E101: Ye acquires Parler, Snap drops 30%, macro outlook, VC metrics, valuing stocks & more
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Welcome everybody. Despite de one hundred and one datta ks is on vacation sitting in brad gardiner from altimeter group. Come back to the pod, brad. Hey.

don't good to be back. Good to be back. I made first, first, you guys, you tilt IT free back a little bit xs on twitter.

and you back whenever you .

know who probably hates .

to .

turn over the net weeds that are in the brigades, uh, the brigade.

it's all gonna end at some point because I think .

the brigden .

new ownership at twitter is onna change, like the .

whole span roses and hamers .

team musical. But now I think briga dunes could stick. I don't have never heard anybody use .

that for the calling, the twitter mob. The brig dunes is a good new thing. Like jorge.

it's funny.

It'd everything a little bit turns IT .

down and IT feels goody completely demo wars. They really want to be taken seriously, but they're just a bigger due.

I mean, to be a great do know, you have to have four or more accounts and you have to reply to each of those accounts as .

if I can read to eat something as a social stice example. You're trying to join the brigadoon. Got this just a different briga.

Doon is .

a god on.

are you sometimes .

a .

brid right? Do very good too.

I never, i've never break IT down. I've never break IT down. I mean, I may have breaking down once or twice from my brand or camp, but that's IT. I mean.

With the fans .

and.

Well, anyway, kunio west can't leave an amazing career alone, and he is going to buy parler, which apparently kanta ow's husband, George farmer had created. So he's going to buy his own social network. If you don't remember, parler is like a really shitty version of twitter that never seems to have work or been stable to crash. The first ten times I used IT oraculous sly, this steaming pile of garbage had raised fifty six million in funding. And key is on a social media flash media tour saying horrific anti semantics stuff he seems to be having a mental breakdown again. Um there's a big discussion now I guess should people be platforming them to the point um that he's doing three, four, five hour interviews with people and IT does seem like it's acute mental illness left break I don't want to like dig know anybody from a far here and i'm not qualified to well, I mean, he has been public about his struggles with mental illness.

It's not a huge leap for any of us that have had family members yeah the episodes I mean.

this is clearly .

many pretty much write out of a textbook.

So my question for you guys is what you have, somebody with great wealth, great creativity, he's obviously a savant, so many different categories with a huge social media following, plus money, plus fame. And then he adds social media to the mix, which is an accelerant.

And then all of these are tucker carson and every other publication, every podcast, using this moment, I think in a way to kind of, I don't know, get ratings off of this train rock, I find IT apple. And to interview somebody when they're a manic episode like this, i'll be totally honest. I ouldn't do IT. But if you take on this.

I have a family member of blood relative that is in severe mental health crisis. If the emails and the text messages that this person sent were public, you, I read these things and you've severely, severely impacted me to the point now where I have like a rule that when they're in a manic episode, I just kind of harvest them and archive them just in case something bad happens. But I can't even take the effort to read IT.

And because IT takes such a toll and then I feel really guilty because I think maybe there's a something in there where I could be missing something. So this is what when you're in the middle of of of of a severe episode, this is what the family and the loved ones of that person is also dealing with. So I have I have no idea what's happening with kindly. But what I would tell you is when you're in the manic episode, the most the thing that you need is for the people around you to try to step to help you and it's really frequent heart and I can tell you that in i've seen this person in my family say and say things and do things that are just so beyond the pale yeah and it's part of when they're in that moment and the whole goal should try to get them out, get them back on their beds, get them rebaLanced. It's a really, really complicated thing to deal with.

Well, look, I mean, the guy, the guy is buying the social media platform.

And I think IT .

continues to support the point that I made a few times, which is I don't think that anyone has a monopoly in social media networks. We've seen every couple of years, uh, competitors emerge. People proclaim an open.

Those monopoly get uh destroyed by the next thing you know, from friendster to myspace to facebook to instagram to Snapchat to tiktok. And I think that the the reality is the users of those platforms, ultimately coal less around a set of standards they want to see happen on that platform. And those standards become kind of the editorialized or produce model for how that platform should Operate because that's what the user safe.

They don't want anti emetic m. They don't want what they would call a kind of chAllenging and institution. They don't want fake news, whatever. But the classification is there is an editor or editorial board that editor realized as what isn't isn't allowed to be set on that platform. And ultimately, there is a fringe voice or a voice that feels unheard or feels like I cannot speak on that platform.

And what we're seeing now with, I think you on acquiring twitter and conny, acquiring parler um and generally A A number of kind of emerging networks uh like a what's IT called rumbler uh as a alternative to youtube is a redick what's called rumble I think rumble clear. I think it's it's a really clear supporting fact that there are gonna alternatives and that these we thought we're an open and what kind of became digital town squares and most infrastructure are, are really just application layers. They're editor realized and they are going to be competitors.

And I think there are folks that want to have a voice that feel like they've been editor realized out of the existing networks like kyi, like trump, like you want to some degree. And there um you know uh those that have resources are changing that. And I think that speaks to a really healthy competitive market.

So having folks like cya step in and try and create a new platform that has alternative voices long term, I believe in freedom of speech. I believe that we should have alternative voices, but I also believe that consumers and customers should be able to choose what platform they want to be on based on the editorial ization that happens on those platforms. And I do believe that the owner of those platforms should have their own rules because he creates a different .

differentiated product. Jason, is that with you? We're hoping to get comment on or this idea of the media feeding francy feeding on cAnnie's mental breakdown? M, yeah.

I was talking about the media friends if that's the thing that I think is pretty account. Er in fact, youtube just pulled a bunch of the interview he did because is so much antiassignment stuff in and and you know when somebody he's in a mental breakdowns in this, which I think it's pretty clear he's in, you know they do this behavior and of course it's hurting them. It's to your point you know i'm sure it's hurting his uh kids or or or x wives, wife and you know can .

I ask to back what's up? Can I ask who do you think is to decide that? Because he's done interviews where he said I have episodes and those episodes actually provide me with creativity.

And I think it's up to the the person who is the host of that show who has to make an editorial decision. And so talker or carsons going for ratings where if somebody else does that and they want the ratings because kind is a big name that's I get IT, he's a great get, right? And you are somebody who likes interview people that's like a lifetime get that could be the get that makes people learn about your podcast.

I just think it's unethical to do that when somebody is suffering like that. To then feature them and to platform them in order to get your own rating. That's a personal decision.

I A different question though.

So I wouldn't do IT.

Would you hold them accountable for what he said?

Well, this and this is the nuance, you know, and I think we do have to think about that because anti semitism a exists in the world. He's got a big fan base. That means if he's got people in his fan base, were also having a manic episode, they could then be inspired by what he saying to do something horrific and caused real world harm.

And and this is where you the accelerant of social media, I think, is particularly dangerous to move in the old days, if somebody said this stuff on a talk show, maybe they don't air IT where they say it's in the newspapers. But when you can have a continuing in dialogue across many podcast week, he's done like ten podcast in last week. He'll go on there or anybody.

And then he has, whatever, tens of millions of followers, he's reaching hundreds of millions of people. All you need is one person who's mentally ill to then go do some horrible thing in the world that we've seen happened many times, and that's what i'm concerned about. You have to understand your it's a lot of big numbers basically, which there is a large number of people know.

Just to give you a sense of IT, you know when this family member of mind, um you know we've had we've had to have interventions. We've had police. We've had um the government get involved in canada.

We had had their drivers license taken away. Then I an IT is an unbelievably complicated set of interventions and I am so thankful that SHE doesn't have massive social media awareness because I would just be chaos. And I would hate that you know because of their association, to me, that this person gets more attention than they should in a moment where what they really need to help. And I think that that is should be the governing principle in moments like this, where a full bunch of your family members, or your health care providers or whatever, can raise your hand, say, hey, I hold on a second, this is completely off the rails, you know, facebook to your I don't think that editorial freedom matters at that point. I think there's just a more human idea around get this person off the airwaves and like, allow themselves to get out of that loop.

settle down. Yeah yeah.

And and typically what happens is that, you know, these folks actually, again, just in my experience, will have titrated a medicine well. And then when that patron fails, their ability to regulate their emotions fail. And this is the loop that they enter. And you know, you really have to find a way of, like taking all of these mechanisms of the table so that they can reregulate themselves. And I think that as a society, we have to sort of move towards that so that if, you know, family members can call twitter or facebook or instagram, mar whatever and say, listen, or the doctor, you know, here's, here's the doctors, not like you have to people to shut this stuff down because you have to mute all of these other things so that this person can then get back into a mode where they reregulate. That should be the priority.

Yeah.

compassion for the person. Yeah, it's not it's not forgiving what they say. But IT is having maybe a little bit more compassion that moment to get them back to their.

to this ones. A little easy to say, hey, conney is having a mental breakdown because he's talking about mental illness in the past. It's a lot harder to make these, you know, suppose to determinations as a reporter or podcast host if someone says something crazy and then it's easy to raise your hand to the crazy cut IT out or there's some mental is he going on here?

