Animal Spirits Podcast - IPO Mania (EP.181)

Episode Date: December 16, 2020

On this week's show we discuss the Airbnb and DoorDash IPOs, similarities and differences between now and the 1990s dot-com boom, why IPOs rise so much on the first day of trading, YOLO structured notes, why the vaccine is our moon landing and more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by interactive brokers. Portfolio analysts, powered by interactive brokers, help sophisticated investors understand the health of their complete financial portfolio. Portfolio Analyst is free and easy to use personal finance software that creates a consolidated view of banking, brokerage, and credit card accounts. Compare your consolidated portfolio against more than 200 benchmarks or create customized benchmarks for analyzing performance. Calculate time and money weighted rates of return and use portfolio analysts for forecasting. Sign up for free at portfolio analyst.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're

reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. So Airbnb filed their S-1 a few weeks ago. This thing was almost 400 pages long. Don't you think it's impressive how many companies have been able to go public during the pandemic? The whole roadshow thing just didn't really matter that much? Yeah. Yeah. By the way, what does S-1 stand for?

Safety first. Someone can tell us. Okay. This is one of the things that I've pulled out that I thought was the most important point. In more than 220 countries and regions around the world, our hosts have welcomed over 825 million guest arrivals and have cumulatively earned over $110 billion. Okay, I wanted to read you a headline from April 2020. Airbnb is reportedly paying a steep 10% interest rate on the debt it just raised in its $1 billion funding and its valuation is nearly half of what it was in 2017. That feels like something from 10 years ago. Ostensibly, they're going to use a lot of these proceeds to retire some of that debt.

I would imagine. I mean, there was a time when, I don't know, a three-week period when we had the stay-at-home wars in quarantine where we thought, there were stories in the Wall Street Journal about people who own 10 houses that use them on Airbnb being just completely screwed and that the company is done. I mean, that changed pretty quickly when you realized that, okay, people would rather stay in an Airbnb than a hotel. But for, I don't know, three or four weeks there, the prospects of this company looked

pretty bad. I remember very vividly us talking about the fact, can you imagine being an Airbnb employee, having been there for several years at this point, preparing for this day, for your liquidity moment? And again, saying that at loud, I know there are much greater tragedies in the world, what was going on at the time. Imagine being that person and then all of a sudden that being ripped away from you. And now it's back. And not only is it back, boy, is it back. What did the stock pop? 150%. It was well over 100% the first day that it opened. They raised the price a few times before going into it. And it priced at 140, 150 the first day or something. It was supposed to be 68, I think. I will say, this is the busiest hour doc has been in a while on a very

concentrated topic. So let's get right into it. From the Wall Street Journal, so far in 2020, well over $140 billion has been raised on U.S. exchanges, far exceeding the full year record of $107 billion set at the height of the dot-com bubble in 1999. Remember a few years ago when IPOs were dead? That was it? They kind of were. We went through a wall. So this is from Axios. IPO investors have made more than 50 billion dollars this year just by being allocated to stocks and holding them for a single day. If you annualize it overnight, it's not bad. New annual record in the years not over yet. So that's basically, if you're a retail investor on Robin Hood, you're not getting the IPO price of any of these companies. You're not

getting DoorDash at what an IPO is at or Airbnb. You have to get it through your broker and have some sort of relationship and have those shares allocated to you. So this is how brokers make their money by having that relationship. This is typically how it works. We've talked about this guy before, Jay Ritter, who was a professor at the University of Florida. And the numbers are a little stale, but it probably holds up. So he looked at 1980 to 2015. And he looked at the opening day, first day return for all these different IPOs at different price ranges, from zero all the way up to 500 million and then above a billion. And the average first day return for these IPOs was 18%. And then he like market adjusted it basically comparing it to the market over the next three years. And then

the underperformed by 18%. So taking away that first day pop, and if you don't get allocated to shares, you don't receive that. That was all the outperformance that these companies had, and then they slowly gave it all back. And that was a big topic this week was who deserves that pop? Is it the brokers and their clients, the bankers, the underwriters? Is it the VCs? Who is it exactly? So 19 IPO doubled on the first day in 2020. By far, by far, by far, the highest that we've seen since the turn of the century. And people are saying, like, is this what 99 felt like? I wasn't there in 1999. I was 14. Ben, you were 30. I was a senior in high school. Okay. And still, I had no idea what the stock market was at

that point. Right. But wasn't this like everyday in 1990? Now, granted, the size of the deals were much smaller, but it was a party every day for years. So in 99, it was 117 that doubled in the first day. 2000 was 78, which is pretty crazy because that was probably the first three months of the year. 19 is high compared to the last 10 years, but not high. There's a lot of similarities and differences between 1999 and now. Here's the one difference. How about this? This is my only thesis. In 1999, you didn't have people screaming, is this 1999 again? Here's where people are pulling back a little. So there was a story that, how do you say it, Robox, which is the video game and then Affirm is a company we've talked about that we're both a firm users, I think, for our

