The Inevitability of Bubbles and Innovation

If you could tell me something in the next fifteen minutes that would make me a better investor, what's the first point you would just hammer into my head? Oh my God, put the phone down . Stop trading. I feel like garoo to the world are no racquet be what I want to . I put my all in it like a day's on the road let's travel never I think the interesting place to start is we've had a few different people from the school of investing wisdom come on, sort of the value investing genealogy. And me and Sam, although we are not investors, we're definitely like entrepreneurs first and then investing as a sort of hobby sport type of thing. We're so attracted to it. We love the sort of investment wisdom, especially especially your version, which is the Ausch common sense version of investing, which is less about how to be super smart and do advanced things and just how to be less stupid than you already are, and don't worry you'll be fine. And so I'm excited to talk to you. You have a cool story. You started off really in the content game in the media game, blogging back in Geo Cities early on with podcasting and built a large investment advisory shop called named after yourself. I think you guys got to what? That was a placeholder by the way. That was not supposed to be permanent. Like let's just call it Ridholtz for now someone else said and we'll find a better name and then we never found a better name. The background is go to law school, do really well, hate being a lawyer . A client is running a trading desk that was a predecessor shop to e trade. And so I started on a trading desk and found it was just mayhem. It was just random volatile and I was more fascinated by why the people around me some days were killing it, some days were getting killed. Like what's going on with their process ? And that sent me down the rabbit hole of behavioral finance . It just was the only explanation I found as to why the same person could be doing really well one week and applying the same process gets shillacked the next week. It's decision making, it's emotions , its cognitive biases. Can you explain your Christmas tree analogy for constructing a portfolio . Sure, that's really easy. So we know that historically very few people beat the index on a regular basis. In any given year less than, half of active managers beat their index. You take that to five year, it's something like twenty one percent. You take it to ten years , it's it's less than ten percent. One out of ten people. So that includes like huge firms . Includes everybody, any active mutual fund, ETF, hedge fund, whatever. And then go to twenty years and it's a handful of names you know, Peter Lynch, Warren, Buffett, et cetera. So if the core of your portfolio is a broad index, you know, you can't get alpha, meaning outperformance if you're not at least starting with beta. And when we say people don't beat their index , it means not only are they not getting what the market gives them, they're getting less than that. So forget beating what the market gets, they're not even getting what the market gets. So pick a number fifty, sixty, seventy percent of your portfolio is that core. And by core index, I mean US broad based market indexes Vanguard's VO last week became the first ETF over a trillion dollars . And that's just a super low cost broad index. You want to own some overseas stocks, that overseas indexes, that's fine. Now the tree is the garland, the decoration, the lights, the tinsel. That's whatever stink of your own you want to put on your portfolio. So if you like momentum, great, add that. You want a little more tech. However you want to decorate it, you know, we 've looked at these assortments of different portfolios , they all more or less end up in a similar place . Some are a little better, some are a little worse. They all end up trailing the index if two thirds of your money is in a broad index, well at least you know you're starting with that basis point. And hey, I think Japan is great. I'm going to own EWJ or I think India is the next big country after Korea. So I'm going to own that ATF. If you want to have a little bit of decoration on the tree , that's fine. Just recognize you're aiming to outperform and the odds are very much that you're going to underperform. So is this a little bit like when you do a diet and they're like, yeah, we're going to do a cheat meal on Sunday and it's not that the cheat meal is good for you. It's just that it's probably the only thing that's going to keep you on the guardrails of the other six days of the week being on track . Is that why you even have the decorations or would it just be better to be one hundred percent in the passive index and call it a day? So my cheat meal is the cowboy account. We have clients. Listen, what's more fun? What's sexier than talking about investing in startups, investing in the hot new publicly traded technology you look at all the things that we talk about, the media, television, print, web, it's never about own a broadly diversified portfolio of low cost indexes, rebalance every few years, seeing a few decades . Now what do you do with the other twenty three hours and fifty nine minutes a day if you have to fill it with content. So all this sexy news, all this exciting stuff , that's that's ninety percent of the fire hose. Would that be the best finance channel? They just say that at the top of every hour and then they just play like home alone reruns for the next fifty nine minutes. And actually those investors would do way better than anybody watching me. I see. I tell the metaphor of this little gardening channel and they have a tree cam. They plant a tree and it just very bucolic and relaxing and it's just there and everybody is happy with it. And then the channel gets bought by private equity and now they got to sex it up. So everything becomes a fake conflict . That's the wrong tree for this area. Too much water, you planted it too deep and no it's not deep enough, it's not getting enough. And meanwhile, the tree could not care less about what they're saying , it just quietly grows . And that is how I think of the media and the broad index say what you want. Vanguard and Black Rock have between the two of them have twenty five trillion dollars in assets because they've dominated low cost indexing . And I think the financial crisis was very much the last straw for mom and pop