But freeburg, if he's if he's not having a mental issue right now, then he is a horrible human being who is an I M. I. Who is spreading just the most vitriolic orrible things in troops you could ever imagine at a time when, you know uh, there's enough division in the country and somebody could get hurt, you know uh, so either in either case, his accounts have to get paused if he's going to say and I said this stuff on, I mean.

there's really clear guidelines across all these platforms on what's inappropriate. And certainly, I think folks all started here.

I guess if I had anything to contribute, I mean, I think chemosh said this well about a mental health angle. But what I would say is I actually think that the social platforms have done a reasonable good job. The fact that is buying party, I think, is evidence of the fact that actually is an editor layer yeah that's doing a reasonable job.

That is a tough decision ever. There's always going to be a long tail of podcast. Somebody will you know somebody will go gripped off of uh, you know an episode or whatever.

But I think you know a few years ago, we are talking about no editorial standards. And I think today, you know, across these platforms, obviously, there's attention. There's attention that existed for one hundred years, pass around free speech on these platforms.

I get that tension. But I think a little credit where credits do we're seeing. We're not seen these means spread like wildfire, in part because the platforms with the most reach are doing their job snap down .

thirty percent to day. You guys see this. I think it's it's related in the sense that everyone historically talked about social networks as being these you know the network effect where you know multiple people get on and they like up you with each other, is harder and harder to break.

The newark that gets bigger and more valuable and can generate more revenue. Clearly not happened over the years with twitter to the degree that people thought I should have. And now clearly not happening with snap.

I think IT also speaks to the idea of fragmentation. I don't know you guys want to talk about snap, but very significant decline from one hundred six. There were one hundred sixty billion market cap and today they're trading at twelve.

They're down ninety one percent from peak to trap ninety one percent.

Here's the important thing to note. If you look at the M A U growth of snap, it's actually been extremely study and they've had an incredible march forward. And I think that they're roughly around three hundred fifty million.

And yeah, I think it's like the dow I get. It's a service that is incrementally everyday more relied upon that the day before, and it's a service that providing a set of features that is incrementally more important to a larger and larger group of people. So how do you then square that with its stock performance? And in my opinion, i'll just be really honest with you.

And I don't know have been speaker and i've never traffic and snap chat at all. okay. But IT is the most clearing example of corporate miss governance that has ever happened on the internet.

And the reason is, when you look at what happened in the IPO, IT basically created a governance structure where the common shareholder had all voting power taken away. So one hundred percent, effectively, the defective voting power stayed with the class that was held by the founders. And so you you do not have a Normal checking baLance.

And IT was agreeable. Other companies would have voting programs where IT was twenty to one, and you would sometimes say, oh, only should be ten to one or IT should be fifty to one. This was like a hundred to zero and what you have now is no real feedback loop because there is no person who can own enough equity with enough, say, to sit across the table from that C E, O, and say, here's what you're not seeing and here's what you're getting wrong.

And I think you are always Better off by having those kinds of people be able to get a meeting with you in the first place and have a vested interest where you take them seriously. But how would you receive a meeting when you're sitting across the table from somebody in the back of my mind? You're like, well, this person has literally no say in what I do after this meeting ends. Literally none. You can vote even even .

different than alphabet. And I think class, I think zero, is.

in my opinion, a deep sign of.

I think you can I think you can agree you know that um there is a separation between you know the voice of the common shareholder in these companies and and the direction of the companies. But I think I have scared what's going on to math.

I totally agree with you if you look at usage that our customers walking into the store um snap gone from two sixty five to three hundred and sixty million D A use twitter one hundred ninety to two forty meta from one point eight to two over the course of the last three years, they're all growing. More people are walking into the storm using the service. The story here is all about pricing.

How much as each of those users were. I mean, apple is the apex predator of this entire market. We wouldn't be having this conversation.

But for the fact that apple changes with ifa literally pick pocket the industry two billion dollars this year under the auspices of privacy. And so if you look at these companies usage, job pricing or r poo down, okay, recently apples come under a bunch of pressures. Another out was scared for, which is their update.

Uh the the the ad policy post D, F, A that allows you to target advertisers or individuals with ten thousand attributes instead of a hundred attribute. S so we're going to see some real line that I expected. The real question is what happens to our poo next year.

But to me, the story here is the the usage in the health of these core platforms is remarkably sticky. No, for all the things we say about instagram, I mean, tiktok has had explosive growth, thirty percent growth each of the last three years. But even the income bat platforms, really sticky usage. This is about how they're monitise ing those users. And the real story is apple yeah .

if you for people don't know ID fa is the identifier for advertisers. Some people referred to what has made mobile I D D I D i'm sorry. Um and so what that does is IT lets you track a user anonymous ly, I have you and any clicks to a sell and have you .

ever owned snapshot stock?

No, why not?

Certainly governance is a key component of IT. Um but the second thing .

is like do do you have any belief that you could even get a meeting with the C E. O. And management but they would listen to you appropriately?

We've certainly got meetings with management before. So yes, I believe we could whether or not that impacts you know how they build product, how they how they run the business, know the influence, etra. But again, I I think that's not really the problem here.

But the point I would totally agree with you on chama, we've had ten years of where the cost of capital zero, ten years of hyper growth for the social networks, right in each of the last five years. Facebook has hired more people in each of the last five years, then they had ten years after the company was founded. okay.

So as we've seen this growth begin to turn over, I ve seen the company's really slow to react to write size, their behavior that they had over the course of the last decade to put themselves in a position to compete for the next decade. So it's one thing just to throw your hands in the earth, say, well, this is all lapped. We couldn't do anything about IT, but we we really haven't seen leadership in terms of cost control. We really have we all know these companies .

could of the major companies snap to a percent, ref thousand employees are cut 2。 Facebook is the one that's perplexing because they seem to be master staff, as you talked about. And they have been massively they've had a massive decline in their stock Price and they're the one who is affected most by what apple did in terms of tracking transparency is I think that .

there's a perception, though I I mean, i'm still stuck on this issue. I really think that stock Prices tend to abban flow based on sort of like friction or momentum. And when there's momentum, more and more people can easily underwrite IT.

And when there's friction, fewer and fewer people can underwrite IT. And so I think that if you are A C E O of a public company, you have to think about how many headwinds do I have and how many tail winds do I have all the time. And some of them are in your control and some of them are not, at least in the case of matter has with apple and google, the matter is forced to copy the best decisions of these bigger companies.

why? Because they were one of those biggest. Now they may have been the small lest of the biggest, but it's going to be very hard for matter eventually to not converge on those same set of decisions. And the most important one is what brad just delude to, which is that there was a point in twenty sixteen and twenty nine seventeen where you literally could not give away apple stock.

And the big turn of the dial, and you know, some say, was carl icon, who knows? Was this theoretically, this famous dinner that carl icon had with tim cook? Were he laid out a plan and its cyc, listen, you need to start managing costs Better, managing all bx Better, return a on a cash, buy back the stock and you'll be a darling.

And tim cook was rewarded, and he's he's been rewarded with an incredibly performance company. And so, you know, google is slowly inching towards that plan. Microsoft is in that plan.

And so the only big four horseman that hasn't really gotten the scrip jet is matter, but they will is just regis debating went. And so there's a perception that you know meta will copy what the recipes big guys do. But these other long tail companies, the headwinds are just greater.

And so when you you know don't have a company that can be broadly owned by intelligent thought for investors, that's a headwind, right? When you give nobody votes, that's a headwind. And so that's why you see a company that's continuing to grow impact, not being able to translate that into economics.

And if I were the board of that company, that should be a wake up call because eventually that will flow into the moral of the employees and the ability to retain and then the ability to invest in the future. And I think the simple answer is enough. With all these, you know gym na asics around control, you know if you like to leave on the most incredible thing from day one was there's common stock. You know and his old thing was like, i'm just gonna the best, and you know what if i'm not the best time to be out?

He said, literally said he never play .

in control is a symbol of a lack of ability around the business maaster ful mastery of business. You can translate that to being unjust. Onna have come on stock.

what? I mean.

you think about historical argument. But that way, tracking back to the high voting class for founders was that they would be chAllenged by the investors in the market. And you can see the things that cari and others ask for. They say, we want to see you cut up pets, we want to see you pay dividends, we want to see you buy back stock, and we want to see you grow.

And so the trade off then, in the mind of a founder, uh, that that that that started this business and scaled to buildings and revenue as well, that means i've got to make sure term decisions over long term decisions i've got to make. I I got to give up some of my long term opportunities to trade for my shorter opportunities. That was the argument, I think, originally for the voting class. And you can read this in google founders letter as well. Does that not applying?

Founders at google don't even show up with the company? Why do they have to have super voting control? They don't probably even know what's going on inside the company.

But I like an argument like I I just want to hit on this point because zc has said, like you know this this VR A R metaverse stuff in the future is everything. This is what I want to invest our resources. Look what I have time.

but look what happened. They they made a missive. They said we're going in this direction. Investors really smart, bought for supportive investors, including but like, uh, hoon, check, check your all and they capitulated.