Pelotons, right? Zero percent interest place. They said they're postponing their IPOs now because they're seeing these huge first day pops. Maybe I'm in total new blow on this, but why don't they just raise the prices and have more of their stock put out for sale and raise more money? I'm guessing that's exactly what's happening. They're just trying to recalibrate what they're offering and what the price should be. They did say in this story from Wall Street Journal, they're considering selling a larger proportion of their shares or maybe a different changing the mix of stocks, how they allocate it. They're worried that they're going to put it out there. It's going to have 100% pop the first day and they're not going to get as much money as they

want or need or should get somehow. So Airbnb opened at 146, it was the biggest day one pop ever for an IPO that raised over a billion dollars. And a Bloomberg article said, had the shares priced closer to where they started trading at 146 instead of 68 apiece, Airbnb could have raised $4 billion more for the company and early investors, end quote. And this is what Bill Gurley's been raving about. But A6 and Z did a really good piece in defense of the IPO. And it's basically a supply and demand issue, that the fact that Airbnb left $4 billion on the table, it's just not really true. And by the way, you saw that video of the CEO finding it, Brian Chelsky, finding out on air. He was speechless. But this is a supply and demand issue. So yes, there was a huge pop the

next day, but these are just small, tiny minnows that are piling on. It's like a piranha devouring a big fish. If you gave the piranhas a blue whale, it would look different. So if you flood the market with all the supply, they're not going to be able to get the same price. as the day one pop. And guess what? The Airbnb owners still own the majority of the company. So this is still good for them because it's priced higher. Well, it's good for them, but it's not good for the VCs.

They're not getting as good at deals as they possibly could. Right, which is kind of funny because for years, people were saying the private markets are completely detached from reality and they're overvalued and now they come public and then it looks like the private markets were undervalued, I guess. That being said, I think everybody was talking about a gigantic day one pop for Airbnb. be. So in defense of, not that Bill Gurley needs our defense, but why wasn't it priced higher? This is one area where like the IPO leaving money on the table versus doing a direct listing, I have no strong opinion one way or the other. This is first world problems and I just don't

have a strong opinion. I know a lot of people really care about this. For me, this is first world problems and I think anyone who gets this much money in their stock pops is going to be fine either way. How about that? I guess the point is like that A.6 and Z was saying their piece was that no, Airbnb cannot have prices at 146 because if that was the price, they probably wouldn't have had buyers at that size. That's the thing. It's a supply and demand thing. They almost need the pop to get the people coming up front because they're fronting the money to get that return. It's a weird thing. How about this? So Airbnb and DoorDash were the two big ones. It seems like everybody's on the same side of DoorDash that it's not a viable business

model. It doesn't really make sense. And yet the stock was up, what, 85% on day one? I mean, I've seen a few of the VC Twitter people basically say, you're not understanding this well. They're going to take that last mile. It's not just food delivery. They're going to deliver everything to that last mile of people. They better. They're going to be the delivery. This is the one where if I'm doing my paper trading account, I'm long Airbnb and short DoorDash, if it's these two stocks. The DoorDash one to me doesn't make sense. I guess whatever. It made sense to someone. Revenue at DoorDash was up 268% in the third quarter. Assuming that's maybe not as good as it's going to get, they're never going to say a

and you jump like that again in terms of percentage, right? This is another pull forward. By the way, how about SoftBank with a giant win? What, do they own DoorDash? They're the largest shareholder, 20% stake. Okay. See, all those PowerPoint presentations they made were worthwhile. This is one of those things where me personally,

my adoption of this is probably holding me back. Doesn't it just seem like any time you get delivery food, you pay way more money? I'm out on DoorDash. It's just too expensive. Yes, I agree. The menu prices are more expensive, too. Not only paying all these fees in top of fees.

By the way, how many dad jokes were there on Twitter of people saying the price of Dordash and Airbnb also includes these 10 different fees? If you're big into dad jokes and you didn't make that one, you missed your opportunity. Galloway did a piece, a lot of good charts about Airbnb. He showed the traffic to U.S. website traffic, I should say, to Marriott, Hilton, high intercontinental in Airbnb. And Airbnb is just way, way, way above the others. Not only is Airbnb huge, but they're global and they're huge globally.

So he looked at surge volume in London, New York. city, Sydney, Tokyo, and Orlando, Airbnb just dwarfs all of their competitors. There was a lot of people making the comparison. And I think maybe you did this with DoorDash of DoorDash is now worth more than XYZ company in the same for... That's hard to defend. Airbnb. Airbnb kind of makes sense. You could wrap your arms around that. That's what I'm saying. Airbnb makes sense. And this is one that I would have loved to get into this. I wanted to buy this. I wanted to get this at a lower price. So if Airbnb now falls 20% after seeing that pop, I say that's a good thing. It's Monday afternoon and I did my second

purchase. So I'm now, not to brag, I'm sitting on 10 whole shares of Airbnb. I bought a little my Robin Hood account, too. Again, this to me, Airbnb is not a sign of access to me. There are other signs of excess out there. And I think that's another difference between 99 and now is I think because markets are speeding up so much, investors are able look at these recurring revenue sources and all these things. And instead of waiting around, they've seen a company like Amazon take forever to then grow into its price. People were talking about valuations of Amazon in 2012 and 2013 being ridiculous. They saw it grow into it and didn't matter. So now I think investors are saying, okay, we've got a use case here for when we don't