investors. Now you have a whole new generation of people on Draft Kings and Robinhood speculating , but everybody who's over forty kind of lived through this and said, You know what? I'm going to take my ball and go home and by ball I mean capital and by home I mean Black Rock and Vanguard . And you know before zero eight zero nine Vanguard was under a trillion dollars. They're like eleven or twelve trillion dollars . Black Rock is thirteen or fourteen trillion . Like these are giant giant firms . And so that's kind of what happened. That's the base core . And you know, the tree just keeps growing. What's the biggest return one your clients has had via their cowboy account? So we 've had people that have had some Bitcoin when it skyrocketed . We've had clients that had a lot of Tesla that blew up in twenty and twenty one, it exploded , heading into the pandemic , the people that in their account had like Teledoc and Zoom and Peloton and they just exploded, but what always happens it's so hard to sell something because most of our cells, like I owned Apple when the iPod , not iPhone, iPod came out. It was fifteen dollars a share, thirteen cash. There's no downside and it tripled. It went up to forty five and I thought I was a genius selling it. And then it proceeds to gain another nine thousand percent . But we've seen that. You know, one of my favorite stories in the book is the CEO of Peloton wasn't getting especially great advice . At one point on paper, he was worth two or three billion dollars and just leveraged himself to the hilt, bought a whole bunch of stuff. Then, of course, as the pandemic starts to as the vaccine starts going around and we start to see the light at the end of the tunnel , Peloton crashes. He must have taken a whole bunch of stock loans against that capital , had a sixty million dollars place in East Hampton, had to sell that, was just liquidating everything and just, you know, it's always a shame when you see that . I mean, how many disasters do we have to live through before you realize any stock can go to zero ? So anytime you're trading an individual name , the odds, Hendrick Bessenbiner at Arizona State Business School did a couple of studies and he basically found out that the entire value in the market comes from between one and two percent of stocks. So what are the odds? fifty to one, one hundred to one, that the company that you love so much that's run up so much this year is going to do it for another ten or twenty years. You want to hear something funny? Sean, we did a podcast with Lloyd Blankfein the other day, you know, the Yeah, he's got a book out. Yeah, it was a great book. And he's, you know, for the listener, he's for themer CEO of Goldman. He's a big shy, great guy. He told me , go, I was like, You're retired, what do you do now? He's like, I loved a day trade. He was like , he goes, In fact, I knew I was going to do this podcast for two hours and it kind of made me anxious because I'm always grabbing my phone to look at like my stocks. And so I had to put all my orders in advance in preparation because I'm not going to be available. And he's like right now, I want to look at my phone right now. And then after the podcast, I was like, well, what you are going to do now? He's like, Well , market's closed, so I don't have anything else to do. I guess I'll walk home. And I don't know how his portfolio how he said seventy percent of his net worth. I think he said that. Don't quote me, but something like that is in his pickings . And so he said he's doing good, but it was just so funny. And what's interesting is that I'm sure he's doing great. If anyone's gonna do great, it's probably someone like him. That said, it's like even if you're a titan of industry, you're on top of the world, you know everyone, you're a who's who, there's probably a world where he's gonna make every single mistake, the same mistake that an eighteen year old degenerate Robinhood trader is going to make. And I find that's interesting that we all still do these things. Lloyd, listen to me, put the phone down , stop trading . Seventy percent of your net worth should be in Munich bonds, paying you a huge tax free yield. You want to dick around with a few million dollars, knock yourself out. But if you're actively trading seventy percent of your net worth, which is a couple of billion dollars , I am disappointed to tell you that you're making the biggest risk adjusted mistake of your career and the schmuck that used to run Goldman Sachs should know better stop day trading. Looks like I'm not invited to I'm not invited ab the Sath dinner any more. So thanks, Barry. Oh my God. I hope your memory, your numbers are wrong. So here's the fascinating behavioral side of that. On this show, we have spent hours talking to some of the best investors alive. Well, lucky for you, the team at HubSpot, they have pulled out the principles that matter most and turned it into a very simple, easy to read wealth ide Gu. It's thirty five principles from the top investors. We're talking guys who have been on the pod like Howard Marks, Maniche Pri, Morgan Housel, Kathy Wood, and a ton others. So these are all their frameworks, their mental models, their rules, basically how to play the long game and how to avoid ruin. You can get it in the link below. We see this all the time. I mention the clients, hey, do I buy a Ferrari or not? The folks who are, and I mean this in all seriousness to Lloyd , people who a guy like him works really hard his whole career , constantly striving and saving and investing and putting money away and accumulating stock options and going through all this , it is really difficult even for people who are , you know, masters of the universe billionaires to recognize and just stop and say , I won. Hey, I w on. I don't have to put this much capital at risk because over the decades , I have just seen that story play out and end badly. Hey, I'm sure Lloyd will be fine . He doesn't have to take financial advice from little old me , but anybody who walks into the office with a giant portfolio , the challenge is how do we convince you that you 've won and how do we make you create a portfolio that is highest probability of reaching whatever your goals are? And PS, if your goal is just more , well then you're going to be disappointed both in your portfolio and your life. You mentioned something about selling, and I thought there was two interesting things