Now to your point, did super voting control come in to play their name? Of course, he could have said, you know what guys? I'm going to do what I want instead, he's like on a smart guy.

These guys are smart guys. I'm going to make the smart decision. So in my opinion, all of these things are red. Hearing these are indirections, right? So this idea of i'm just gonna my toys out of the sandbox like a crying baby is what super voting control means to me as a shareholder.

In the era of super voting control for founders, taking the public is over.

No.

should we pay you?

You know I I I think it's again, when facebook was doing really great and snape chat was doing great, nobody complained about super voting stock. okay. So I I think that you know my preference would be that I partner with a company where I I know the founder, whether you're respective of their votes, right, listens, cares and has the mental flexibility to make course corrections, right? And the and the reality, when i'm trying to point to we have lived through a decade of access, everybody knows all these companies could do exactly the same revenue.

David, this is the push back, to your point, unlike what the google argument was, exactly the same revenue with vastly less investment in terms of people at sea, right? A twenty percent grif at meta would literally only take him back to where their personal expense was in twenty twenty one. Yeah, nobody argued in twenty twenty one.

And they said they, we're going to do this too bad, right? And just has been happened yet.

This, this is part of the problem. J, K, L, everybody. So why ten percent? Y, ten percent. You've double the the number of people working in the business over the last few years, right? There's nothing magical about temper, said.

The real question is what is the optional number of employees to produce the best outcome for our customers and our advertisers? And what bill girly is pounded on, we've all talked a lot about, there has been in a zero cost of capital world, a lateral march two. More, more of everything, investing everything, hire more people.

Silicon valley would do itself a favor. These big companies vacuum up every single engineer in silk valley. They had to return that pool to the startups that are actually invented in the future.

They don't need this money. employees. I mean, last night I read a report came across bloomberg the the island's talking about seventy five percent reduction at twitter yeah.

So I leave twitter just to give people some context here that that originated in the washington post that would take them from around seventy five hundred workers to be two thousand and eight eight hundred.

And so he's starting from first principles. How many people do I need to build the next generation of twitter? That's the question. Start with a blank cheater paper and ask that question. You'll come up with very different tips.

I think that I think that you you can collate these kinds of uh, governance overreaches with zero interest rates. That dog doesn't hunt when rates or four or five percent, I don't care who you think you are, but when you try to go public in, uh, over the next four, five years of rates are sustained, you know three, four, five percent that will be the check on all of these peoples overreach because you will have, you know, liquid alternatives that on a risk of justice basis seem Better. And when rates are zero and everybody was forced to own tech, we all gave up our standards.

We all stopped saying, you know, oh, you know, the things that we used to think we're important before, like one person, one vote, you know, uh, a check between the board and the CEO, a check between the executives and the shareholders, they're all went out the window. No, no high general, because when interest strata at zero percent, you have to remember, right? How is how is the the the structure, basics of of the financial markets work? IT is meant to make money on behalf of every single entity and person and thing in the world, from a pension fund to a university to a research lab to a government to an individual.

But in that ability to make money, when we took interest rates to zero, forty percent of what we all used to own bonds, yield did nothing. And so we just completely website to the other side and said, we need down anything that grows. So tech got a disproportionate amount of attention, but in that we lost our standards and we are now going to go to the hand over of dealing with IT.

And so you know, snap being example of where investors are going to abandon in that company, they have because because it's just there's no point, there's no governance, there's no ability to have a conversation. It's in the two hard bucket. So people will just leave IT.

It'll be uh stranded and it'll be a refugee in the public markets. I think matter will be fine eventually because I think that they will revert to the mean. And the mean is microsoft, google and apple, and we already know what that playbook looks like.

So I think what brad predicts is more likely than unlikely. And I think in the future, to David freebooters point, I think it'll be very hard to justify these things. You know, bankers will be able to push back because the buyside ultimately guys, I guys who have to buy the stock when these things go public will say, no, you want to have these, you want to have these dumb governance games.

No, not for me. I'll just go buy something else. I'll go buy more tesla where it's one person, one vote. why? You know. So it's gets hard when the best CEO in the world is like, judge me, keep me, fire me on an equal basis and everybody else is like ARM smarter than this guy. And so you know what, let me make sure that whatever I feel like, and I can .

throw a temper tension and that box s look at, look at Steve jobs. I still, from his own company company, made a huge mistake asking him. Some people argue with a learning experience for Steve to get Better at his job. He comes back and he absolutely turns the company around.

So there is an example, thus far, you've proven that the two most impacted and important CEO of the last fifty years had the courage to basically say, let my performance do the talking, not my protective nani control.

correct. And D, S, performance was light in the first period. He had .

some problems and still. But this is what the grades do. The grades know how to perform, not, you know, use some no trade clause to make sure that you can just sit there and under perform forever.

Do we think, brad? And when we get to the sort of maco look at this, let's assume where in this four or five or three, four, five percent interest rate for some extended period of time, let's call IT a decade. What what does the tech industry look like? Because IT does seem, if elan does with twitter, what seems to have been leaked here correctly, according trail reports.

And there's a twenty percent we ve that facebook and we started to see people take the medicine. Is that the ultimate set up for now? Hey, these companies are being run to throw off cash, and we have some way out of this what people think is going to be a very hard lending.

Well, I mean, you know first just let's talk about you know where rate are three you know today you know where at four three on on the ten year, I mean, technologies performed incredibly well for a long period of time with rates in this in this range.

So the adJusting mate period is very difficult, right? And so when when you look at the convexity in going from zero percent interest rates to four and a half, like that has been a shock to the system. IT has been destabilizing to multiples.

Multiple were basically infant and last year, and now multiples have come back to reality. And so I don't question in fact, I actually think free capital was a weapon of economic destructive, right? Free capital hurt good companies from being great companies.

They hire too many people. Their margins were too low. You know, soft bank funding. All of these right chair companies around the world to compete with uber met the uber, even though there are market leader, did not have market leadership economics.

And so the ringing out of the system of that access that gripped the stupidity that's gonna be good for the fundamental of these business. But the transition from, you know, that low rate environment to the high rate environ is dislocating for investors. It's dislocating for management of these companies.

Is going to a be discuss. This is not you know A A six months ending enon. We're going to a have two years of bring now, right? Because there's no bail out here by the fed.

There's no v shape recovery for these companies. This is now going to be I heard somebody say this week, if the last ten years was about beta. The next ten years is about alpha. Not all companies are going to do well. Not all companies are going to bounce back.

This is going to be about what companies have the courage to build great products to drive a great business model that allows them to compete and continue to invest at high rates in the next wave of innovation, whether J I A saturday. And so um you know to me the markets J L have largely put in a box at this point. Inflation and rates right rates have come up sixty five percent in the, you know from two point seven to four three in the last sixty days and the market is basically sideways.

S it's down five to ten percent rates up another ten percent the last two weeks in google and apple error that tells me that the markets gotten you gotten its its arms around, right? And inflation. What the market really is worried about now or two things, number one is earnings and number two is the long tail of risk on earnings.

There's kind of a conventional wisdom emerging from a from many folks that thirty two hundred ds the bottom or maybe twenty seven hundred the bottom that we're gonna go from two twenty five in in S P R is back to two hundred. That seems to me to be, you know, again, a lot of people making that bad. I don't see any evidence in q 3 earnings。

United health care, united airlines, slumber, jay tesla at settle, their earnings are up on a year over your basis. They have guided now to q for their earnings are going to be up on a year over year basis. And the consensus expectations in q one are the earnings are going to be up on the year of your basis to go from two twenty five down to two hundred.

We IT can't just be a slowing of the rate of growth of you have to reverse course entirely. So we have to see something we're not seeing yet. So on an earnings growth, that's where the market detention in the market.

Then finally, what I would say is there are a lot of big brains in the world who look at this level of dislocation rates going on the two year around the front end of the car from zero to four and a half. And drug and Miller or sorrow would say negative ref, flexible shit breaks. When you have this much volatility in the world, the world is not equip to deal with these exponential moves. And so there's a lot of concern in the world, whether about ukraine, taiwan, U K. Bonds, the japanese yeah nobody knows what IT will be, but they're just saying demand a higher margin of safety because the propensity, the likelihood that ship breaks when you have this much, this location is higher.

So that will be a black could come any minute and could pass another downdraft.

But last year, we were also in here and said a timely to the down side. Multiples at all time high, interest strates at all time low. We saw that starting to roll over. We saw smart people elon basis that to start to sell into IT.

As I sit here today, yes, we are going to have harder times ahead economically, but IT feels to me like a lot of IT expressed in I don't think we have huge assistance try and skew to the downside. I think that's like fighting the last battle. It's not to say in this distribution of probabilities, one of those events can occur.

