Animal Spirits Podcast - Never Stop Buying Lottery Tickets (EP.183)

Episode Date: December 23, 2020

On this week's show we discuss the new stimulus bill, why the stock market isn't always this easy, Tesla investors who made a boatload of money, Robinhood lawsuits, the potential for a Roaring 2020s 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 our friends at Y Charts. One of the most surprising pieces of market data that I've come across. I don't know that many people would believe this. The Russell 2000 Small Cap Index, as of last Friday's close, is now outperforming the S&P 500. How did that happen? So this is, again, through Friday, stocks are down on Monday, but yet the Russell was up close to 20%.

The S&P is up 17. Remember at the beginning of the year when all it was is five stocks carrying the day? and now it's crazy. And we're going to go through some of the top holdings in the Russell 2000 with some helps from Y charts and talk about how one of the biggest names has maybe the greatest comeback of any stock this year. It's insane. So we're going to get into that a little bit, go through the top 15 or 20 holdings of the

Russell 2000 using some Y charts data. If you want to take a look at Y charts, tell them Animal Spirits sent you, and they will give you 20% off your initial subscription to the service. 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. The S&P 500 is in a 1.8% crash off the highs. Is this it, Ben? Is this a generational buying opportunity today? Yeah, I guess the stocks do go down. What do we think is going on? So is it the new COVID strain in Europe that's spreading quickly? Is it the Tesla top? Is it the stimulus bill being underwhelming or is it none of the above and just random?

It's the randomness of the stock market. Probably. Yep. Just because the stock market literally cannot go up every day. Ah. You and I have both looked at the data. What is it? 52% of the time, if you go back over the past 100 years, stocks are up 52% of the time on a daily basis and down 48% of the time, something like that. It's much closer than people would realize. So anyway, it's random. That's my answer. I'm sticking to it. So we did get a

new stimulus bill, and so people will say this is a sell-the-news moment or something. I don't know. It probably should have come way sooner. It probably could have been a little bigger. It's still a lot of money. So we're now approaching $4 trillion in government support this year. And And yeah, it could have been better. People are going to say, how is $600 going to help people? But those statements are a little disingenuous, I think. And a lot of those are people seeking social media retweets. So a family of four could get $2,400 depending on their wages. But they're increasing that extra benefit for unemployment. So Ernie Tedeski did a good tweet storm on this. And he looked at like what this actually is. So if you're unemployed, not only do you get your basic benefits, which is 50% of pre-layoff wages, you also get an extra $1,300.

through March. And I'm guessing that's going to be extended, right? We're going to get to March. It's not going to be there. That's going to get extended to. I guess you could look at these checks that people are getting and say like they're useless. What good is $600 due to anyone? Although now people can't use that $400 emergency thing anymore, right? Anyway, so there was checks for there's another PPE 2.0. There's money for schools and some vaccine stuff and healthcare. Hang on. So $82 billion for schools. That's a lot of money. What does that mean exactly? What schools? I have no idea how this all were. I'm guessing a lot of this is like give and take on the negotiating table. And a lot of that other money is just Lord knows where it ever goes. It's, I'll scratch my back. You'll scratch that sort of thing. How are schools in trouble financially? Well, they're having to spend more money to keep things clean.

Oh, that's a good point. There's a lot of extra stuff they have to do. They probably could use more money. So anyway, people are going to say like these $600, $1,200 checks are not enough. The fact that they kept the unemployment boost up or kept a boost for unemployment, is a good thing and a helpful thing. So the $600 and the $300 weekly supplement is half of what it was last spring. We didn't even get to a trillion dollars on this package. So a little bit late, probably a little bit light. Here's some more data points. This comes from the Washington Post.

