediocrity average that's given by this chart. However this chart is made by extreme returns in the positive and extreme returns in the negative. Similarly UK prices real estate prices increased only 3.5 times in the last 20 years. However central London prices increased 15 times. That's a huge difference. And just investing in average real estate would have brought you to 3.5 times. Investing in extreme real estate would have given you 16 times your money. So really we have to look for extreme investments. What's also very funny about extremistan and mediocristan or the average is that we all use well I don't that most analysts use mediocristan statistical tools. The black skulls formula beta risk value at risk and all those risk methods that look at what happened in the past the averages and you have seen how the average is very all over the place and then put it in a model okay and then this is the risk of what can happen. However also the risks are extreme and cannot be explained by a model. The only way to approach investing in this extreme world is by using common sense. No complicated models simple common sense. So how can we find extreme investments positive as extreme investments for our portfolio by using common sense. Well there are a few things that define extreme investments and the first thing is limited supply. You cannot add a million penthouses in London or a million cozy Victorian homes in New York or a million stocks on the US stock exchange because those are all unlimited supply. So first what we have to look is okay where is the supply limited but where the demand can hugely outpace the supply. When you find such situation something that will happen in the next 10-15 years then you are exposed to extreme returns. The second way to look for extreme returns is there where the stability is there where the expected stability is very very strong. Nobody expects stocks to fall now bonds are considered extremely safe because in the last 45 years both stocks and bonds have been going only up. When that trend reverts which nobody expects you can buy them protection extremely cheap protection from a reverse trend and make a huge bunch of money if and when the trend reverts. So those are ways to look at extreme things in one side limited supply or in the other side oversupply of stocks or bonds when everybody starts selling. So if you look at extreme investments you will find them both on the positive and under negative. I'll first discuss an extreme negative investment and then I'll discuss an extreme potentially positive investments in order to show you both ways. So I'll start with bonds. For the last 45 years inflation has been declining and interest rates have been declining and therefore bonds did extremely well. However before that from the 1950s till the 1980s again 30-35 years bonds were considered certificates of confiscation because you would invest in a bond and inflation would eat up your principal so your real returns will be zero or negative. So nobody liked bonds. Nobody liked stocks in the 1970s begin 1980s except for people like Buffett or so. However now everybody loves stocks and everybody loves bonds but if the trend reverts if there is inflation and nobody can control inflation if there comes inflation in 20 years everybody will hate stocks and bonds. So that's an extreme negative investment. Here is the chart nobody looks at data 60-70 years back in order to determine risk except for let's say Ray Dalio but who is Ray Dalio? Just the fund manager of the biggest hedge fund in the world but nobody wants to listen to Ray Dalio. It's better to listen to market pandits of something else. If you look here inflation in the US from the 1950s went only up till 1981 and then it went only down till now. So if we see another 40 years of inflation going only up interest rates will go only up and stocks and bonds will be doomed. Mark my words. To turn on the positive now let's look at extreme investments that can really give you positive returns extremely positive returns. Where I see extreme returns is in the resources environment. The world is developing the technology makes everybody around the world want a higher lifestyle a better lifestyle a lifestyle that the developed world has. So everybody will want a nice apartment infrastructure cars television travel whatever and that is where all those countries are going to and we will see an explosion in the middle class in the next 15 years. The explosion in the middle class means a lot of infrastructure a lot of energy a lot of whatever which means there will be a lot of pressure on resources. There are some resources that there isn't enough and some resources that are plenty. So if you focus on those resources that are a limited supply while the demand is constantly growing and will be growing for the next few decades you're exposed to an extremist investment my favorite extremist investment is copper everybody is leaving fossil fuels away as soon as electricity prices renewable prices drop storage battery storage electrical cars whatever as the trend keeps going there will be huge demand for copper. Current copper prices are at 3.16 they have been at 2 a year and a half ago but if you look at the long-term chart before 2004 copper prices were below one and then as china developed copper prices jumped to four. So if now india and all those countries develop and there is continued demand from china as we see now i wouldn't be surprised for copper because the supply of copper is limited because all the easy copper to mine has been mined i wouldn't be surprised for copper prices to jump from the let's say take the base of last year to to eight dollars per pound that would be an extreme result and nobody expects that result everybody is always making analysis close to the current price because saying that copper will go to eight is crazy so call me crazy i don't care in 10 years i'll be rich and crazy and that's how i want to be the warren center think tank in sydney estimates copper demand to increase more than double based on the electrical trends and all the trends that i have mentioned before so they expect total expected demand being above 50 million in the next 20 years while while current supply is around 23 million so supply of copper has to double and that's practically impossible at current prices we need to see copper at four at five in order for all those be it new mining be it recycling be it whatever new technologies to replace the current copper if we see copper at four at five we will see a spike that will lead copper to eight then it will drop normally but it is possible to see copper at eight and now let's see how extreme can that impact a copper miner let's analyze freeport mcmorran the largest publicly traded copper miner in the world 2017 freeport will produce 3.7 billion pounds of copper okay also gold the cost prices are 1.6 dollars per pound so at current prices they are making 50% gross profit however if copper prices go to eight you can add almost five dollars per produced pounds of gross profit they say here that each 10 cents in the change of copper increases their operating cash flows by 180 million i have made a small calculation these are all back on the napkin calculations if copper prices go to eight freeport with the current production not even increasing we'll see cash flows of around 14 billion so cash flows of 13 billion sound extreme but those are more than 70% of freeport's current market capitalization so if that happens to copper i think freeport with 14 billion would have a market capitalization of 150 billion from the 20 now so it could increase seven times smaller miners could increase even more that's how extreme an investment can be nobody sees it now because now okay copper might go to four everybody's already excited one year ago nobody wanted to touch copper but i see copper at eight in the next 10 years it's a possibility however if you buy a company that gives you a yield already now positively you wait you get your dividend which might be reinstated in the next few years from freeport especially if they saw solve their grasberg problem with indonesia nevertheless if you buy now a yielding investment you expose yourself to the possibility that it becomes extreme in the next 10 15 years so by having a mindset that allows you to find good investments that give a good yield that look okay now that have a margin of safety but are exposed to extreme events in the next 10 15 20 years you can really space up your portfolio because if just a few of your positions let's say five percent portfolio positions explode 15 20 100 times your portfolio returns will be extremely skewed from that benjamin graham the great value investor the bulk of his positive returns comes from investing in geico the insurance company the rest was just market performance so one investment for him changed his life and his career for us we have all the technology we know what's going to happen we can be patient we know the market looks at the short term they can't see beyond the next two quarters so we really have to take this advantage we have if we look a little bit more in the long term if you look at 10 years long term you have a huge advantage and this is what this channel is all about looking for low risk value extremely potentially positive investments thank you for watching keep watching there'll be plenty more and i'll see you in the next video