But from my vantage, when stocks, the average stocks down twenty percent, stocks like meta, down fifty to sixty percent, a lot of stocks down seventy, eighty, ninety. That doesn't seem like the time to call the big short. That seems like a time to be like new child to positive.

Should we go to T V P I, D P, I and talk .

about the private thing about kind of tie some of our, brad said, but you you ask the question about does this mean that these companies are now and I kind of cut costs and start spitting out cash? I think there is certainly a market incentive to do that to keep share Prices up. And the companies that can do that are, are certainly taking action with the had count reduction across some of the big guys.

What I think is gonna interesting. And what a lot of people are watching is how many of the small and mid cap guys can actually do that. H and those that can't will I will become pretty evident pretty fast and they're gonna end up in the shelter. Um you're .

talking to a palatine or something .

like that doesn't matter. Across sas, across consumer, across d to c, across hardware. Everyone is now saying, can you actually earn and at this point, you should have enough scale that you should be able to earn. And if you cannot, the market will punish you for. And that certainly what seems to be the incentive and the pressure in the on the byline to the the executives across all these organza today.

So I think that's a big trend of what happening right now is everyone's going through their portfolios anytime with management and asking, can you earn can you actually get this business to generate cash? What is the path show IT to me, prove IT to me in the quarterly result. And if you can't, then you're not fitting in .

a bucket that I can know you. The only irony, their freedoms. G is that that comes as a surprise. God forbid we should actually expect companies to community economics and and to make profit.

You interested zero, divide by zero, get infinity. So now you are able to kind of explain everything away into the future. Now you actually interest rate at five percent. I gotta, you know, making a, i'm not going to pay a lot more than twenty times learning. And I want to see that really my earnings.

I know you can actually earn there is a person who bad interview and I won't says name, but he's a star's stars. He's a bit of a goat and he had, I don't know, just say, the generalized birds of body ably up. And that the following, which is so truth like we've gone through an entire decade of undertrained ing an entire generation of people in silicon valley.

You know we have under trained and undermine toward the product managers, the engineers, the senior executive management, the ceos. Many of these people unfortunately are not um they don't have the skill set to execute at a high level um at any point in the cycle except when rates for zero, like many business models. And now that rates are not a zero, these people are turning out to be extremely underdeveloped and unable to run these businesses.

And when he said that he really struck a court because he's right, and you know, he was also saying he just got even more exacerbated in this era of remote work because now there is even less opportunity to mend foreign coach and to talk one on one. And people think you know that this is a boon and it's not. So you know where we are going to deal with. Also, the aftermath of an entire generation of ely underscored companies because the executive and senior leadership and C. E, O ranks of many these companies are not in a position to win.

if I may. There was an interesting moment this week when we talk about this discipline that has been lacking last couple years. A hundred and one million dollar funding LED by koto likes to be a venture partners at a one billion dollar valuation of for stability AI.

Um this is a four profit company built off the backs of the open source project stabled division. They have no revenue. They have no product.

The'd been around for you know a millisecond. Any thoughts on this type of funding happening? Pre product, pre revenue on an open source project.

This will be asem tric bet that people think if IT works, it's worth one hundred and Price as the Price IT.

I think what .

we are just talking about a little different, which is how do public markets rationalize evaluation of these businesses need to start earning for the public investors to be able to represent their investors that they're doing their job and making sure that they are holding management accountable to demonstrating earnings potential. But these early stage, but you can see valuations ring depending the a metric outcome patient of the and .

you know what the upper and you know what the upper bound is. The upper bound is that when rates were zero and governments were printing money more than they could get their hands on, the top five tech companies represented a quarter, the S M. P.

Five hundred. But there was a pretty steep fall off and everybody else represented the next, you know, about ten percent of the market cap. So the point is that we had bounded outcomes when rates for zero, the average market cap a of a successful company was around three or four billion dollars.

So i'm gonna judge this company at all. And those investors are very smart investors. Light speed and go to. But I will say is at the end of the day, there is a terminal buyer of this company.

And we had a period of time that we can look back on to understand that when the party is absolutely replacing, the alcohol is free. You know everything, everything is going well. Now we know what the upper bound is, which is the average company, if you were able to get out, would be worth about three to four billion.

And then there was a very, very steep dispersion where then there was four companies that were, you know, a quarter of the market cap in a few in between. So if you do a deal at a billion, the overwhelming odds is that the terminal exit multiple is going to be somewhere between the three acts and a four acts, acts of delusion and x of all of the other capital that comes in and all of those features that may be attach. So I think everybody should be allowed to make different kinds of bets. And you'll see over time um which kind of deal can generate which kind of return probe IT. This will be a really interesting data point.

The common thinking was these kind of deals were not gonna en in this kind of a market. So when you saw this kind of deal happen or some other that we've talked about privately, what what are these things happening in terms of discipline, brand, the private markets? I think I think .

I think maybe should tear this up with pride because I think that what I have to say follow on okay with him. But there's there's there's a micro o view of the venture industry that again, it's like everybody wants to never look at the past. Everybody wants to assume that this time is different.

And there's some work that he did, which is really instructive. J, K, L, to help answer this question, I think so. Maybe you should ask him. And this .

is A T, V, T, V, P, I, I, in relation to my stable. 那 D， P, I, maybe you can you we share .

this with our investors, our investor, you guys this week. And there's a modern industry, so I bet around ince in nineties, right? So the history of venture, you know, is, uh, you gotta look at when you look at return is to say.

by the way, what an incredible chart you guys. But this is so good.

Let's described .

the charge for people who the truth hurts, just so just .

for people who know we are spotify. And on youtube you can search for all an episode one hundred one and you could you see this start if you're watching the video, if you're listening um the video describes one thousand and ninety seven to twenty twenty. There's an orange line across IT with the D, P, I average. So when you define D.

P, I know what we did is we took the top cortile of data from cambridge association to the all across the entire of venture industry is widely used as kind of industry data.

And we just ask the simple question of the top cortile top twenty five percent of venture capital firms, right? What were in those vintage years of the funds? So funds raised in ninety seven, ninety eight, ninety nine, what were the average cash on cash returns, right? T, V, P, I is what you're mark is. That's where you're Carrying the Marks, total value to paid in capital.

So this could be just so we're clear because it's a little confusing to people. You have a company on your books that on paper is where a ten billion you have put in at a billion. And on paper, you've got this .

tax return right, right, actually cash distributed to investors. So that's cash on the ad. So the reason .

if you look on this change, the whole goal is to be able to convert your T, V, P, I. So what your theoretical book is worth into D, P, I, which is here's money back to my investors and what you want on this chart is the blue line to catch up to the grey line. So you want the grey line to be as high as possible and eventually over time you want the blue line um to come up.

right? So the blue line here, we're looking at twenty ten, just for one example, you have a fox for the T V P I, you four x ever braised money. But the blue line only got up to IT looks like three .

point five x maybe or something in interesting ing out of the the eight, two thousand and nine period everybody was responded. They said, i'm sure they said what you just said about stable confusion. Don't invest in anything, everybody's stupid.

But they were incredible companies that were invested on that vintage, right, snowflake and mongo out of our vintage shortly thereafter. So maintaining this duality that, yes, the world socks, but the secular curve of innovation continue. So that is a village where people actually got things sold, got in public, distributed the cash back to investors.

The real question is this on the vintages between two thousand and eleven, two thousand twelve, and now how how much of those Green line, how much of those Marks? Look, those are historical Marks. Marks have never been this high.

How much of those Marks will actually return, turn into cash on the burrow head? And how much of those will actually just be mean reversion in a log, get mark down and the returns at the top quarter will look much like the returns did in the period between two thousand and two thousand and seven. My hunch is that by the time the cash is actually distributed, the returns are going to revert to that orange line mean um which means there are hundreds of billions of dollars in markdown sitting in L P S. And GPS portfolios that are likely to come because nobody really thinks that the deals done in fifty and sixty and seventeen eighteen are gonna be that far above the mean ren.

And so people also understand this. These are vintage or so. These are funds formed in that year. And so this trials of venture fund takes about ten years, reformed without concept mind to become realized.

So if you're looking at, you know, the year twenty sixteen and seventeen, these are but five year old funds at this point, right? yeah. So they do the time for these companies to grow.

How much of this trim off free bird do you think is attributable to entry Price? Because entry Price during twenty seven thousand and one thousand and twenty is going to be extraordinary high entry Price. I E.

The value of the company when investors invested in twenty eight, two thousand and eight to two thousand and eleven, when I had a lot of my heads, was pretty love. I invested in uber thumbtack, and you invested uber calm. Those three were fifteen million dollars. Combine these .

evaluations and maybe .

third four years, I can remember I did get I got in there slightly before you did like me. You should .

write a book on the thank you. But let's talk about entry .

Price because entry Price doesn't matter bread or maybe try something you want. Take entry Price for feedback.

Look, there's this I think I think what that set up is that's probably a chart that most VC organizations don't even look at because if you look at that chart, um you'd have to take a real investing approach to things. So if you are looking at that chart as A G, P, there are too take with the first take away is, oh my gosh, h.