need to worry about fundamentals now and the company will grow into those fundamentals. So I think investors are just saying, screw it. Let's press them all now like they're going to grow into it. Some of them will work and a lot of them won't. You're saying investors have seen this movie before and they know how it ends, except in the case where they wait 20 years and they see Top Gun and then it's a big disappointment and then it gets re-rated. You just wait. Top Gun 2 is going to be the best movie of 2021. I am excited for that. Oswa DeMoteren did a blog post trying to value Airbnb. This is pre-IPO. I don't know. I guess it was like two weeks ago. The way that he shook out was $54. By the way, the stock is at, I don't know, $130 right now or something. In his most ambitious scenario in terms of margin expansion and gross brooking, he got to $66. So this is what he wrote. He wrote five bullet points on how investors should think about the IPO. If the equity is priced at under $28 billion, it's a bargain. Between $20 and $33 billion, it's a solid buy, between $33 and $38 billion, a fair value, between $38 and $44 billion, too richly priced, over $44 billion overvalued. And what did this thing come? What was its first take, $100 billion?

Yeah. Again, this is people pulling forward and saying, you know what, I'm not going to wait this time. I'm just going to overprice it now. And if it grows into that stuff, great. I think that's what's happening. And again, there's going to be the shakeout where I think it's going to be great to see these earnings days for these. if they miss their earnings by just a smidge, whatever their expectations are, you're going to see some like 20 or 30 percent drops in these stocks like that. DoorDash's revenue is already slowing down. But if they beat expectations a little bit, they're going to have. So I think the volatility in these stocks is going to be enormous.

Agreed. They can beat and still get killed. Yes, that too, if it's not quite as high as people want it to be. But I still think out of all these, the one with the best opportunity to grow into a massive company's Airbnb. I agree. Even if it's overpriced now, I still think. think it has the possibility just in my mind of a company that could get to an upper echelon someday. I agree. So Jamie Catherwood did a post from this weekend. Jamie does this great stuff

with financial history. By the way, subscribe if you're a fan of financial history. Investor amnesia, it's called. Jamie has this course I will link to, which is really incredibly. He's got people like Jim Chano's talking about in the history of Enron and all this sort of stuff for only 100 bucks. So that's a good one. All right. So Jamie pulled this from 1922, quote, as a rule, when stocks are first listed, they sell much higher than they do a short time afterwards. It is more likely to be true when a stock is listed during a very active market when prices are most easily influenced by publicity. As soon as the effect of this publicity wears off, the market price of the stock declines. So don't you think that Robin Hood had to have been an influence here?

Sure. The speculative nature of this bull market, it's funny because people try to debate, is it low interest rates that are causing this? Or I think it's just the longer you get in terms of a cycle in speculation. And let's say, this is semantics here. But the four-week bear market we had, I think we're still on the same trajectory. I think we're still part of the same cycle. I'm now in the camp of bull market never ended. We've been going at this for so long, and especially the tech bull market, if you want to say that, technology has been strong since, I don't know what, 2010. It's just the further along you get, the more accustomed people to be to big gains, and they just keep looking for more and more places to get those gains from. So again,

that's why the speculation just speeds up. Max Gokman, head of asset allocation on Pacific Life Fund advisor said, it seems like a stretch to say that fractional share programs arriving at major retail brokerages and IPO is going stratospheric at the open. It's just a coincidence, end quote. I'd maybe this is in the Bloomberg article. They said scarcity played a major role in the rallies. DoorDash sold only about 10% of its shares. Airbnb sold even less, about 8%. I can't believe that Robin Hood is not hopping into this IPO pool yet. It's got to be coming. You would think. Can you imagine the memes that are going to happen when Robin Hood traders are trading Robin Hood on Robin Hood? Come on.

Last week I was thinking that greed is more powerful than fear because Rewind to March, everybody is in it together. And misery loves company is the old saying, right? We're all in this together. But when you see greed, I don't really care who you are, like how rich you are. When you see somebody making more money than you, that is a different part of your brain that is triggered altogether. Especially when you view that person as inferior to you in terms of intellect. Because there's a lot of smart people who have missed this who've got to be saying, like, I'm not going to let that dummy beat me. They're the ones who've been in and they're making all this money on Robin Hood or whatever.

And it almost doesn't matter how much money they have. It's just like they see it in percentage gains too, right? Yes. And to this point, last week we were saying like, what ends this? And the answer is supply. So there's going to be some really, really bad ones coming. Carl Kintini tweeted this morning, Goldman said that $61 billion in SPAC IPO proceeds is currently searching for acquisition targets. $61 billion.

Based on their 25-month post-IPO expiration days, these SPACs will need to acquire a target in 2020. 21 or 22, nearly equal to the total enterprise value of SPAC deals closers during the last decade. There's going to be some really, really bad ones. So I'm just saying. So this is the dry powder. And these places, they're going to be forced to make a deal. Yes. And there's going to be some really, really, really horrible ones. Right. That they're going to massively overpay for. Plus, they're getting the fees on this stuff. I mean, we're going to see some serious garbage. Supply will soak demand. And that's how this thing might eventually end. Modest proposal tweeted, there was a debate in 2015 about if a

basket of late-stage private coes were a bubble or just expensive, but they appeared rich versus public markets. Went to Ali Baba IPO, probably around then. That was the top at one point. That was the top, for sure. Yeah, everyone said so. Today, it is flipped, and late-stage private markets are apparently at a discount to public markets, which means more supply cometh.