Nearly four million Americans have been jobless for over six months. Pretty brutal. Which is again, why the unemployment part of it was such a big deal. 12 million renters have fallen behind on rental payments. So the compromise deal includes $25 billion dollars for rental assistance. The bill only extended the eviction moratorium for the end of January, but yeah, to your point, you got to think that that's going to be extended again. Yeah, so much of this stuff is just going to continue to go until this is over, I would imagine. This was interesting. $15 billion earmarked specifically for live venues that cannot open during the pandemic. I mean, a lot of this is restaurants and concerts in these places that,

through no fault of their own, were forced to close, could probably use some help. I don't know what the help was going to do to them. This stood out from the article. Americans have saved over $1 trillion during this crisis and unprecedented some during a recession that could flow quickly to the economy. We've spoken about this, how people have paid down their credit card debts and some weird things have happened during this recession. But that's not flown back into the economy necessarily. Those people that are saving that money clearly don't need it. If they didn't need it, it would already be in the economy. And actually, the money flows most of the economy through the unemployed people because the study was that people who are receiving unemployment

benefits are spending like 75 cents on the dollar that they're receiving. So that money is immediately flowing back to the economy and being spent. Here's my joke from Twitter in case you missed it. Okay. There's going to be so many $600 deposits in the Robin Hood in the next couple months, right? Yep. Not bad, right? Not bad. Okay. Last week, you sent me a message after we recorded our show on Monday. And you said, Bitcoin just broke through $20,000. It's going to $25,000 next. I'm almost sure of it because of a round number thing. And the rational part of your brain, here's something like that and goes, well, that's ridiculous. But the behavioral side of your brain, I heard that and I immediately agreed with you because it doesn't make sense, but it does make sense.

What did it get to 24,000? Pretty close. And it went there pretty quickly. And I guess that's why if you're one of these people who bangs your head against the wall and just always thinks only rationally about the markets, you're going to spend so much of your time being just contrarian and wrong. Correct. Because it makes no sense that, oh, Bitcoin hit $20,000 and that should open up the animal spirits to borrow a phrase from our show. But that's exactly what happens with this stuff. It doesn't make any sense that a round number should invite people to get excited and charged up. But that's exactly what happened. And Bitcoin took off just because of that pretty much. Yeah. Well, obviously round numbers don't have any economic meaning, but they have a ton of

meaning behaviorally. Because when something breaks 20,000, everybody's tweeting about it, USA Today, every corner of the earth, you know, everybody knows about it. So that's how it works. It's part of the market cycle now, too. You wrote this piece. last week, end of last week, I guess. It's called, this is not the way. We've mentioned this before, how it feels a little too easy now. Even though stocks are pulling back a little Monday, it just feels like all the time, everything is going up. And you're totally right that people are learning the wrong lessons from this stuff. So there was this story from Bloomberg about this 32-year-old, put everything he had into Tesla and became a millionaire. And I've seen

all these people who own Tesla shares posting their Robin Hood accounts or the brokerage accounts and showing how much money they made. And honestly, they're right. They won. Not only did they have the wherewithal to put money into this whenever it was 2017 or 2013 and stick with it, they've encountered just a drumbeat from smarter investors than them supposedly that this is a fraud and it's going to zero and whatever. To them again, kudos. But the problem is when people make the leap that, oh, this is how it always is going to be. If you take a contrarian stance and you see this big opportunity and you put a little bit of money in, you can become a millionaire, just hold on to it and it'll happen. Like Tesla is the lottery ticket. This is the problem. This one

guy, again, kudos to him. I'm not like a shot on Freuder at heart. I don't hope that this person burns and it all goes away. But I hope some people are listening to us and trying to like calm down a little bit. I hope that we're preventing the next person from thinking that this is too easy because it doesn't work this way. So this guy, Jason DeBolt, again, all the credit him. He's got freaking $10 million in Tesla. Holy cow. So I guess he's been buying it since 2013 and whatever. But here's a problem. Somebody tweeted this is one of the craziest Twitter throws I've ever read. And it's his thread showing what he did with Tesla. And then he quote tweeted and said, shows folks what's possible with long-term buying

and hold investing. No, it's not. I mean, is it possible? Sure. Is winning the lottery possible? Yeah, but this is the wrong takeaway. I want to point your attention to a tweet from Drew Dixon. So Rob Arna did an article about Tesla in the bubble and are not like many people

has been saying this for thousands of percent. Not a knocker or not earning Tesla bears. He said, I don't care how long he's been saying it. Doesn't mean he is wrong now. Now, it was merely crazy before, which was obvious to many, but now it is mental. I agree. This has gone totally mental. I can't imagine a world where economically this makes sense unless how do they grow into this. Fine, hold that aside. But West Gray tweeted something profound to Drew. He said, is investing really about being right or about understanding how the heck the beauty contest works? I'm thinking of the ladder more and more. A lot of the quote unquote advice you see in social media about investing this year, have you seen this cartoon where the guy says, never stop buying ladder tickets no matter what anyone tells you? I failed again and again, but I never gave up. I took extra jobs and poured the money into tickets. And here I am proof that if you put in the time, it pays off.