What is the sum of the invested dollars above this orange line since two thousand and twelve, two thousand and eleven, right? Because all of that stuff could just get basically get waked if we mean revert. And the answer is about five or six hundred billion dollars of paid in capital. So then you would say, oh my god.

H well, if there's five or six hundred billion dollars of impairment coming down the pipe, maybe more maybe it's gonna be seven hundred and fifty million because the other thing to keep in mind is over time, the the orange line has a tendency to go down, not up, right? Because as you add more and more of these things and some some performers, you have a general decay function in every asset class as its scales and size. So this this orange line theoretically goes down, which means more of those great bars get destroyed.

okay? So there is, let's just call IT six hundred billion or seven hundred billion, the most important thing you would want to do is now look inside your portfolio and try to answer the question, oh o um how likely am I to see that impairment? And Jason, this is a proxy of answering ing your question of the important question for a venture fund, which then has a downstream implication to the to the entrepreneurs.

Now, what do I do knowing that all of these gray bars could get destroyed a nego to the extra, while I calculated IT for you guys? So i'll give you the answer. Here's a simple thing. And you know, this is publicly available data.

Now, why did I do this? Because when brad showed me that chart, my immediate mind went to, how do I make sure i'm not acceptable to losing a ton of money? Well, what happens in markets is that when things go down, the things that are highly correlated go down the most because they are the things that are the most highly traffic, which means that they are the things that have the most investors, which means that in an up market, they have the propensity to have the highest Prices.

So we put we pull all the data from pitch book. And we just started to I just took a smattering of firms here and race and index, greylock, benchmark, aoa, gc founders from tiger itself, kiner, coastal and us. You could pick anybody because the data is publicly available.

And I started to calculate the, uh, overlap confidence. So how how correlate are you with other people's portfolios trying to estimate at the upper bound and at the lower bound what will happen? So Jason, this is a proxy of answering your question.

What about entry Price? Well, if you have a very low correlation, which touch would we have? Your less, your less exposed to bad entry Price. Because I wouldn't have been a bit war .

to get into this companies. exactly.

You pick your right spot. You you went into areas that were early, so you are able to risk manage a little bit Better. But if you have a highly correlate portfolio now, your Marks become very acceptable. So my guess is if you take the seven hundred billion dollars and you calculated for all the VC and you look at their correlations and they are overlaps, you can probably estimate where that seven hundred billion dollars of experiment will come to. And you can you can lay IT out across any organization that you're interested in trying to find a solution for by just to cracking them and by looking at the at the at these correlations. And this is, by the way, to be clear, nothing about the quality of the organization or the people, but this is just simple portfolio mathematics and how portfolios tend to play itself out in moments like this.

Well, there's some interesting data in here as well. I freeway, you probably are aware where some fund like, let's say, founders fund and cosla have a close relationship because key throw boy was at cosla and then he moved to founder cc, that nice dark purple there where they have a high correlation investments. Inner singly index seems to just follow bad mark milk irl. These investments are blowed to the that the collision.

Here's the thing, if you had to steel man the defense of that strategy, Jason, I would say in an up market benchmark is a five hundred million dollar fund where I get no allocation. If I was a smart lp and I did this work, i'd be immediately knocking on indexes door's saying, can I put money in you because in the back of my mind, it's basically getting leverage on benchmark .

portfolio yeah you know .

how to follow them yeah but when the cycle reverts, you know you're not the only one that wants to copy benchmark portfolio body does. And if these correlations are too high and the overlap s are too high, then you start to get into a cycle where you put yourself in a position to actually suffer from the market beta much more yeah, even when you can benefit from the market beta .

and up cycle freeing, you want to analyze the chart. And to mates thinking here, his theory.

I don't know. I mean, I just think this has become a pretty competitive market. A lot of the value has been competed away. Well, I mean.

I think for a for A A person, please.

the long term value creation of technology, of new technology is gonna a remain high. The markets gna pay for that. So you know, new market value creation, new market cap is gonna a continue to be built every year.

What's happening when venture has a low multiple is that, number one, the good companies end up the founders end up only more of the company and they end up, you know, having a higher percentage ownership when the company ultimately gets solder goes public because because they were able to get vcs to compete against one another and as a result, pay a higher valuation and as a result, by lets of the company. And then number two is that because the VS that couldn't get into that company still had a bunch of money that manage, they won't put money into crappy companies. So you know it's a lucrative business.

You guys everyone in that business because it's a lucrative business. And that certainly IT takes a decade to realize whether or not you're good at IT. So you know you have this period of time, as brad shows, that maybe a decade before the L.

P. Market learns who is and who isn't bad. And meanwhile, those folks who got competed out of the good deals, you know, they don't look very good.

And the folks that are left in the good deals owner of the company and their returns get diminished. And you know, I think ultimately, this market is probably an end up being a multitude ade cycle of capital. And capital out were probably a peak capital being manage venture funds right now, and we will likely decline for the next decade.

Bd, how would I A brought? How would lps look at treats analysis there? And how do they look at the club by nature and overlap writ large in our industry and then whatever other inside to have?

You know, I mean, I think very much disagree, David, that all the returns are getting competed away. The huge difference between the venture market and the private equity market of the public market is the venture market is unquestionably a power law market, okay, ninety percent of the growth profits in the returns go to ten percent of the deals and ten percent the investors, right? So we just show the average of the top cortile. But if we should have benchmark one or two or benchmark six or seven, it's ridiculous, right? The cash on cash returns over twenty on on those fans legislation .

explain that to folks. Most venture firms here are getting two acts on average that I see average. And is that average for the top core tile or all V, C firms?

It's the top .

tile of V C firms. Their averages two x yeah.

This is the upper twenty twenty five percent.

We include the seventy five bottom, the trash.

Let me ask you question, what if instead of looking at the top cortile, you just looked at the top ten venture firms because the number of venture firms has exploded over the last decade in a half.

But I think the point that you're not getting is the top ten changes every vintage. And and the problem is if you are aping the wrong portfolio and advantage, you'll get run over, right? And so the real goal of this, and I I also tend to disagree freeburg with what you say.

I don't think the returns are getting competed away. I actually think it's more alpha than ever and you gotta a good picker. And if you're a momentum investor, you just need to be aware on the way in that you are going to put your portfolio under tremendous pressure in draw dance.

I think the other thing, the other thing that does this idea of the industrial ization of venture, the soft banks, the tigers, like like, it's a myth you can industrialized that you can induce. You can build index form to the public market because you can buy every company. You might even be able to build an index like fund in private equity because everybody can go bid for every company.

But venture the founder chooses you, that early G, P. Chooses you. And so if you try to build an index fund that misses the best deals, and I think there's a adverse selection, the bigger you get, the less likely you to convert the best deals. Now you're really .

in trouble. bad. Do you think in index of first time VC outperforms kind of that know top cortile index.

So you know there's some L P S that select into just solo G P, first time fund manager, first time fun, you know maybe second time, but solo GPT. But it's kind of like, you know first into the market before you really scale up. That's where so many of the returns are found.

A lot of funds like M, I, T, they look for emerging managers because you tend to be Younger, hungrier. You have experience. You've got a lot on the line.

But certainly, if you look at the hundreds of startups in VC land over the course of the last several years, uh, ninety nine percent of them are probably garbage, will fail and will work so that all stars will be all stars and and the rest somebody ask me, I use this animal they said, hundreds of new people have come in the venture and I said, yeah, it's like, it's kind of like a marathon. You're right. We had five hundred runners and now we have a thousand runners.

But from my vantage, it's the same. Five decent runners competing for the podium weekend and we go in that top ten in that power law. IT doesn't change a lot.

Yes, there have been people break in. We know how hard IT is to break in to silicon value. Nobody invited ultimately to the dance. Nobody invited social .

capital .

to the dance.

Trust me, because it's a highly lucrative business dominated by some in comments that had huge brands. They didn't want to share the fruits of that. We showed up.

We worked hard. We build incredible teams. We had conviction, right? And we were we also had good fortune, right? Yes, we were smart.

We place some good bet. But you also have to get lucky in this business. We were lucky to be born at this point time, lucky to start when we did in silicon valley.

I'm gona finish just with this one point. This whole experiment of venture capital is lesson thirty years old, the modern age of ventura capital. Thirty, less than thirty years old.

We're going through this period where everybody wants to shut all over the industry. You know, T, V, P, I is gonna come down all the other stuff. I think that venture, my dad, when he went to start a business, had to borrow money, mortgage the house.

Think about the friction for somebody with a Young family if the cost of failure was losing your house, putting your family and harmful vers. Some Young started up in silicon valley today, where the consequence of failure, particularly if you, if you conduct yourself with integrity, is that you are a lot, right? There's no losing a house.

There's no cata classic outcome through your family. So to me, when you look at the economic unlock that we have in this country, by reducing friction to invention, by reducing friction to experiment, I am incredibly abolished on the future of venture. I think founders are the engine that drives the world forward, right? That's where we get electric cars.