And yes, it will. Yeah. And good luck trying to predict the end of this. Whether this is a bubble or not, whether there's companies that are going to work or not, trying to guess how far the pendulum will swing on this stuff is impossible. I tweeted this morning. I sent you some articles. I found an article going all the way back to 2012 that said when Facebook IPOed, we're in a huge new tech bubble. And then I found one from 2013 and 2014 and 2015. People have been calling this a bubble forever. And I do think we're conditioned for that because how many people read the big short and thought, I'm calling the next one? So we've had so many people top tick. That's like kept a little bit of a cap on it. But you're right. Once the supply comes, it's game over probably and things go to the moon. I've shared this post in the past many times, and it really is my favorite description of the bull market. I just think it nails it.

So Adam Smith, the pseudonymous, Anna Smith, wrote this book, The Money Game. The Money Game is one of the best books ever. He wrote another book a few years later. That was not quite as good, but it has one of the best quotes ever. He said, we are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air. We know by the rules that at some moment the black horsemen will come, shattering through the great terrorist doors, wreaking vengeance and scattering the survivors. those who leave early are saved, but the ball is so splendid, no one wants to leave while there is still time, so that everyone keeps asking what time is it, what time is it, but none of

the clocks have any hands, end quote. And I've shared that many times, so you've probably seen some version of it, but is that not just the best? That's pretty good. Because it's true. It's so easy to say this doesn't make sense, but people have been saying it for years and years and years. We have no idea when and how this ends. That's one of the reasons that almost too much historical information about the markets can be a detriment to you because if you look and say the dot-com bubble crashed in the early 2000s, the real estate bubble crashed at the end of the 2008, you see all these things and you just want so bad to be the top caller the next time around. So you could have been one of these people who's been doing this for eight years now.

And now guess what? No one's going to listen to anymore because you've been saying it for so long. Even if you know for certain these things are overpriced, good luck on the timing. And the timing is the only thing that matters, right? Ask everyone who predicted Tesla was a zero four years ago. And by the way, the notion that this ends, it doesn't end? What do you mean, it ends? When does the stock market end? It ends when does the stock market end? It ends when you die. It never ends. Yes, exactly. It'll keep going and we'll move on. It's perpetual. I'm working on a theory right now for a new piece. Hit me, hit me. So people have been trying to say like, okay, if low rates are causing speculative behavior in the U.S. and not Japan and Europe, how is that possible? Japan has had low rates for 30 years. And Europe has had low rates for while and they're all negative. Is it a cultural thing? I think the U.S. We're just predisposed. We're gamblers. Yes, it's a cultural.

We're going to always have bubbles. Japan, I think, learned its lesson in the 80s and hasn't had one since. I think we are more of a gambling, risk-taking, and we're going to have bubbles more often than any other country, I think, in the world. That's just where we're wired. American investors in general over generalization just feel like they deserve to be rich. We buy things and they go up. Yes. Speaking of, I don't know why I just thought of this, but you teased us last week with the little Robert De Niro personal story.

Oh, okay. It's not that great. You want to hear the De Niro story? I want to hear it. All right. So the wealthy family that I used to work for back in the day, they literally owned an island in the Caribbean. Somehow, one of the money managers that we worked for said, said, oh, go to the stay in the resort on our island. We'll put you up in the best suite in the whole villa. He stayed there. The guy goes and checks in. He's this old school money manager from Brooklyn. He checks in. Right when he gets in there, there's a message waiting for him saying,

please come to the bar. There's someone who wants to meet you. He goes to the bar. The guy waiting for at the bar is Robert De Niro, wants to meet this guy. De Niro says, hey, I notice you're actually staying in the best villa in the whole island, and I would love to train rooms to you. I will take some pictures with you. I'll sign some autographs. Dinner, whatever. The guy looks at him and his old school broken guy and says,

Mr. De Niro, really appreciate it, but, I mean, we're staying the best room on the island. Sorry, thanks, but no thanks. And turn on and walked away. Turn down Bobby D. To his face. That's a good story. Not bad, huh? Yeah, anyway, that was my De Niro story.

There was more to it than that, but that was the gist of it. It's better than mine. I have zero Bobby De Niro stories, not one. I love this chart from JPMorgan, why investing when stocks are doing well is so hard. So they looked at from January 1988 to present. And they basically said, here's the average returns if you have invested on any day from 1988 through this past summer, over one years, three years, five years, and you're up 12% on average over a year, 39% over three years, 71% over five years. If you were just to invest on any day, you're doing better than because market has gone up over this time. But if you were investing only when stocks

hit all-time highs. Over one year, you're doing 15% versus 11 or 12, three years doing 50% versus 39% and over five years you're doing 79% versus 71%. Basically, investing at all-time highs would have given you a better return than just investing at any day in random, which is hard to wrap your mind around when you want to think that when stocks hit all-time highs, the next thing is going to be the shoe is going to drop and you're hitting a peak. And that's the top. This is one of the things it makes investing in stocks so hard because you think that it's just the lights are off, you hit in all the time highs in 2008 all over again. Pretty much. By the way, five years ago, if you put $10,000 in Tesla, $147,000, is that sick? Not bad. 10 grand to $147,000. And if you are

this person who put $10,000 into Tesla, wrote it all the way up to $147,000, interactive brokers has this really cool thing called the Stock Yield Enhancement Program, where they will pay you to lend the shares. So Interactive Progress pays you 50% of the income. It lends lending it to the short sellers. Another way to gross the short sellers if you're a Tesla long-time owner. Yeah, that's called a short rebate. Where did the $10,000 come from, do you think?