That's what this is. It's exactly what this is. All credit where credit is due, they stuck it out and they put money in, and they could have done the thing where they sold after a 50 or 100 percent gain and it's up. But the problem is assuming that it continues. So there was a story in the Wall Street Journal, and they interviewed this guy who had been buying Tesla since 2013. He said there's so much good news to come. I'd recommend people buy Tesla at any price.

It's not just a car company. Yes, it is. No, the problem is when people don't realize that this run-up they've had this year is pulling forward that future good news. They think that, okay, then the good news comes in the future, and then we get more gains. But that's not how this works. Right. Patrick O'Shaughnessy and his team, Aaron Stanhope, Chris Meredith, and the suit items Jesse Livermore did a post or webinar last week.

So they have this machine learning algorithm that calculates the price of everything, just purely quantitative, no stories in there. And the biggest discrepancy today between fair value, according to that, and prices, obviously Tesla, that's not even close. And they compared it to Cisco in 1999. And in 1999, Cisco was pricing in 30% annual growth for the business. And it did really well. The business grew at, I think, 13 or 15%, but the stock got murdered and is still nowhere near its all-time highs. And that's the thing, is that let's say Tesla does do what everybody's saying. And it grows by, I don't know, pick a number, 30%. If it did 30% for the next decade,

that would probably grow into it. But if it does 15 or 20, it could still fall massively short of expectations. And that's the thing is, like, people don't think it's a car company. It's a religion. That's how out of hand that this has gotten. And the other side of this is, don't listen to us at anything about what this means for the next six months, 12 months. I think we started calling Tesla a bubble, I don't know, two months ago maybe. I definitely have been on that train for a while now. But my whole point is this. By the way, sorry, Cisco is still down 27% since 1999. So hold Tesla to the side. Maybe that's its own beast. It's so unique in there. this whole thing, I think. You could remove, and maybe Tesla's supposed to chop up, again, remove this

from the equation. You cannot continue to make 1% a day in the stock market indefinitely. That's not how this works. I'm sorry. If you turn $10,000 into 40, awesome. Congratulations. But you're not going to turn that 40 into 200. It doesn't just continue this way your whole investing career. Eventually, there's hiccups, these stocks get crushed, whatever happens. I've been telling you for weeks, I look at my brokerage account, and it's seemingly up every day, way more than it should be. And I'm like, this is not going to last. You just know it. All right, back to Tesla. So Jonathan Quinck, this was from his firm, Baycrest, where he works. He wrote Friday's inclusion of Tesla in the S&P 500 resulted in over $150 billion worth of Tesla shares trading hands.

That's higher than the SPY ETF on any day over the last 15 years, including the 2008 and 2020 bare markets. That's insane. Eric Beltruna said the record for equity shares traded during a day was SPY during March. That happened. There's way more trading that goes on during a bear market. So the fact that this happened during a bull part of the market and it was the most shares traded ever, he said for perspective. So you said 150 for Tesla. On average, Microsoft trades $5 billion a day.

Unbelievable. By the way, this Tesla inclusion, S&P topping, that's way too easy. The market gods are not that kind. I agree. We've been talking about Tesla for years, trying to handicap this, what it means. You said it's a religion. Maybe so many of these investors just stay in there. Because the Wall Street Journal article also said, let's see, $40 billion of losses almost. So $39 billion for the shorts this year in Tesla. That is a huge, huge number. And obviously they've all capitulated. One more great quote from this. The Wall Street Journal is the best at finding these retail traders to comment. I feel like the S&P needs Tesla more than Tesla needs the S&P. Unbelievable. Buy Tesla at any price. That is not going to age well.

One of the biggest beneficiaries of Tesla's run-up has been Kathy Wood's fund, Arc Innovation. Eric Boucher has tweeted, Arc flows aren't just big relative to its past self. They are just plain big now. The fund is number six overall in December flows like a wildfire growing into the big two's cheap beta desert. The big two are I shares in Vanguard. So it's taken in more money, I guess this is in December, than BND. Are you kidding me?