in your book about selling. One was about panic selling and the data around what happens with penic selling. The other was that hedge fund there was some study about hedge fund managers where their buys were actually good, but their sells were terrible . And I wanted you can you explain those too? I know it's around selling selling . So again, a lot of behavioral finance research behind this. It turns out that people panic sell into a market crash, something like a third of them never return to equities. So let's just use either the twenty twenty, thirty four percent pandemic sell off or more likely the zero eight nine fifty seven percent market crash. Imagine selling down fifty seven percent , not getting back into equities and watching fifteen percent a year compound over that entire period. It's shocking. So you take a million dollar portfolio, you're out at like of four hundred fifty thousand net worth. If you never would have sold it, it would be worth ten X today. It would be four point five billion . And to be fair, you are getting a percent or two until twenty twenty two. Now you start to get four percent in a money market, three point seven percent today . But that doesn't compare to a ten X and it doesn't keep up with inflation. So that's the first data point that's sh ocking. Panics sell into a portfolio, one in three people never get back into equities . The hedge fund, the buys are good, but the sells are worse than just if they sold at random. So I love this study. It's by Alex Amos, who is a University of Chicago professor , but they did this study where they looked at all these buys and my explanation is the buyer's a rational spread sheet database, the sells are always emotional, but the clever thing that Professor Amos did was , hey, how can we tell how good these cells were? I know instead of selling the company that the manager wanted to sell , let's randomly pick else that's in this manager's portfolio and sell that instead. And it turned out that the random cells outperformed the manager selected cells by something like one hundred and fifty to two hundred basis points. Maybe it was even more. It was some crazy amount. And it's like it makes sense that the buys are thoughtful and logical , but the sells very often are emotional, impatient. You know, sometimes the stock doesn't work out right away . People sell it even though the underlying thesis was correct , sometimes something else bright and shiny comes along and you got to sell something so you have money to buy that. It's an amazing data point and it just goes to show you most of our decision making is bad. And so one solution make fewer decisions. Hey, can I , I'm gonna pick a friendly fight with you. Sure . So you say buy low cost index funds. On board with you. Anyone who's listening to the pod knows you're speaking my language , but why would I pay you a fee then to do that? You don't have to. Our whole business model from day one has been so we've been writing in public, myself and my partners, hey, you could do this yourself. You don't need anybody. You just need put together a broad portfolio of low cost indexes , manage your own behavior, stay out of your own way and check in on it once twice a year. That's it . And there are a bunch of people who said, well, I like the advice, but I have a little more complexity in my portfolio. I have tax issues , I have estate issues, I have whatever. I need some help with this. We don't have minimums. We set up different levels of we have two digital platforms, one for under a quarter million dollars and one for a quarter million to a million. But our whole , you know , line of bullshit has always been, do it yourself. You don't need our help. And it turned out something like zero point zero one percent of our readers said, I don't have the time, I don't have the discipline. I'm not interested in this crap. I pay someone to do my taxes. I pay someone to mow my yard. I'm going to pay you guys to manage our money. I did a post a couple of weeks ago about organizational alpha . And if you beat the market by fifty basis points or below the market by fifty basis points, clients could not really care less about that . However , if you manage to quarterback their finances in a way that our tax team has done a great job minimizing capital gains taxes, we use a couple of complex products and I always think simple is better than complex unless it really solves a sticky problem. So direct indexing really helps with that. Sam, do you direct index or do you know what that is? Yeah, I know what it is. I don't do it. Sean, people make fun of me Barry on the show because I am a very strict like at this point, it's a little bit like ninety ten equities and bonds. But I don't think you need the ten. You got thirty years before you need the money, why drag the portfolio down with bonds? Which by the way, is somewhat controversial it just helps. It's mostly emotional decision but direct indexing. It's summarized as instead of buying an index fund, you have a program that basically buys the stocks of the components. Right. The components of the index in the same proportion. It seems like over the course of like for example the way, that my personal finances are set up, I don't I live off my income. I don't ever intend to sell or my index portfolio in case I guess I would sell an emergency. But why would I do direct indexing if I don't intend to sell it. I love that question. So you guys have both sold startups and ended up with substantial capital gains. And so in any given year, even when the markets are up, there's some twenty , thirty, forty percent of stocks that are down and of that group that's down, there are some that are down substantially . So if you have voo, I think is seven hundred or eight hundred positions, the S and P five hundred is five hundred . You look at the bottom des ile, the bottom ten percent of stocks and all right, this small cap biotech is down forty percent. I'm going to sell it and replace it with something that looks very similar, another small cap biotech that's down in the same space . I harvest that loss. The portfolio value doesn't change , the way the portfolio trades doesn't change . But if you do that every year, you could pick up seventy five, eighty five basis points in Q one of twenty twenty when the mark,et was down thirty four percent. O'Shaughnessy did a research study on direct indexing. Their study said