Why do we always start with $10,000? It's a round number. Yeah, I guess. Sounds better than five. That's true. Last week we were talking about the cash shorts at companies. one of the effects of that might be that they're not going to be issuing a lot of corporate debt next year. So in the secondary market, a Microsoft corporate bond due in 2022 traded on December

1st with a 0.196 yield, just 0.03 percentage points above the U.S. treasury yield of the same maturity. Wow. So Microsoft is getting the same deal as the U.S. government and borrowing, basically. That's wild. At what point is this like us looking back at the 1980s and saying people we're getting 15% mortgages? Or is it just the new normal? What's more plausible? That this is an insane period when we go, can you believe we got two and a half percent mortgages in 2020? Or is everyone going to have one of that by then? I don't know. I don't either. It's weird to ping pong from a tweet like this. There was nearly $1 billion of SPAC IPOs today. This is after nearly $1 billion of SPAC IPOs yesterday. All these deals are massively oversubscribed.

Where is $1 billion per day coming from? That's a good question. I don't know. Is it hedge funds eating themselves and they're investing in the hedge fund buddies? I don't know. So it's hard to pivot from that to a story like this. From the Washington Journal, millions of U.S. renters face a prospect of eviction in January unless federal officials extend protections put in place during the COVID-19 pandemic. That month is when the Center for Disease Control. The ban on evictions will expire. They're saying between 2.4 and 5 million American households are at risk of eviction alone. John Pollock, staff attorney at the public justice center, said that if the moratorium isn't renewed, January is expected.

it to be the worst month for evictions in American history. And already, landlords have filed for more than 150,000 eviction petitions. So they can file, but they can't evict until this ban is lifted. And so let me ask you this. If we're going to be wiping away student debt, why not do this first if we're going down that road? Right. People who are truly in need. I don't know. I mean, does this stuff ever kind of make you guilty sometimes that all we do is focus on the market? Stuff is so bifurcated. So I want to talk about Disney a little later. But they laid off how many people in the last couple months. And the stock is back at all time highs and the company is doing better than ever. It's just such a weird reality to try to square in your head that there are

so many people that are hurting and so many other people that are doing better because of this pandemic. It's hard to wrap your head around that sometimes. For sure. Well, I've got a little bit of good news on that front from your boy, Derek Thompson, our boy. It's been a while since he made an appearance on the show. He deserves an award for what he's done with his coverage of the... His coverage of the pandemic has been better than anyone. Right. I guess we haven't heard from him, thank God, because I was about to say the pandemic news has died down. The opposite is true, in fact. Three thousand people a day are still dying. People have almost become numb to it, I think. We wouldn't say almost. I would say that's exactly right. Yeah, which is shocking that

we forgot to this place. But his coverage of the Atlantic has been better than anyone on educating you on what to know. For sure. So Derek says, the likely economic bounceback of 2021 will be good news for everybody, but it should be great news for low-income workers who will benefit from a retitened labor market. From 2015 to 2019, income growth among the 25% of Americans with the lowest household income exceeded every other cohort for four straight years, something that hasn't happened since the 1990s. And I read that and I was like, really? Because we don't talk about that ever. In fact, we say the opposite is true. So the hope is all those jobs will come back and those wages will increase because there will be competition for those jobs. Hope so. That's the hope.

Is that the idea? But again, just to reiterate, he said income growth for the 25% of Americans with the lowest household income, exceeded every other cohort for four straight years, the growth that is. Now, again, they're starting from a very low base, so duh, but still, that's objectively good news. We'll take it. Another one of those gradual good news things that you don't see in the headlines every day. Last thing, I know it's been a lot about the student loan stuff, but I just want to throw out another statistic from the New York Times. The working poor largely are not college graduates. More than 70% of currently unemployed workers do not have a bachelor's degree, and 43%

did not attend college at all. So obviously, college, higher education is still incredibly important to the wages that people earn in this country. And we need to make it more affordable. And there needs to be like massive changes. And this one time wiping away the debt doesn't really get to that issue. The point a lot of people have made is that I think only 30% of the population has a college degree, something like that. So obviously, you're helping out a smaller percent of the population who probably has more money than the rest of it. Exactly. And to that point, 60% of Americans' educational debt is owed by households in the nation's top 40%. Yeah, because people with a college degree have tended to make more money on average.

Right, exactly. What are these YOLO structure notes? Okay, so this is from Bloomberg. They talked about how J.P. Morgan is offering people a way to supercharge one of the best ETSA.Fs. So our investment management run by Kathy Wood, again, who I still think doesn't get enough credit for the run she's made. I feel like she's just lumped into the tech people.