That's where we get rockets at land themselves. That's where we get M, R, N. A.

vaccines. And so there will be silicate. There will be industrializing. There will be big funds and small funds, but the reality is that this ecosystem is a passive competitive advantage for this country. I think when we look forward at the information age over the next thirty years, the power of this ecosystem is more strategic advantage to this country.

even the natural resources onal to this, which is in order for that to happen. Just to build on the point bread of of your guests as you think we have an entire generation of uh financially um enumerate general partners, adventure firms and venture needs to be a pillar of growth in society. And I think people need to have more financial tools and entrepreneurs to do their job.

why? Because over these next ten years, when maybe you have five hundred to three quarters of a trillion dollars of value destruction. And it's because you didn't think about portfolio construction properly, that entrepreneur that needs your money, you will have to say no to them or reneged on a deal or let them down.

And the reason is that you didn't think about that on the way in. And so these are practical skills that every other part of the financial asset infrastructure has to learn. We are taught the hard way.

You know, we are taught in the public markets how to think about diversion, correlation, alpha, beta. You're taught in private equity, how to do IT. You're tight in every other, other class.

And we romanticize venture to think that none of that matters. But in a moment like this, you will see how much or how much IT doesn't matter. And if you're gna live up to the to the actual commitment you make to an entrepreneurship, Better get financially smarter. What I would say.

alright, let's move on. Do you want to go to stock picking or lift versus news among this prop thirty?

I want to hear that freeman died. Tribe is talk, talking. You do okay. I want to hear.

well, anyway, this is a bunch of people talking about, uh, index funds versus a buying individual shares in being a stock picker. You on a caffey wood got into this on twitter and we all know the arguments for passive versus active. And there's large active funds out there that are just programmatically buying and you on and many think that active would be Better for society or a bit more active feber.

we shall take a business is a over time, supposed to be a machine that takes money in and puts money out. And then there's money left in the machine like a box. Money comes in and money goes out.

And over time, the objective, the money coming in, which is sales, the revenue exceeds the money going out and the box grows, right? The assets grow. And the best way to look at that is in the financial statements of that business, the income statement, the baLance, the casual statement.

But we and then there's this narrative that can be layer on top of those metric, that measures of how well that business is performing over time. And that narrative is what drives a lot of investment decisions, uh, today, right? I see whether it's an analyst writing an analyst report or portfolio manager or an individual picking a stock, everyone's got a reason why they're buying the stock and they say, here's my fees.

And what happens if everyone looks at that box, looks at that business, looks at that dies from a different angle and there's always something you're missing. So you know there's some element that is driven by imperfect information and in some cases, it's just heavy bias. Know you look at the stock, you're like, I really like disney plus.

I really like the subscriber growth, but the question fundamentally is over time, what is the revenue generation and the profit generation potential of that one thing you're looking at? And what are the hundred other things that are going to contribute to that business, that box taking in more money or spending more money? Is that box going to run into a regulatory problem? Is gonna run into a customer problem?

Is gonna run into a content problem? Is gonna run into competition? The number of issues and opportunities that any one of these businesses can will face infinite.

And every participate in a market is looking at some different set of those opportunities or threats. And every participant in that market is making a different value judgment. And so very offered, people will buy a stock because they see their sliver.

They convinced themselves that based on the sliver of the perspective that they have, that this is something I want to own, they don't do the work on what's the income statement, baLanced cash low gonna tell me over time about the quality that business. And they don't do the work on what the valuation of the businesses relative to comparables, relative to future earning potential. And I just wanted to have this diatribe because I see so many individuals of doing stock picking.

And over time, because of this period of things that could go wrong and will go wrong or may go right or won't go right, or the regulatory thing, market thing, or whatever interest rate thing hit that stock, and the stock Price goes down. Eventually everyone gets hit on the head, and everyone reverts to mean or below mean, meaning the average of the index over time or under perform at index over time. And so I mean, for me, I spent two years, I know we all went through some sort of investment banking training.

I spent two years out of college, out A, I had no finance, econ or pic this background. I I worked in investment banking, learn how to read an income statement, baLanced, cost full, learn to understand how business performance ultimately translates into financial outcomes, and spent a lot of time on valuation. Figuring out, just because you like the story of a stock, you like the story that the CEO telling you, doesn't necessarily mean that you're paying a fair Price. So if you if everything they do goes right, this Price could still drop. And I think that this is a really important set of lessons for people that are individuals that are doing stock picking, which is the number one.

you know, message. And this diatribe is specifically targeted towards day traders, retail, correct? I don't know if it's just them.

I think it's just generally like make sure you understand how to read an income statement, baLance sheet and cash. Number two, make sure you know how to assess valuation.

Make sure you know that when you're buying a stock, you know what the total value of the company is based on the Price your pen and how do you justify that, that total value make sense relative to your model of the future outcomes for that business? And the number three, recognize and recognize the fact that whatever one thing you are seeing that you think you've got some edge or some advantage on because no one else seeing IT, there is ninety other things that you're not seeing. And this is where everyone learns this lesson over time and everyone gets bumped on the head at some point and making these decisions. And it's why every stock picker or nearly every we can talk about the grades at some point here and where alpha can be generated and so on, but generally most stockpilers over time under perform the index. Um and it's just I I particularly with the retail movement of the last couple of years, I I see A A lot of thesis here is my reason for buying the stock that excludes understanding the financials to understanding the valuation matrix and also excludes the whole littery of things and all the diligence that goes to think about all the .

other angles you be bottle or people generally.

He turns out that it's hard to be good at anything. Insert the blank takes tens of thousands of years of practice in investing. I think what I have learned is that it's very easy to get caught up in the mania.

I ve also learned in the last decade that, you know, we really benefit from zero interest rates. IT was a tight that lifted all boats. And I ve learned how to think about correlation and the difference between author and beta, and had to construct portfolios that I think can be all other portfolios, the freeburg plain.

Those are nuance, the long tail skills that you'll only take up if you're really passionate about the craft. It's not a similar person and just use golf as an example who learns how to hit a fade versus a draw and who learns how to really manipulate, you know, their wedges in very specific ways. And these are all long tail skills that come in when you decide you want to master something.

And it's just important to note that, that mastery is required to be really good because of the wise you'll be times will you go on the golf course in your crush IT? But then you know there will be other times and most other times we can go get run over because it's hard. So that's my only comment is that this is like everything else. It's not nearly as .

as IT looks like. Brad, you pick talks for a living. Should retail how involved should retail investors visual that just buy an instance?

I don't think it's fair to say retail. I think my point was really about .

now this point is everybody okay.

Sure, everybody. My point is saying a thesis and including all these other factors that are critical in making a decision about what you're buying and White, you're paying the right Price means that you have to make sure that you're expanding your point of view on whether or not a stock is worth buying at the market Price today. And I think having that broader perspective is what I see missing in ninety nine percent of the chatter on twitter, ninety nine percent of you folks talking about what thing the bine IT. And I important.

you're saying that most investing that you see is very narrative driven. And that narrative can sometimes be so powerful that IT over powers all the other elements that one should be doing to get a full picture of why you should be buying something.

Is that I think that's a fair summer, rich mark. Yeah yeah. And I think it's um you know and it's just about how so much of what goes on on C N B C on uh A A lot of redit boards, not all of them.

There's a very sophisticated folks. They're doing very sophisticated financial analysis and looking at all the angles of a stock session, the valuation. But so much of these conversations exclude what you're paying and what you're getting and exclude the broader context of all the things that could and may not happen with a particular business. And as a result, at some point, one of those things back to you on the head, you lose fifty percent and you're like, oh my gosh.

And sometimes and sometimes if you try to inject that logic into those channels, you'll get brig .

domed big .

to be absolutely break. Dude, what do you think in terms of people's access to markets? I guess we would be another way to look at this and people's property to just, you know, gamble, let's call IT or maybe not make full ful decisions.

I think of friend bill really was here. I would be like, this is a five minute conversation about the statement of the fuck and obvious. Yeah, you know, this is stock picking.

Hard really is at the theme of this section. Yes, start working hard. Very little author has ever been generated in a sustainable way, even by the greatest people of all time.

I think, you know, maybe something that is a little bit useful that ad two things, not all good companies are good investments. Price eventually matters. okay? So I hear a lot of people saying one good buy that because it's a good company. I don't even know what that means.

right? Good.

really good relative to the Price of entry. But the second thing is the single greatest power we have as investors, the greatest single source of alpha, right, other than stocks, election. So choosing the recovery time arber rush.

okay. So do you have the ability to own something that is a growing asset over a long beauty time? So if you got number one wrong, you bought IT at the wrong time should happen in the world.

They quarter at setup that you're not forced to lock in those losses because you over allocated to that. So this idea around portfolio management is a principal component of overall stock packets is just absolutely critical. So I think, you know, I don't really i'd love the fact what I put myself through college, I put myself through law school, through business school day, trading stocks out of the back of the classroom.