Then B&D and AGG. This is probably going to be one of those things. I think this ends up, her fund ends up getting so big. It's like Peter Lynch with Fidelity Magellan and what's the guy, Ken Hebner. Yes. He had the best returns of anyone. But because his returns ended up being so volatile, people jumped into the wrong time. And the dollar weighted returns end up completely underperforming the market.

Like, you could see that happen here for sure, right? For sure. It's had the best year in terms of asset growth for any $1 billion ETF at the aside from DXJ, which was probably five or so years ago. So quite a run. It's one of those things where it's probably not even going to be a news item that ends this. People always want to look for the catalyst. What's the thing that ends this? Again, markets don't ever end, quote unquote, but it's probably the kind of thing where nothing really happens, but expectations don't line up with reality. And a lot of these things in the tech sector are down 20 or 30 percent before

even know it for no apparent reason. I mean, some earnings reports, whatever. But other than that, I don't know what does put a pin in this. All right. So a few stories. about Robin Hood last week, Massachusetts brought a file against Robin Hood, accusing basically of not being a fiduciary to their clients. They highlighted one robinid customer with no investment experience made more than 12,700 trades in just over six months. It's not bad. I mean, how is that even possible? I don't know. This is pretty bad. Sixty-eight percent of Massachusetts robin customers approved for option trading identified as having limited or no investment experience. That is pretty well. So they actually ask, and then that's what they found

out. They said they paid a $65 million fine. By the way, that was different. That was from the SEC. That was another thing. Sorry. Why is this only in finance where someone will pay a huge fine and admit no wrongdoing and deny guilt? That's not what happens when you get in trouble in other areas of life. So from that complaint, one customer with no trading experience made 92 trades a day. The agency said that customers lost more than $34 million by not taking their orders to other brokerage firms that would have offered them better prices. Honestly, this is the whole like, if you don't pay, then you are the product. I really don't. don't see that big of an issue in terms of getting best execution here. Listen, if you're

trading significant shares and you want best execution, go to interactive brokers. Don't go to Robin Hood. So that part of it doesn't bother me that much. I understand if people are perturbed. Guess what? If you're making 200% a week in Nvidia call options, do you really care if you missed out on three basis points of trading slippage? No, no. Robin Hood pays the fine. They're going to go public and get a massive valuation. And few people will either care or leave the service. So I don't think this honestly matters at all, as far as I'm concerned. This part I completely disagree with. This sort of rubbed me the wrong way. This is from a Robinette spokesperson. Quote, those who dismiss new and younger investors who come from

increasingly diverse backgrounds as unsophisticated or unsurious perpetuate the myth that investing is only for the wealthy, end quote. Get the f*** out of here. Yeah, that's pretty bad. Who's saying that investing is only for the wealthy? Maybe some people are, but come on. This is nonsense. They need to take some responsibility here, right? And say, we're going to try to do better and educate our investors as much as we can and put more disclaimers. And guess what? These people are unsurious and they're perpetuating it. So we're perpetuating the myth that investing is only for the wealthy. This isn't investing. 68% of customers that are approved for options training have no investment experience.

This is gambling, which is fine, but it's not investing. Man, you're fired up. I mean, this is nonsense. I agree. Again, this is the thing about paying a fine and like they have so much money. What does it matter to them? Two things can be true. I think it's great that young people find the market, maybe learn how hard it is, that it can be a fun slash dangerous place.

I think that's good. But I don't think that young people thinking that the market is a casino is also good. Their attitude about this reminds me a little bit of Facebook, kind of like, we're washing your hands of it. Whatever happens, whatever happens, happens. That's kind of what it feels like. Yeah, Robin is just a platform. To a certain extent, how far can they go to the education?

They're a brokered firm. They can't necessarily tell people how to buy and sell and trade, but I think they could do something. They could provide a valuable service if they started educating their clients better. They could start with not raining confetti down every time you place a trade. That stuff works way better than any other educational tool. And maybe not allowing brand new investors to gamble with options would be a step. And by the way, they're running a business. I don't begrudge them for doing that.