She's the only star manager, and I feel like she doesn't get enough credit for what she's doing because of the tech boom. I understand because her biggest holding is Tesla and people think that she just got bailed out. She was lucky. Yeah, which I don't get. But anyway, J.P. Morgan is now offering a structured product to basically leverage their ETF. They've sold like 600,000 of these, which allows package of three ETFs that they have to leverage them 1.5 times over a period of six years. Three times that I'm in. Then I'll be interested. This is pretty much the best performing fund over the last, any time horizon you look at, three, five, seven, or however long it it goes back to. And now people want to leverage that bet, which is, but that's a, that's a little

out there. Well, just because the product exists doesn't mean that it's going to get traction. In the grand scheme of things, it's just crazy that people are doing this. People on our YouTube segment last week, we put like a 10 minute clip on YouTube, if you're interested. And people were like, that 98% of Robin Hood not being day traders, technically might be true because in order to be a day trader at Robin Hood, you need $25,000. Really? That's true. So otherwise they put a cap on your trades?

Correct. You can't technically be a day trader. It doesn't mean you can't trade your ass off. This is semantics we're talking about. You could still make multiple trades a week. Can you trade 100 times intraday? No, but where's the line? And by the way, waiting into the comments, we have some great comments.

I feel like we have a totally different audience that probably doesn't even listen to the podcast on YouTube for our clips. I think YouTube commenters take the cake, though. They can be pretty brutal. Very brutal. You better be, yeah, be careful waiting into that. stuff. My skin has thickened by several inches going in there. Yes. Okay, real quick, I wanted to mention this Wall Street Journal article about how Pfizer delivered a COVID vaccine. I was tweeting

yesterday morning that I almost think people aren't making a big enough deal about this. And I think this could be our moon landing. And I had a few people come back to me, it's so funny. Because of hindsight now these days, there's always someone who will play the contrarian and say, like, you know all these people are saying, of course, stock market is at all time highs. The fed through trillions of dollars that and the government gave people money, but like no one was saying that at the time. And these people were saying this MRNA or whatever that they used to make this vaccine they did it in three days it's not that big of a deal was anyone saying this at the beginning people were saying like there's no way you can pull forward 10 years worth of the vaccine so this says previously the quickest vaccine development program was the four years it took to make the mumps vaccine license in 1967 Pfizer spent two billion dollars of their own money developing this that there's all these anecdotes in the story about just people saying to like their manager hey I need 10 million dollars I can't really tell you what it's for and they'd be like done do it and they're They basically just said, do everything and anything you can. We want to get this out as fast as you can. I still can't believe that even though we're not out of the woods yet and things

are going to get worse before they get better, that they were able to do this so quickly. Remarkable. It still blows my mind that they were able to do it so fast and get it done in the same year that it happened. People were taking the vaccine today. Did you watch the pictures and the videos of the people taking the vaccine? My wife texted me and said, like, I had tears in my eyes, watching these hospital workers get it. Wow. It's insane. Okay. Is Disney Plus my greatest call of all time. Yes. I think it was. I think it was. Not to pet myself Go for it. Go for it. Not to brag. Not to brag. I'm bragging. They had their investor day the other day. And it's funny, if I didn't have kids, if I didn't have kids, I never would have said it.

But this is from Daniel Roberts at Yahoo Finance. He said, Disney's revising their subscriber guidance to 230 to 260 million of paid subscribers by the end of 2024. Their original goal was to get to 60 to 90, which they were already blown through. This is one of the reasons that it's hard to wrap your mind around that K-shaped your cover this year. Disney's theme parks have been either closed down or not functional or operating at mental capacity. They have a cruise line that has obviously been shuttered. Movie theaters have been non-existent this year. Their stock is rocking to an all-time high.

Is Disney Plus one of the best pivots ever for a big company? Even though that timing was, it just happened. It was luck. Oh, yeah, absolutely. Where would the stock be without Disney Plus? They still fell 40%, I think, and now they're up 100% from the bottom. By the way, I'm a little bit, on the one hand, I'm excited. In the other hand, it's like, who has time for all of this?

They said they're going to do 100 new shows per year as their new gold. That's original content. I haven't even gotten to Mandalorian Season 2 yet. Have you? The first season was overrated. Here's the thing. What's to stop Disney from just buying movie theaters on the cheap for 10 cents on the dollar when they all go out of business and branding their own Disney movie theaters? Ooh.

So you could sell Disney merch at the movie theater. Oh, my God. Have an experience with all the people dressed up in the costumes there, Disney movie theaters. That's a great call. Why would they not do that? They could sell their merch there. They could say, if you have a Disney Plus subscription, you get 15% off all movie tickets. That way, you can still have that experience if you want it.