I'm grateful I live in a country that let me feel like I had some male that I could do that and I could go read the newspaper and sort IT out. And I wasn't build A N A sophisticated financial models. So like you know, I think there are ways that folks can do this.

There are a lot more ways to lose money. Then there are to make money in a sustainable and durable with right? And so as investor, what we try to do, you know we've got ninety percent of our portfolio in our top five or ten companies OK.

I'm not in index and the deal I have with R L P S is a very transparent with them. If they know that we're going na own companies in size and it's that portfolio concentration in our time arbitrage holding companies for three years or longer, that is a strategy they choose to believe in and sign up to. But I know a lot of great too would never subscribe to that strategy.

So no, your strategy executed allocate a reasonable amount of capital. So when all of these unknowns that day freeport talks about come along, you can react accordingly and know the final thing is if it's not fun for you, right? Like if you're actually not passionate and curious about like studying this stuff and learning about IT, not everybody is they don't do IT right? They don't do IT then just .

put your money the analytical depth and rigor that the grades employ to be successful at picking stocks and picking businesses and investing in them and selling them at the right time over time, IT not make for good tiktok content. IT does not make for good short form content.

And and I think that's why we've seen the stumping down and this kind of short form dsa driven narrative approach to content creation around markets and stocks that ends up causing a lot of people a lot of harm. Uh, you know you are the gym crams of the world. I I don't mean to diverge anyone individual that sort of content that's like this is a great company we should buy.

Let's go. And uh, the the the depth and rigor takes a lot of time and a lot of effort to really do, right? And then you get hit my head, you know when we and that's that's what I i've observed lately in a really kind of flyway, particularly across social media and so on that uh, that's why I just wanted to talk about the .

top just to build on top of what you're saying. War and buffet made this very famous button. Two thousand IT was him versus a bunch of hedge fund managers.

And they were able to pick a basket of hedge funds. And he said, i'm not taking to pick myself. I'm going to pick the S, M, P, five hundred and the low cost C, T, F.

The van guarded T, F, and he said, will check in like two years later anyways. You know, the punching of the story buffet. One he won like a million box that he donated to charity, and these hedge fund folks lost.

And so to build on your point, Jason, time and time again, the smartest investors in the world, I, E guys, I can have shown us that the most predictable way to make money, if that is your goal, is to only the S M P five hundred, which is, you know, a dynamic index of the five hundred best companies in the world. So there are these people doing all the hard work for you, and they have very strong criteria of whose N. S.

C. P. Have a company. Not, not. Yes, if you Cherry pick other companies that are not, or you concentrate in some, would you generate Better returns? absolutely. But systematically, over time, that has lunged for at eight percent year, you know nine percent year. If you invest vidends, you can approach ten percent year um and so if if you really wanted just grow your wealth, that's a very simple, steady any way to do IT and to take a small amount and then go and you know experiment with IT to learn makes sense. But I think it's important to make sure going their eyes wide open to try to actually learn.

Buffer, of course, says the index works really well. But then he's got fifty percent of his public portfolio in apple over the last few years. So he clearly believes in alpha as well.

But you know, back to free break point, since we brought up about that, you know, somebody asked monger, why can't? Why can't people just copy? What about that does? And he said, because nobody likes to get rich slow, nobody likes to get rich ed low.

If you wanna what is, is zero percent rate environment reminds all over the course last few years, everybody had a grip. Everybody had to get rich quick scheme. I don't care whether IT was Crystal flipping or whether IT was house flipping or whatever IT was.

Everybody thought, you know, this was easy and Frankly looked at guy. So I got often times instead you're the dumb ones you're play in the game. That's really hard. Why don't you just, you know, flips and crypto and I think we're back to a world if you really want to. You know, by the way, yourself, how dumb did you feel?

I felt so stupid. All these tokens, minting, maintain, billionaire, billionaire illiberal billion aire. Bill, bill. And I just, I just SAT on the sideline to your point, right? I just made you made me feel so stupid.

I felt superi as like who is the customer and how much do you charge him? And when you can't get that basic answer of who the customer is and how much a cost for them to buy the .

product service point, I think the punch line and then you know the eleven hour, it's like there is a tendency to just capture say, okay, forget IT, i'm in and that's when all the money gets torched really quick.

There's a proposition here in california where we vote on specific ballot measures. Not every state has this, but we've thirty coming out. This is one point seven five percent tax on income earned.

Incomes earned over two million for the next twenty years. In california, by the way, had one hundred billion doors surplus that will go towards clean energy. This was proposed originally by environmental groups, but uh, newsom has come out to battle against this, which would seem counter intuitive because he so pro environment.

What this would do is spending about eighty percent of this hundred billion a new tax revenue over the next twenty years. Eighty percent will go towards charging stations for evs and motivating customers to buy evs. Twenty percent would go to our to combat the a crazy amount of wilfred were having here.

He uh gave a num that is called this um a cynical scheme device by a single corporation lift to fund state income tax revenue to their company. Lift has provided almost all of the 4 almost forty eight million in funding for this property。 And the reason is because california is going to require ninety percent of right sharing miles to be travel by zero mission vehicles in twenty thirty.

You know, on top of that, the california gonna let you sell anything other than evs in twenty thirty five of this continues. Now I ve got a bunch of people on the other of there's doing anti property, including the california teachers association, because they want the money. Read hastings over at netflix.

More over to coy a samp men over at OpenAI. What what do you think of this? Um freeburg, i'm curious.

sorry, what side are they on? J, the this opt men.

no, they're saying don't do this because they are trying to control .

taxes in Caroline news.

subside. Hey, this is a grid by left because lift is concerned that they're going to have to, you know, bear the brunt of ninety percent of mile. So I guess the I don't know it's original, but the that one of the livers here is lifted .

got the majority of their .

rides or in california, uber has stayed out of this because they don't have as much exposure because the number of rights in california is a small and percentage of their overall bread. Bread you have some those two year, I think it's a freeburg or bread.

I'm just looking at the board directors have lifted and thinking of myself, good god, what are these people thinking? Spending forty to fifty million dollars on this IT just seems that they've totally lost this group. The company has way bigger problems, way bigger problems to focus on, right?

Then you know, this measure have a little faith in the system that if we don't get to a place where this is reasonably practical over the next ten years, then i'm sure we will evolve, right? Uh, the legislation around this, you know kudos to dark and the team at uber for not running scared on this right, for not trying to push this through these corporate governance initiatives guided as referendums in this state. I mean, this is just bad politics, bad policy.

I mean, we got valery Jerry on the order. This, you got political sophistication on the board, this company. I want to be, you know, wish I was a fly on the while. I know the conversation that went down and who raised their hand and said, this is the highest impact. Use of forty million dollars.

Our money. crazy. yeah. Makes no sense, football. Give thoughts on if I mean, you've talked before about how you think the free market is sow.

what is the government structure .

of I I knew that was coming. I knew what was coming.

Have anybody look?

I don't know the answer to that.

So I think that the tax rate in california is high enough now that we all have friends, friends in our poker group who have left for the state of texas, for the state of florida, there are lower tax rates and where they feel like they're getting more value a for their tax dollars.

They're certainly a calculus going on with new some I believe in you know the impact that having higher tax rates would have on what is clearly not just to theoretical but an actual evidence um you know exist from the state of wealthy and higher commercials. This could be like at some point, there's a tipping point that looks a lot like france where you raise the rates high enough enough wealthy people leave and the net tax dollars actually go down like what happened in friends when they introduce their wealth tax. Then they reversed IT and everyone came back.

I will say I don't more important long term point, I don't see a world where we don't have over sixty percent tax rates on the wealthy as people in this country at the federal level. If you look at um if you assume a five percent long range call IT fifteen years uh horizon for uh for interest rates, even four percent on thirty trillion dollars of outstanding dead and you assume that the voter base will never vote to reduce social security or medicare uh entitlement programs and obviously the defense budget will get cut. We are not going to see a situation in this country on a federal basis where we can actually meet all of our fiscal obligations without incremental tax revenue.

And I think that is much more likely that, you know, look, whatever happens, what the state initiatives happens. But I think it's very likely that over time the only way for the united states to uh to bridge its gap is gonna be a to raise income to increase the tax rates. I don't see another solution because I don't think that the federal government or in art, kind of democratically elected congress, we're going to see a system that's gonna.

Hey, let's go for austerity measures. Let's reduce entitlement programs. Both sides will say that it's just not gonna en. So tax rates, higher tax rates, I think, are coming what you know maybe california will skip over this particular generation, but I don't see how the united states continues to drive over the next fifty to twenty years without tax rates that will today seem EXO.

On the last twenty years, we blew through a that to GDP. That was like fifty seven percent in IT, basically double.

And so David, to your point, when we wanted to feel prosperous, what we did was we financed, we went out and we, you know, put out a ton of dead in order to make sure that our entitlement spending or defense spending or whatever the things were that we needed as a population to feel like we were growing and moving forward as a society we had. So that is the practical nature. What happens? And look, a lot of people think that there is some upper bound to death, a GDP.