that it was four hundred plus basis points of losses harvested and replaced with very similar companies . And when the recovery happened, it matched the performance of the index because effectively it's the same thing. So founder stock, IPO stock, sale of a business , inheritance , high concentration positions every now and then someone comes in and says, Hey, I have a ten million dollars portfolio when I've owned fill in the blank Apple for fifteen years and now it's ninety percent of my portfolio. How do you get them out of that position without paying a giant cap gains tax ? And so this has been like a very effective way to do that. It's not for everybody. It adds complexity. It adds a little bit of cost, not much, but some , but it's definitely useful for that. For most people , I don't think it's necessary. Hey, let's take a quick break. You know that feeling when strategy is done, the brief is written, everyone's al igned and you realize someone still has to sit down and actually create all the content. That someone is usually you, and it's due tomorrow. Well, the Breeze assistant from HubSpot can help. It works right inside HubSpot. You can draft a campaign copy, blog post, emsails all in your brand voice all using your actual customer data. So you don't create just content. You create content that converts. Check out hubspot. com the agentic customer platform for growing businesses. Can I ask you a bunch of stories? I want to do a storytime thing because the cool thing about you is you've been doing the content game for so long and so I know you've met some incredibly interesting people. I want to do a little rapid fire bed. Sure of all the people you've had on the podcast or interview ed at conferences through work , who's the person who you think our listeners should research and like someone you admire. So you mentioned Ray Dallion and Howard Marks those are obvious. I'll give you a couple of really interesting names. Richard Barton is this former Microsoft employee who founded Expedia and Zillow and just one crazy company after another . He's got this crazy framework. I think Sean and I have talked about it. His whole I think I'm summarizing this correctly, Sean, I think he said his whole career is taking messy data and organizing it or I think even said I free the data. Yeah , he calls it give the power to the people. It's basically take data that exists that is just not transparently, easily structured and available and make it transparent, easily structured and available. And so if you look at what he did with housing, you know, the housing data, that's the MLS data, he made it more easy to access through Zillow. They did it with Expedia. They did it with Glassdoor. And it's the same thesis he's just played out in like four , you know, plus different companies at this point. I'll give you a couple other names that are a little below the radar, even though they're all kind of known to the industry . I think David Rubenstein of the Carlisle Group could be the best human being I've ever met in my life. That guy's awesome. Have you seen a show Sean? Yeah, of course. I've just seen this. I didn't know he was such a legend. I thought just he's an interviewer because I just only ever seen him doing interviews. I didn't realize he was the founder of Carlisle, just his job. And he's like I knew him as like a historian. He has these amazing books. I'm reading one of his books on Washington and Lincoln and the rest of the presidents. I don't even think of him as a money guy. So he started out in the DC area when Carl started, and he would put together these off the record convers ations with experts in spaces that were being debated by Congress. And then he would invite a whole bunch of congressmen and senators and staffers from both sides. And the idea was this isn't partisan, this is political isn't political. This is just a way for you guys to hear from an expert who you may not come across and why did he do that? He was in politics ? No, he just wanted the Congress of the country he lived in to be better informed and make better more knowledgeable . Was he a big shot when he did that? No, he was Carlisle was a tiny little company that was specializing in a telecom, and that's why they were based in DC and eventually expanded to everything else. So later on his career, he super becomes wealthy and the Washington monument starts falling apart. The cement starts cracking. It's a couple hundred years old . And Congress being paralyzed and incompetent, he's an idiot and a congressman, but I repeat myself is the Mark Twain quote quote, they couldn't get their shit together. So he steps in and says to Congress , hey, I'm going to fix this . See if you idiots can get around to passing legislation. I'm just gonna patch it up, see if you can do a permanent fix, and I'd appreciate if you pay me back one of these days. And he basically guilted them into fixing all the national monuments. This was in like the eighties and nineties . And then he's a kid who grows up in Baltimore and Baltimore is a city that's having a hard time . He buys the Baltimore Oreos, promises the city that it will not move over the next twenty years . And I think he said and I'm going to keep the beer and hot dog costs the same for the next ten years . Not what you think of when you think of as private equity. What personality attributes do you think made him great as a business person? Because he sounds like a warm and lovely guy, but he's in PE, which is not particularly a warm and lovely industry . He is really, really good at finding a space that is being ignored by the rest of the market and not just ignored but undervalued. So telecom wasn't sexy in the eighties. There was some post Reagan deregulation and it kind of got ignored for a while . So and not just like the big names, but the, you know, the block and tackling or all of the fundamental pieces , just the ability to it's not even see around corners . It's identify a spot that the markets have missed . Was he prolific in his extracurricular activities in the in the upswing of the business or was this like a post wealthy thing ? I think they were on parallel tracks. I don't know. I don't want to do that. So I just lived in Carlisle. By the way, Carlisle has five hundred billion dollars AUM. How does blowing away, they'll get there someday . How does one do that? Like did you know when he was younger? How on earth do you