That's such a good call. Bob Beggar, give me a call. Well done, Ben. Good for you. Thank you. All right. Stripe, by the way, if Stripe went public today, I don't know how big that company is, but I feel like if there's consensus on Airbnb, Airbnb good, door dash bad,

Stripe is like extra good, right? It's like unanimous. So we were going to get to this last week, but we ran out of time. Ben Thompson did a post on Stripe at Strati. And he said, according to recent Stripe research, setting up an account takes five and a half days on average. Around one and four businesses have to send a fax to open an account. And over half of businesses are required to visit a branch in person to open a bank account. How? I'm still having a hard time telling the difference between Stripe and Shopify and Square. We'll get to that in a sec. Let me just end this quote. He said, financial services

simply warrant designed for the modern internet, and this is a pain point for businesses today. Nearly half of companies report that their banking experience has hinted their company growth. Packy McCormick has got to me up to speed on some of the high-level differences between, to your point, Stripe, Shopify, not Spotify, Square, they all seem like the same company. Turns out they're not. So Packy wrote this back in August, and he was trying to value what would Stripe be worth if it came public today. And again, this was in August, okay?

So August is effectively seven and a half years ago in IPO world. He said, on average, those companies have grown 114% since Stripe raised a $36 billion valuation. He's talked about some of their competitors. Applying that same growth rate, Stripe's valuation would be over $77 billion or $5 billion higher than Goldman Sachs current market cap. That was in August. So where's Stripe today? 150, 200? 150, probably. Yeah. So this is like a Goldman Sachs, JP Morgan competitor potentially. It sounds like. Yeah. I did listen to the interview that Ben Thompson had on his podcast with the Stripe CEO. What is their mission? It's to grow the GDP of the internet, something like really audacious like that. Right. They're allowing businesses to grow basically

and have financial services. It's, yeah, I still don't quite get it enough to write a substack about it. It's basically, so Square is in physical places. Square is like the reader that you put yourself to do. Stripe is just payments for the internet. Yes. Right. If you wanted to set up a subscription thing on your website or something, Stripe would be the one you'd use. That's the simplest explanation I have. All right. Let's move on to listener questions. This was a doozy. So last week we spoke about when do you sell, how people aren't good at selling. This is sort of long, but I'm going to read it anyway. This is a question on Tesla. I think the subject was like, I made no money on Tesla. That was sort of the subject line. All right, here we go. I'm 35 physicist, long term broad index investor with money in a retirement account. I moved to invest 50% of my portfolio into Tesla based on the following qualitative thesis. All right, I skipped that part. By mid-March, I'd watch the price double, then plummet back toward my average entry price

of 420. The quick rise and fall was dizzy. By the day it reached bottom, I discovered that my exit price was actually identical to my entry price and I sold for zero profit, zero loss, figuring out we'll re-until in the fall in winter, how much higher could it possibly go? Now that it went up 6x and having lost out on $200,000 to profit, I realized the value of having a system and realize I'm lucky I didn't lose money. However, I don't know if I can bring myself to get back in unless there's a 90% crash. So he just goes on and on. And he said,

how do you ride a rocket ship like Tesla? Assuming it will experience similar story to those of Amazon and Apple. I have one answer for this, maybe two or three. You don't know. For every Tesla, there's a Fitbit, a GoPro. You don't know in real time. And that's what makes it so hard. But I think one of the only ways that you could possibly do this. So this person moved 50% of their portfolio into Tesla. That's way too much. That's way, way, way, way too much. So you and I, Ben, we've been talking about taking flyers in some of these names, and some of those names are already huge.

But let's say that we bought Airbnb because we think it could be a $500 billion company. I have basically none of that. I have 10 shares. Like, how much are you going to buy? If you think that a stock can quadruple and be a 10-bagger, then psychologically you can't own too much of it because you're going to get thrown off 100 times. So maybe put 5% of your portfolio in it or something. If you have a little more risk tolerance, I don't know if, but 50% is so big that

I'm sure the reason he sold was because he said, all right, that's kind of my at a casino. If by the end of the night, I put $100 down to play black check and I have $100 by the end that I'm like, oh, that was a win. I wash. But yeah, if you're going to put that bait, like the mental toll it could take on you, if they're not like stock options because you work at the firm or something, that's asking a lot as an investor. I definitely don't have the mental wherewithal to ride a giant winner.

If it's a big piece of my portfolio, I just, I don't have it. That's why we said last week, you sell after a 30% gain and you go, you pat yourself in the back and then you realize, oh, I missed out on an extra 600%. But I'd say especially with your retirement, if you realize you're not going to be able to do that, just count yourself lucky you didn't lose money, I guess. This is why trading in big numbers are so, so dangerous because this, I don't even want to call it a mistake on this person's part because it's not a mistake. Nobody knows the future. But this experience will likely color how he views investing for the rest of time. Right. That regret is always going to be there. Always.

If I only would have stayed in. Literally forever. That never goes away. Yeah. All right. Here's a good one. any rules of thumb for how your total else should be divided across account. So this person said they're 30 years old, have a stable income. They have 50% of their allocation is with a brokerage account. They have 20% of their 401k. They have 15% of their Roth.

They have 6% of their cash and checking. Anyway, they gave us all their breakdowns. They wanted to know if there is a correct breakdown in terms of tax deferred versus savings versus brokerage. I don't think there is a real rule of thumb for this. Have you ever seen anything? I've never really, especially hopefully when you're young, you're taking advantage of tax-deferred accounts and allow your money to compound. But I don't really think there is a right answer to this. I've never thought about personal finance through this lens.