They could do what they want to make money. Yeah, they had love course. If they're a $12 billion valuation, they were making money. somehow. Anyone who thought they weren't making money doesn't understand how this works. But I'm going to read this again, and I'm getting angry, just reading it again. Those who dismiss new and younger investors who come from increasingly diverse backgrounds as unsophisticated or unsurious perpetuate the myth that investing is only for the wealthy. Get out of here.

And obviously, they've done all sorts of A, B, testing on this confetti and the colors, but they could have still made it easier for people to invest without pushing them to invest more and more and trade more and more. You know, it's a great investing platform, betterment. That's an investing platform. This is not that. I've heard Dan Egan talk about the fact that they went out of their way to try to make people trade less. They looked at the colors that made people trade more, the red and green, and they

tried to take them out. Whereas Robin Hood said, oh, no, no, no, we're going to put our foot in the gas and have more of that. That's the difference between the two platforms, obviously. Here was a very nice counterpoint to my, this is not the waypost. And I really don't think that this is 1999. I don't think that we're in a wild bubble. If you look at the stock market, the stock market's kind of gone sideways for a while now. It's not like the stock market is screaming higher. Under the surface, you have companies like, I guess, Airbnb and Snow and Tesla and Zoom. Here's my quiz for the day for you. So from 1999, Cape ratio hit 44. What's the annualized return for the S&P? At probably the worst entry point in history for the U.S. stock market,

even worse than 1929, I think. Eight percent. Six and a half. Okay, not bad. So you put your money in at probably the worst possible time. Well, it's called three crashes now this year. Three crashes in 20 years and you made six and a half percent on your money. How many retirees would take that in a heartbeat, if you could guarantee him now for the next 20 years? 100%. Myself included. Okay.

So, like I was saying, there are obviously pockets of what feel like froth to state the least. I don't think the stock market is in a bubble. I don't think that a lot of these big winners are going to be a pile of rubble, like in the dot-com bubble. I don't think that you're going to see all of these fall 90%. A lot of them just maybe need to grow into their valuations now. And they probably will.

but it's how much of the price growth has already been pulled forward. That's exactly right. So Pachy McCormick was quickly become my favorite writer on Substack, said, despite a pandemic that has taken 1.7 million lives, an election that confirmed deep divisions in the United States and a market that feels a little frothy, I can't help but think that the next decade is going to be even better than the last. And he said, if it feels a little bubbly, well, that's how innovation happens. And listen to this.

So there's no going back. These companies have seen the future. and they're smarter and they're more agile and more dynamic and understand business better and understand their customer acquisition better. They're just so much smarter than they were in the past. That intelligence of them is going to pull everyone else with them too. All these old school firms that don't want to be left behind, they're going to play catch-up. I totally agree.

So Packy wrote, today companies can hire a developer in India via Pesto, a designer in Sweden paid via Panther, and a CFO in New York supported by Ramp. They'll work together in a huddle HQ and spin up new office space as easily as they open a new Google Doc. They can raise money via angelist syndicates, republic crowdfunding, or directly from stakeholders via Fairment, cafes. Or better yet, keep their equity and get paid for their recurring revenue up front with pipe. They can use Stripe to handle payments, Twilio to handle messaging, Shopify to set up a storefront, market or hire to hire a part-time marketer, fuse to manage inventory, barrel to build their

digital identity, Main Street to scan for free money. soon they might even be able to plug in GBT3 to write copy or handle low-level tickets. There's no going back. Right. The barriers to entry are lower than they've ever been for this stuff. You could simultaneously be super excited and bullish on the future of business and entrepreneurship and also say that some of these valuations for today's companies are absolutely outrageous and some people are going to blow up.

And here's the thing. We've had these extremely long periods before. I'm still in the camp that we're going to have these shorter term mini booms and bus. where Busts are going to happen quicker, and then the recover's going to happen quicker, too. That's kind of where I'm planning my flag. But by the end of the 1980s, you could have said, okay, too far too fast. This is getting out of control. We just had the 1987 crash.

Obviously, I found an old story in like Newsweek or something where Ray Dalio in 1990 was predicting a global depression. And then you had the 90s on top of the 80s. I had the same thing with basically the entire second half of the 40s through the 50s and into the mid to late 60s where you can have these things run for a way longer time than people give them credit for. And maybe they're whatever. It rotates from which sector is helping. Two great examples of this. Druck and Miller went long at the top in 1999-2000. For a long time, he was betting against it. And then he basically went all in. He lost a ton of money at the top.