know? I met him I met someone who worked for him and I said, hey tell, your bosss he' stealing my gig at Bloomberg. What the hell? I've been doing this podcast since twenty thirteen , you know, he comes in and bigfoots in and takes the video version of it. And I was joking. It got back to him and I got an email and I said, Once you come on the show, let's talk about your career. So he did. What about the other end of the spectrum? You know, finance and money attracts a lot of other people who will say things that are either accurate or bad advice, you know, maybe self self interested advice Who do you think has done some damage to the space , put a lot of bad advice out there or a bad philosophy that is not one that somebody should follow , even if it is popular or visible . So those people don't get the invites to show up on the podcast . I've been having an ongoing fight with zero hedge . Zero Hedg ises , that a blog or is that a community? I don't know it's a it's sort of a cross between Reddit and a blog. It's got a lot of contributors . Eventually they tapped into Bitcoin into gold and you know, that was their argument. Listen, the there's a Ted Sturgeon quote in the book. Sturgeon was a science fiction writer in the fifties and he used to get the question, how come so much of science fiction is not good? And his answer was ninety percent of everything is crap . And so that's become Sturgeon's law and so most of the stuff you see in print, on television, on social media , on substack, most the stuff isn't worth the time or effort to get it. You know, people send me subscriptions to stuff all the time. Hey, I sign you up for my substack. You unsubscribe me, black me. I didn't ask you to do that. Stop sending me your digital shit. And the reason for that is simply this my mom taught me never take candy from strangers and that includes research, writing, commentary, opinion before I read something from somebody who I'm not familiar with , it's a research lift to decide, is this person worth the time, effort, energy? What's their track record? What's their process? Did they just get lucky once and that's it or do they have a defendable approach to this? Have they lived through a few cycles ? Have they seen ups and downs? Do they have a good temperament or every day like Friday where N ASDAQ is down four percent. They run around with their hair on fire. This is the big one. It's all over . Like if they have that sort of attitude , I don't have room for them. I think you would probably Jessie, you have an opinion, either positive or negative on the what's his name? The Rishdad poor dead guy forgot his name is. Oh my God, Kayasaki, he's he's been he's a chapter in the book and I never read the book. I didn't know anything about and my colleague Ben Carlson does a post about some of this is like ten years ago about some of his tweets and they're terrible sell equities, sell this, sell that . Like he is just super barish . The whole twenty ten's. And then my favorite tweet of his, which I reference in a chapter in the book on him twenty eighteen , get out US housing US single family home market. The financial crisis was the warning shot , sell housing. And ironically , there has never been a better time in recent history to buy single family homes in the US. And when I someone asked me the question, they said, well, how could he have known the pandem ic was gonna happen and all these things happening in housing? And that's the point. That's right. He couldn't have known. What are you telling me? You're defending his shitty forecast by saying he couldn't know the future? That's why you don't make forecasts. You don't know the future . And the takeaway from this is all of Wall Street, all of finance has a ility problem. And I say this , I have a lot of my biggest mistakes in the book . I famously passed on or infamously passed on Robinhood in twenty fourteen at an eighty million dollars valuation , an app that lets millennials trade for free. That is the dumbest idea I've ever heard in my life . Aside from the fact that it's totally off brand with the indexing thing, millennials don't even have money what is if this is, you know , payment for order flow , the dumbest idea I've ever heard. My buddy Howard Lindson made one hundred million dollars on that investment and I'm an investor in other things , Howard is done. And I was just like, oh, so stupid. So I'm not just saying everybody is dumb and I'm smart. I'm as dumb as everybody else , but at least I'm kind of aware of it and starting to from the place of we all need a little humility we don't know what's going to happen. We barely know what's happening today . Our recollection of what happened yesterday is always tinged with a little glow of rosy nostalgia . The our expectations for the future is mostly hopes and wishful thinking . Like the whole human condition requires a little more humbleness in admitting how little we know about what's going on . Help me a little bit here. I love like you have this post that I love. It's called Nobody Knows Anything and you basically like say this one's about SpaceX, but the premise of a lot of your posts is like Goldman, whatever, the big, the big shots, they make these predictions. And the truth is it's just so hard to forecast. And you said that ninety percent of information out there is garbage . Right. What's your ten percent? Who can I read right now and get my information from, whether it be news or evergreen stuff that is the ten percent in your opinion? Sure. So I'll give you my list, but the c aveat is the process of you figuring out who should be on your list very helpful. Going through the process , thinking about it, what do I need? What do I need help for? So let me throw out a bunch of names . We want the whole information diet. Yeah. And by the way, obviously my whole team is a big part of this . Josh Brown, Michael Batnick, Nick McJouley, Ben Carlson, Blair Duchazney, go through the whole list. There's a lot of us writing. So I don't want to just talk about my group. It's a little too self promotional. Let me talk about others. So let me start with just broad eonomic analysis . It's hard to do better than Ed Yordini . He is very thoughtful, very data driven . He's been very constructive and bullish during this market. He very constructively said, hey, you know, the US has had a great run. We're starting to see signs of overseas doing better . He's just