Here's what matters. Your stock bond in cash and personal real estate. I think that where you hold it, of course it matters. Tax benefits do matter. But that is always at least secondary to the primary consideration. So Nick Madruli at dollars and data did a breakdown of this showing the difference between, let's say you did a buy and hold for index funds in a taxable account versus a Roth IRA. The difference is minimal when you talk about the tax savings that you get. It's not as big as you would think in terms of deferrals, but a lot of it comes down to your emotional makeup. And if you have it in a retirement account, if that makes you less likely to tinker with it, that's probably a win. So a lot of it depends on your mental makeup as an investor and

how much flexibility you need in terms of potentially using that cash someday. Correct. All right, let's move on for recommendations. I'm going to start. I got this book, Ben. Oh, I started it last week, too. Okay. The book that I was holding up is, is this anything, the Seinfeld book? He was on Tim Ferriss. Boy, is he funny. I know I'm really breaking ground here.

But I was reading this book and I'm like tearing. And Robin's looking at me like, I had my AirPods in. She thought I was listening to Howard. She's like, what's so funny? So I was like, no, I'm reading. It's his notebook. It's his jokes. And some of the jokes you've seen him do before.

Yes, it's just a written account of all the jokes he's written over 40 years or something like that. Were you laughing out loud? Yeah, I just started it. And some of them, it's just, he's the consummate. it's funny because it's true right you just think yourself like it's so true yeah for example when he was talking to tim ferris he said you know when you're on a phone call with somebody and it drops and they call you back they're like i don't know what happened then it's like how would you know you're not a you're not a telecommunications expert but yeah he is the master of it's funny because it's true

one of the great things i got from his tim ferris interview which i highly recommend is that he asked him like the way to stay funny you have to be cranky and you have to have these real experiences and ferris is like well how do you do that because you obviously became extremely wealthy. And he said, well, I got married and I had kids. And that helps ground you. And Paul McCartney was on the Smartlist podcast with Jason Bateman and Walernet and Sean Hayes. And Seinfeld actually talk about this, like being the Beatles when his show was so big. And they asked McCartney, like, how did you stay grounded over these years when you were probably one of the most popular people ever for a 10 year period? In history, like the Beatles were probably the most

popular group of people ever, potentially. Did he say kids? He said family. He's like, my family grounded me. But he also said, I basically viewed that celebrity and famous person as an totally separate personality for myself. So there's like the real me and then the celebrity me. That's kind of how I view my animal spirit's character. But he was such a grounded person. I thought him in Seinfeld, both equating it back to family was interesting because obviously there's a lot of people who get to that level of celebrity and aren't so self-aware and grounded. Right. This is not exactly going out on a limb. I'm not breaking ground. But I watched The Godfather part two. I'm trying to like check myself because I was so excited about it, but it truly might be

the best movie I've ever seen. Again, I know this is obvious, but it is certainly in the conversation. I'm almost man at myself for waiting so long. It doesn't have to be your favorite movie ever, but you go away that you're just like floored after you watch it. I was. Just floored. So I immediately went to listen to the rewatchables on it. It was with a compliment and Bill Simmons and I guess Sean Fantasy and Chris Ryan. They were just talking about. it. Like, is it the best acting role ever by Pacino? He seems like a different person back then. Him and De Niro at their peak. And they were both kids. I mean, I think De Niro was 31, Pacino was 34 when that movie came out. Just, wow. So anyway, if you're fiddling around with

movies and you're looking for something to watch, I would move that like... Oh, is it three hours long, probably? Two and a half? No, it's like three and change. It's the kind of thing where you can break it up, though. That's what I did, but it is definitely worth it if you haven't seen it yet. And by the way, I'm not even really sure what happened with Fredo. No spoilers, but I don't know exactly. I don't know exactly. what even happened? If you really want to go down the rabbit hole. Should you read the book? Does the book describe? The book helps understand their motive so much better. I think it's worth it. Because in the movie, it was fairly ambiguous, but you don't know the specifics. Like, what did he

actually do? You don't really know the motive that's read the book. The book actually helped me understand the movie better if you really want to go down that rabbit hole. Okay, my interesting book I've been reading lately called The Geography of Madness, Penis Thieves, Voodoo Death, and the Search for Meaning of the World's Strangest Syndromes. Excuse me? Yes, penis thieves. The first chapter of this book is like one of the best chapters of a book I've read in years. It totally draws you in and you're just kind of like, what? It's just like it sounds. I'm going to write about this, but it's these people in Nigeria and Singapore who think that because of some sort of voodoo that their manhood has gone inside their body and it's gone. They freak out and then they go

to the doctor and it miraculously comes back. Howard Stern listeners, this is like a sound bit. They'll understand. Okay. I don't get that. But it's one of the more interesting books about culture that I've read in a long time. Okay. We're doing a podcast on Friday, something along the lines of how to start your financial life. Yeah, this will be more of an evergreen one that we've done in the past. It's going to be about marriage and buying a house and starting to save and all this stuff. It's basically a financial starter kit for young people.

There we go. All right, Animal Spirits Today was brought to you by Interactive Brokers. Interactive Brokers charges margin loan rates from 0.75% to 1.59% to 1.59%. great subject to change. Learn more at iBKR.com slash compare. Thank you for listening. We'll see you next time.