And i'm actually of the opposite view, which is I think that the court on code invisible hand justifies us moving that to GDP to higher and higher rates. So the first time the united states, one past one hundred percent, we thought IT was the end of the world that turned out he was and will eventually go past two hundred. Somebody will climb and you know be anxiety riddle, but they'll takes them necessaries.

They'll be okay, will keep moving forward. Then we'll get to three hundred percent, will keep moving forward. So we are in a that spiral.

That is a feature, not a bug, of how democratic societies work. As a companion on to that, I do agree with you that taxation kind of is a pendulum m IT IT ABS inflows. And you know, we're in the part where it's gna go higher before IT goes lower.

But I want to tell your story, which is that in the beginning of the summer or side this fall, I was in the middle east of, and I was in asia, and they have very different taxation schemes, right? And many of them have zero cut corporate ines tax and you know, sometimes zero income tax. But then the opportunities for them to be able to invest in driver turns is also commensurately lower, meaning there's not as much alpa.

And most of the opportunities that they see whereas if you go to california, you have to pay sixty percent tax, but then you know, you could be an Angel investor in uber and all of the sudden take twenty five thousand and turn IT into a hundred million, which is an ungodly. It's incredible. So I think that, in my opinion, actually like there's actually this beautiful symmetry where even if taxes are high, your earnings potential is commensurately higher such that the net that you're left with is the same as if you were another place where taxes may be zero, but you're just not going to get exposed in the same ways to make money.

And I think obviously, there's corner cases where that's not true. But I don't think sweating taxes is a really important ways is is important way to spend somebody's time. I just think IT doesn't matter.

Red.

final word, I would just say the beautiful thing about federalism is we get to A B test in real time, uh, different points of view. And so were see in the biggest A B test may be in the history of federalism between the state california, the state of texas in the state florida. And it's not just tax rates, right?

When when elon leaves to go to taxes, we have the head of the california general assembly, right, changing your twitter profile to say good ruins and flipped in the lipping the bird to elon, right? There is a hostility toward business that is emerged in california that I think is commentate and related to the next three, but also separate. At the same time, we have the mayor of miami, us, asking us to come down for a visit. We have friends uh in texas who are literally politician and to our marketing in their state, to people in in california. And we're going to be able about the political scientists will look back in five or ten years and theyll be able to answer those questions for but I suspect that, that makes us a much stronger place for experimental the countries like france, where it's all or none.

I just to give people an idea to to support about point about debt to g dpic. Here's the chart, early part of our lifetimes, fifty percent. Nineteen ninety, sixty, seventy percent after the great recession in the pandemic, one hundred and twenty percent. Japan's at two hundred percent. I think so because obviously.

doing IT doesn't mean anything. I know that point point. I really don't think so because I think what will happen is you'll just move the yields yl to maturity, will move out and you know, will issue again.

You know, this is the funny thing we talked about this last night, poker, like, you know, trumps ideas. Some of them were actually very brilliant. They, this package through the lens of being a total goofball. So you could take a seriously but hundred year bonds when rates for zero now looks like, oh my god, what a brilliant move.

And you take a fifty year world view about about nuclear energy, about semis. We didn't get a semde cors again this week. We have so much good stuff, but you know, we do need to take very long multi deca looks at investment. And should why not make a twenty five or fifty year bond for semiconductors?

Can I actually just do a small P. S. A so quickly?

Public service announcement from to month, the more you .

know go I went to blue bottle coffee today and I ask for a latte and, uh, they gave me a latte with old milk. That's their default, which is disgusting. And I find out that I out that is default and I said there's a lot of Normal people that want to adjust that chemical spill into their body. And so this is just a shouter like just a comment to blue bottle, like 肯定 备注 要 lies that a lot of us so Normal we want to come to your store and then you know not have to ask .

for the long tail alternative。

Can you just okay um i'm not trying to break you doing you blue bottle, but i'm not going to go to you anymore as a customer because I find this stuff really dumb like can you just have milk so that I can ask for you milk if I want to? First is giving me chemicals stuff that I don't want. I don't want that. Yeah, that's plaining .

about a milk. Is that what's going on?

Now this is where we are moment.

It's like I just milk. I want a lot. I mean, I want to go to support you guys.

I want to maybe maybe the cow doesn't want to make that book for you.

After its baby was ripped away from IT, here we go. Here we we survive ninety minutes. And here point, you know.

the cow agreed to be in service to you to make your milk.

You think I need to have a verbal contract with I, I. I mean.

are we gonna do the olive ed beef next week or not, we get down. The translator .

of the cow human protocol is you bp is a one of your friends like what I don't know.

actually I am working on a orning.

I'm not i'm not sure that the defauts assumption that the cow should be there to do whatever you wanted to do is a fair assumption. I think that i'll change over time, but IT takes some time.

I I think that, that's completely fair and reasonable. But what i'm saying is right now, while there's an entire people economy of people, well, there's an an entire economy of people that shouldn't get rolled over because you want to compute the emotions of cows. I'm allowing you your freedom to wana and put those emotions of cows. Well, I would like to support the daily industries by milk.

So can I please do that? No, I want to pute the freedom and rights of the cows.

That's gna go head. But I right now will take the side of the dairy farmer. I just want to know if anybody get .

your chick Karen outrage your trim h Karen outrage your Karen on tape. Is this trending on tiktok yet? When you admit .

I shed the breast, it's not the fault. I just think it's I didn't make a most, most Normal places. yes. And now I have to actually ask criminal because they think that this chemical composite stuff that's called, have you .

look at the C E O benchers who is, you know, like one of the kind, great CEO of our generation getting, yeah.

His memo is his last name, really chested.

I believe IT yeah and then chesney, a great eye as married so many times, incredibly human.

he's been acted. Should we do ultra s because you didn't do inter.

do you have? right? So here's the right for the sultan of science, the queen of kinda himself, climbing the stray cat leaderboard as we speak. David freeboard follow him on his twitter handle, where you can get all kinds of hot tech from science to ukraine at freeburg, as the hand talked about, never tweet. I know that's a joke o so with us again, the anchor.

he'll be doing a twitch streaming where he translates the emotions.

I'm actually doing various .

my cooking show, which has a base of old milk. It's my old milk top hen beverages to ight on twitch. Just follow straight berg.

Get IT. I don't want to get brick doed by the opal .

lovers by them. They're milk stands are coming for you, may you?

I don't want that chemical stuff in my body, but i'm not going to stop .

you from doing and do a day tribe on chemicals. And o next week.

But what should we drink if you did have a choice? free? Berg, if you didn't want to drink to chemicals only, what would you drink? What would what do you drink?

So, milk.

milk, whatever.

Okay, but, you know, but you and bringing that masted, look, I drink the beautiful .

glass milk.

Of course.

I have found in the glass bottle three dollar returns for each glass bottle. I returned them and get him from good.

You try. Look, i'll tell you what is going to happen in the next. He never had milk. In the next ten to fifteen years, most of the milk you buy at the store .

will be identical to Cosmo.

same protein composition. IT will be that a in a?

Larry.

I mean, you can make fun of the picking. Jl, but you do work in the tech industry. But yeah, I mean, precision ferment is the future of .

making animal .

proteins, telling you there is an economic model that will work.

We're going to say betwen between now and then. Can I just do things? Number one is there's a taste in a flavor profile.

I've grown up with that I would like, and I don't think i'm a bad person, so I just like to have that can not be made to feel guilty about IT and and and number two, I don't want to put chemicals in my body, okay? So if I can find a natural thing that I like, can I please just drink that? Can I just please, blue bottle, have that in my coffee without having to explicit ask for IT.

you will get that. And number .

two modes are, and there the largest, but chamar has .

still has a short on only. So IT just keep this going for just two more weeks. Let me ask you an ethical, moral questions. Not, i'm sure he does .

not have sure I even no vote public, I .

rather me, I am going to would you have if the synthetic version of milk or stake was made a like, and is a protein that is exactly the same to a cow, would you have a problem morally with eating and or drinking IT?

no. So the objective of what's called precision fermentation, or some people called biome u. Turing, you take the D.

N, A from the cow or from the chicken, you put IT in the east cell or a bacterial cell, and you put in a for mentor tank from sugar water in the tank. And the east tel bacteria cell eats that sugar water. And IT spits out that protein program. You've program that organism to make that protein. And instead of growing .

a whole cover.

growing a whole freak and chicken, you're .

growing the protein .

no yah it's identical .

to the protein you beating otherwise. Taste the same. It's exactly compound.

There's nothing about different. Thanks to the dictator, thanks the southern science and for the fifth busy coming in and doing a great .

job today on behalf our friend.

the last David sax, who is busy in a secret clandestine peace making junk to ukraine I am the world's greatest moderators and tele can will see you next .

time on all in .

both your winter.

We open sources to the fans and .

just crazy with.

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