been a solid, solid guy. He's been doing it for forty years. He started at Deutsche Bank , really solid. It looks like Ed Yardini's paid, right? That's not a free one. Yeah, Edardini is paid. If I want to look at market dynamics and structure, that's Sam Row. Sam Row, you could do the free version, you could do the full version and is a little more expensive . On the behavioral finance side , it's tough to beat Morgan Houssel. He just is a great storyteller really gives a lot of insight with that. Real estate is Jonathan Miller . I've been tracking Jonathan for forever. I'm friends with him personally . Like here's a guy that really understands what's happening with with both residential real estate and the state of prices in the industry . You know, as you go further and further into the weeds , so Jim Chenos for All Thingsort Sh Selling , Michael Lewis for All Things Wall Street Culture and Psychology . He's a new book coming out in the fall on Doge. I'm really looking forward to it. By the way, Michael Lewis is one of these guys that you think you have an idea of who he is from his books and then you hear him speak and he is just hilarious . Dick Thaler is the other one Richard Th aylor of Chicago on the real hardcore research on behavioral finance . There's so many people, I'm leaving so many, so many people autism capital, the Twitter hand le hasn't made the list so far. You know, there's actually some academic research that has found neuro atypicals do better at market timing because they are not subject to the same social pressure and emotional trading. Speaking of space , have you read the story in his biography of Elon's quick foray into finance, his internship ? Oh, what happens? This is a great story. So he goes, I mean, I'll try to recall it off top of my head here, but he's in school in Canada. He starts cold calling like to get an internship or to get a job. He calls like, you know, the CEO of some invest ment bank or some bank out there. And he goes and he gets a job and he's supposed to be doing whatever he's doing, but starts going really deep on like some South American oil companies or something like that. Something where there was like a political issue and he saw almost like a buffet style thing where he's like, look, they've completely mispriced these assets are mispriced. They're trading at the wrong levels because even in the worst case scenario , you're safe. And then there's all the upside of if it actually gets opened up or whatever. He pitches the guy and the guy's like, okay, go find out what we can do. So he calls. He's like, Hey, I'm Elon Musk, and I would like to place an order or trade, like how much volume can I do? And they were like, you could do whatever you want. He's like, So I could buy five million dollars of this right now. They're like, Son, you could buy fifty million dollars of this if you want. So he goes back and he tells the CEO, hey, I think we should make this huge trade . And then basically it gets shot down for just like because they were just risk averse . And he sees that it would have played out well and he just decides like, this whole thing is stupid. Like, hey, I'm never gonna work for other people because I presented a completely logical argument and it got shot down for illogical reasons. And so I just never want to be in that position again. And also I should just go build things instead of just do this financial engineering stuff. I should go do actual engineering and he leaves and he never comes back . He was a failed retail stockbroker. Is that what you're telling me? There's no fail engineering there . He had no track record. He was a rookie. Why would anyone listen to him? That 's that's the amazing thing. You look back at Warren Buffett in nineteen sixty seven , I think half the people who heard his pitch would like, yeah, why do I want to listen to this guy? I started out as a math and science student at Stoneybrook undergraduate. The outgoing department chair , mathematics department chair was this guy named Jim Sim leaves to form Renaissance technologies , the most successful hedge fund in all of history. If you would have met this guy in nineteen seventy nine, you would say, why? This guy looks homeless. Yeah, I saw him . He looked like he was he looked like a messy studio and he was smoking cigs all the time. He kind of looked like a filthy animal. You would think this guy, I'm like, I'm not giving this guy my money. He's gonna smoke it. Sean, what do you pulling up here? You break out the textbook? I got the story. All right. This is about Latin American debt. Banks had made billions in loans to countries such as Brazil and Mexico. They could not be repaid. The Secretary of Nicholas Brady had packaged those debt obligations and that's Brady Bonds. Yes, exactly. They were backed by the U. S. government. Musk believed they would always be worth at least fifty cents on the dollar, but some were selling as low as twenty cents. He figured that Scotia Bank could make billions if they bought these at a cheap price. So he called the trading desk and he asked, you know, if the stuff I said, he thought to himself, Jackpot, this is a no lose proposition. I run to tell Peter, the CEO about it. The bank ends up rejecting the idea. They said they already had too much Latin American debt. He said, Wow, this is insane. Is this how big banks think? He goes, It was a good thing. It gave me a healthy disrespect for the financial industry. And that gave me the audacity to eventually start what became PayPal. He didn't really start PayPal. He started a competitive product and eventually it was merged to PayPal, but let's not let that get in the way of the story. All right, so he had a dude. Do you have a lot of enemies? A few . No, I have no choice. I can't help it. You just came here spitting fireman. Like so something that's bullshit, I can't help, but I know discretion is the better part of valor, but when people are out there saying stuff that is nonsense that ultimately leads people to lose money . Do you think you ever have to get security? No . Listen, if someone wanted me dead, I would have been dead a long time ago. That's that's not a who wants to live their life that way . What did he say? That makes you think he needs security from who guy Kawasaki ? No man. No, not that nerd. But I'm just saying that like when you deal with big numbers and you have a big audience and you're dealing with