Similar story with Julian Robertson. So yeah, these things can happen a long time. But as I was thinking about writing this and whether or not I wanted to put it out there, I always have it in the back my mind, I never want to be the old people in the 1950s. Remember, Peter Bernstein told that story of how there were people that worked on Wall Street. And any time the yield on stocks approached the coupon on bonds, stocks were expensive and it crashed followed. And then they crossed. Bonds yielded more than stocks and they never looked back and these people were just left in the dust. So I don't want to be that person. However, this is not how the stock market works. All of these people that are ostensibly getting rich and making all this money, does this end well, usually?

Investors at least need a slap on the wrist occasionally. Usually last more than four weeks. I think that's the rub here. Not that any of these people would listen and maybe they shouldn't, but if somebody were to ask my advice on what, okay, fine, Mr. Smarty Pants, you think these stocks were valued, so what? What do I do about it? Take some gains, put a trailing stop in, do something, count your blessings. Rebalance, yeah. By the way, even having that thought, I tend to lean more in Packing McCormick's camp of, I think the Roaring 20s is on the table. So do I. Certain things fall in place.

I think that's a very fair possibility. I don't think I'm talking out of both sides of my mouth when I say that that's also possible. I'm an optimistic person by nature. I think that that is certainly possible. I let this slide last week. So I didn't feel like getting into it. You said that you were in the camp that there was no bare market or something.

There was just one long continuation of a bull market. Somebody emailed us saying, Ben, weren't you the one calling this a depression? All right. go ahead. Defend yourself. I feel like I defend myself about this every week to you. We had the biggest quarterly decline in GDP ever in the first quarter. Correct. I mean, we had a two-month depression. It's true. How did the bull market never end? Okay. Let's say this thing goes for another five to seven years. And we have from 2009 to 2009 to 20, 23 or 2025, whatever it is. Is that a top call? 23. That's your target? 2023. When the Fed finally raises rates in 2039. It's

semantics. Of course it is. Could we look back and say that blip in 2020 was just a blip? And then we're back on the same. I don't know. It doesn't matter. Of course it's semantics. And you're right. It doesn't matter. But I think it was a reset because put yourself back in March. Did that feel like just a blip? It did not feel like just a blip? But the same thing. Remember, after 1987, they thought an economic depression was coming after that. They're like, how could the stock market fall 33% in a week and not have a depression? It didn't happen. So I don't know. I'm in the reset camp. Again, doesn't matter. Probably not. Here's the other side of people potentially behaving badly, or not necessarily behaving badly, but just getting too frothy. We have a $1 trillion mutual fund, and it's the Vanguard Total Stock Market Index. And by the way, if you had held this fund, you would be an owner of Tesla and not had to worry about the Tesla shares getting into the S&P 500. It doesn't really matter.

The Vanguard Total Stock Market Index fund is the biggest mutual fund ever. David Carey from Morningstar wrote this piece on this, and he decided to look back at what were the biggest funds 20 years ago. Vanguard, the S&B 500 index was in there, but it was all. also four other actively managed funds. Now all the five top funds are managed passively. The only one that remains is the Vanguard 500 index fund. People would say like, oh, what's going to happen? Indexing is taking over. This is going to be bad. The boogeyman thing that people say. I don't see how you could look at this any other way as this is a huge, huge, huge win for the individual investor. Which part? All of this. The fact that there's the top five mutual funds are all index funds at Vanguard

paying very low fees. This is Burton Malkiel and John Bogle. Like, I'm guessing. they never would have thought it would be this popular. When they push to roll this out, like I think this is unequivocally a win for the individual investor. This number, this one trillion dollar mutual fund was almost, this is a round number that more people should have cared about, but probably won't or didn't. Anyway, the other side of this. So this was a tweet put out by this micro sectors. I'm guessing they follow small cap companies. This is last week. Penn National Gaming, which is the company that bought Barstool Sports, really 24% this week. So this is as of last week just surpass CZR as the largest waiting by market cap in the Russell 2000. I want to look back