people's money and stuff, I sometimes I think of like the risk reward of just like having someone on, you know, around you when you go to the city . Nobody cares. I got bad news for you. Nobody cares that much about me. I'm not I'm not that important . And look here's the reality. That's ninety billion. I mean, that is impressive, but it was, I mean, you have a you have a microphone, you have an audience. Yeah , so in the modern world, it's a cacophony of voices , no one voice is dominant and and you know, Elon Musk bought Twitter . And so his voice is amplified when you look at the value he's created over the years . All right, so whatever the PayPal merger ended up being and then Tesla and now SpaceX , he doesn't have to exaggerate. This guy has changed the world , right? Tesla completely changed the automobile industry. SpaceX completely changed a number of industries , aerospace , the concept of getting anything into Earth orbit, satellite, I mean, he's had such a giant impact . You don't need to polish the Hagiograph y. Your accomplishments speak for themselves . So I have to burnish my crappy undergraduate and graduate career. I don't have that much to brag about. From then, when I see a guy like that , like he didn't found Tesla, he joined Tesla later . His genius was recognizing, oh no, what you need to do is sell a car that's just m iles away from everybody else and don't think like a traditional car company. This is a technology appliance not an internal combustion engine. Like I give him credit for the stuff he's done. That's moved the needle . I'm not a fan of the SpaceX IPO, but I sure as hell don't want to bet against him. He's just proven himself time and time again . You know, he's a tough guy to be on the opposite side of the trade front . Today's podcast is brought to you by my friends at Mercury. They make the world's best banking product. I think you know this already. I use Mercury for all my businesses. I think I have like maybe seven or eight businesses. We use Mercury as our business banking across all of them. And now they actually just launched a personal banking account. So I have my personal account there. I moved off of Wells Fargo in Chase. I'm just all in on Mercury. Why? I like products that are easy to use. I like products that get me and the problems that I have, so like very easy to make a joint account with my wife, very easy to spin up virtual cards , one click and I get savings yield. It just has all the stuff that I need in one place. So if you're looking for the best banking product on the market, it's definitely Mercury. I will fist anybody who disagrees with me on that. Go to mercury. com slash personal and learn more. Mercury is a Fintech, not an FDIC insured bank. Banking services are provided through Choice Financial Group and Column and A members FDIC I want to go back to the bragging question. Because I know you've been doing this forever. I've listened to your podcast and read your blog, but I still want to know as an entrepreneur , the business. So can you give like a short answ er to like just some of the numbers about how big the firm is? So the last eighty V update we did with the SEC was december thirty first . That was seven point six billion dollars . But when we launched in twenty thirteen , that was the start of the third best fifteen year run in history . Does that mean like it's a fifty million dollars a year company? We don't because we're private, we don't disclose our revenue and stuff, but you know, we averaged somewhere around seventy basis points in terms of our fees. When we were a billion dollars, we had like thirty five people. The typical billion dollar group at a big bracket firm is two salespeople, a sales assistant, and someone helping on portfolio. So that would be four people. We were almost ten X that. So we've always been building as if our growth rate is going to continue, and we've been growing about thirty percent a year since we launched. So you said you famously called housing crisis . And from what I understand, there's an interesting story there . So first and this is so dumb , my mom was a real estate agent . And so in zero three zero four hundred five we were, having all these conversations about how weird the real estate market was . And the normal cycle is come out of a recession, the economy begins to expand , and when I'm looking at all that data pre financial crisis , nothing lined up with what you typically see. It was very much a backwards real estate driven economy. In other words, instead of real estate being the beneficiary of an expanding economy more hires better income, it was the opposite. And so anytime you bought a house, you could refinance a few years later at a lower price and some people were doing home equity lines of credit and taking cash to subsidize their lifestyle because in the mid two thousands, middle class workers hadn't really seen raises above inflation for decades . And so were spending the equity in their homes. And so I started hunting for some data and for some academic research. And in two thousand six, Ryan Harton Rogoff did a white paper that eventually became the book This time is different eight hundred years of financial folly folly. And the white paper said when you have a bubble driven by credit, on average, we see real estate dropping thirty two percent . And I use that as a leaping off point to say, all right, I'm too lazy to do all five hundred S and P stocks, but let's look at the thirty DO stocks. And what does a thirty two percent drop in real estate mean to their business, to their revenue? And long story short, I kind of spitball the price of six thousand eight hundred . How Crontary of a Bfelie was that? All the stuff I had been writing about housing and subprime and derivatives, it was all up on the blog. It was all very public . So, you know, and I spent about a year being the dumbest man on Wall Street, which was kind of fun. All of zero seven. It's like you're obviously an idiot . And even the piece that talked about six thousand eight hundred said , look, the market is in an uptrend. We continue to see multiple expansion. You don't put on a short, you don't get out of stocks if you're an institutional trader until that trendline breaks and that trendline didn't break for for a solid year and change. So I spent a year being pretty much the dumbest person on Wall Street . Starting in January, February, March of ' eight, Cudlow started having me on every week and then twice a week and then it just got to be mayhem because you know , nobody sort I should say very few people sort coming . I recall being on CNBC with Peter Bookvar they literally when we talked about, you know, the potential downside and I want to say this was late zero seven . They literally literally laughed at us. And I remember walking our offices were not that far and I'm like, either we're really right or we're really wrong, but there's nowhere in between. Do you guys remember the book Snowball about Warmbuff? Sure. Absolutely . I just started reading it and the very first scene is basically Warren Buffett at the Allen Co ference, which is The Who's Who? So it's always like the hottest new kids plus like the old guard in the room together. And at this time, it was all the best dot com companies . And they're all there thinking they're the hot shit, sort of like how AI companies are now. They think they're the best. And Warren has this famous line. I think he says, only criticize a category, never criticize like a particular name and I'll compliment particular name. So he tries to be the point is he tries to be really polite about it, but he basically says the dot com thing it's going to be bad. And if you look at like car companies in the nineteen twenties, you would have thought that knowing how cars are going to end. place The to be is in cars right now. We got to start a car company. But of the two thousand car companies who launched right when the boom was happening, basically, like three still exist and most went out of business. And he basically said, this is what's going to happen with dot com. And he tried to do it very respectfully, but it was still very insulting to the audience because they were there. And I think he even made like a bunch of jokes. He was like, you guys, I think he even said something like you guys all even have mistresses probably right now. You think you think you're the best , but it's going to come. It's got to come. And it's sort of interesting to figure out inside of someone's head when they see this one bit of data and they make this very contrarian bet and how even Warren Buffett was like quite nervous about that. He goes, I know I'm going to be right, but if I'm not right soon, then I'm really going to look stupid here. And I think that's like that behavior of like making that call is actually quite fascinating. There's a famous technical tr ader from nineteen twenties and nineteen teens called Richard Wyckoff. And he wrote a book How I Trade and Invest in Stocks and Bonds . And if you would go back and read that book , everything he talks about, just substitute AI for internet for telegram and dot com for railroads and it could have been written last year. It's over a hundred years old and it's as fresh as nothing ever changes. There's nothing new over the sun. Yeah, the technology is different . But what's the takeaway, which is that like new stuffs can get over hyped, not can get over hyped, always will get over hyped , which isn't by the way a bad thing. That's a feature, not a bug. There's a great book called Pop Why Bubbles are great for the economy and think about the dot com era, think about all of the fiber that was laid, global crossing and metromedia fiber and the hundreds and hundreds of millions of dollars billions, of dollars in fiber laid. At one point in time, I want to say it was like over a thousand dollars a mile . The dot com collapse comes, all these companies go belly up and then the legacy cable companies and the legacy phone companies buy it up for pennies per mile . And because it was so cheap to own at that point , all the things that came afterwards, YouTube , Facebook, Instagram, all of the bandwidth intensive technology , well , they wouldn't have been viable if it was a thousand dollars a mile to lay fat pipes. But for pennies a mile out of bankruptcy . And so I'm not predicting this is going to happen with AI, but it happened with railroads, it happened with televisions, it happened with radio, internet , electronics companies, sem iconductors, internet, mobile, cars go down the list, every new technology that comes along seems to go through this process. Every new technology is innovative things that are stuck with all the sunk costs and all the legacy platforms and so they get to move forward faster, cheaper, better . So I don't know what who the winners in AI are going to be, but when we look back at it twenty years from now , look at the computer industry . HP , Gateway, go down the list of companies that had billion dollar valuations and effectively went down to zero . Could do the same thing with mobile phones. How's that Ericson phone do you have? Are you going to replace it with the Nocia? Oh wait, nobody buys that shit anymore, even Motorola. They're gone because between the iPhone and Android , everything else has been replaced. It's nice to talk to someone, Barry who doesn't hold back. I think we thoroughly enjoy that. And you know, Sean and I have been seeing your stuff pop up for years. We're happy we're able to talk. Appreciate you coming on. Shout out the book . Sure, how not to invest right over there? Hardcover paperback. You know, the last book was Bailout Nation was fifteen years ago and I just it was a slog. It was tough to write. This book was just a joy. It was so much fun to go back over all these conversations I've had and all this research I've done over the years and published one when no knew who the hell I was. You're a gem of a guy, man. We appreciate you so much. Well, thanks so much for having me. really enjoy this sort of stuff. It's what keeps me going every day. All right, that's it. That's a pod. I feel like I can rule the world and know I could be what I want to. I put my all in it like a day's all on the road let's travel never looking back . All right, let's take a quick break to talk about a podcast. Because if you're listening to this you like podcasts and what's better than one podcast? Another podcast. And let me tell you, another podcast you should check out. It's called success story. If you like hearing about different success stories and hearing Q and A sessions with successful business leaders or hearing keynote presentations or just checking out conversations about sales and business and marketing tactics. This is a great podcast for you. So check it out wherever you get your podcasts.