it's close to $100 stock now. I think it was at $4 in March. At the lows, I pull this up from Y chart, the lows, the market cap of Penn was $528 million at the end of March. What's it today? Today it's over $14.3 billion. This is one of those things that will never stop breaking my brain. I mean, you think about like a couple of the stocks that I only have had. I own Twitter in my fun portfolio. It was down 30% on an earnings day. On the other side, like, I own Stitch Fix. It was up like 30 or 40% the next day. By the way, can we talk about Twitter real quick? Remember last quarter Twitter reported earnings? I guess the street was disappointed. It fell, what, 20%? And it was looking amazing going into earnings. And then we were having the conversation. Is there any more

tortured group of shareholders than Twitter? They're like the New York Knicks of stocks. It just took it all back. It just rallied and took it all back. That never fails to surprise me that a publicly traded company like that can lose so much value in a single day or gain on the other hand. But this 10 national gaming thing going from 528 to 14.3 billion in nine months. I think that what you just said is important. We only get these earning calls four times a year. And when there's a big surprise, doesn't it make sense that the adjustments are going to happen like that? That's like FOMA's thing. That all of the available information is priced pretty much immediately. Yeah. Doesn't mean it's always right, of course. But it's shocking to me with

500,000 CFAs in the world and people tracking all these companies that the expectations being given out by management. People can still be so flat-footed by a certain change in what happened in the business. I don't know. That still surprises me. Are the 19% drops? Do those giant move support the efficient market hypothesis or are they proof of its inefficiency? Probably the former because to your point, it happens like that. You don't have time to think about it. It will react. It just happens and it happens overnight. So I don't know. Maybe it's like the new reality is here, but I think it's just crazy. So I pulled up. So I keep doing this. The mechanics of how that works is really incredible, right? How you see an earnings release and it's like boom immediately,

the stock is down nine, ten percent. Like, how does that happen? Like, what are the internals of how that actually happens? I can't believe that you used to try to trade earnings reports. I mean, that, no, I was never in the after hours. That's not true. Okay, but that's gambling. If you're trying to make a bet one or the other base on those earnings, because they could see such a huge gain or loss. You can't put a price on fun. I talked about how I think the greatest comeback of the year, besides Penn, is the fact that small caps are beating large caps. We heard the drumbeat forever. It's five companies holding up the market. And for a while there, they probably did. And now were things catching up. So I went, Whitecharts has this cool feature

called Comp Tables, where you can pull an index and look at all the different companies. It looks like Penn has gotten passed by Caesar. It's so close. But Caesar Entertainment is the biggest company in the Russell 2000. It's a $15 billion company. How big do you have to be to move up from the Russell to the big times to go from Russell 2000 to Russell 1,000? It's not a dollar amount. The Russell 1,000 is just the 1,000 biggest stocks. And I think they do it. Oh, okay. So it's got to be probably cruel.

But this is the reason that you don't hear much about small caps. And I guess why people have always assumed small caps would perform better because I put the list of the top 15 or so names in the Russell 2000 on here that I pull from white charts. You recognize maybe the top two Penn National Gaming and Caesar Entertainment. The other one's like, have you ever heard of these companies before? Nope. And these aren't small companies. Looks like $15 to $8 billion range for the top 10 or 15.

I want to say that I've heard of some of these companies, just to sound more. intelligent, but I don't. Yeah. Anyway, that comeback of small caps is, I think that's one of the more shocking things that's happened in a year of shocking things that have happened. Okay, Investopedia puts out their list of the top terms of the year. They look at the average percentage increase from the baseline, and they figure out what people are searching for the most. And there's some interesting ones on here. The first one is stimulus check, not surprisingly. Number two, this one kind of shocked me. Stock split. There was that many people trying to figure out what a stock split is. On July 30th, when Apple announced that they were splitting their stock, the next day, the stock had the

second best day in the last 10 years. It was up how many billions of dollars? I forget. It was up 10%. So, I don't know, I think it added $150 billion in market cap. Which is crazy. You know what the ones are kind of funny on here? Marxism is number three and socialism is number nine. The stock split thing is one way of thinking like, that's making fun of new whale investors for like, how could you not understand what stock split is? That's one way to look at it. Like, oh, these people don't know what that is. What is wrong with them? The other way is people start out this way a lot because honestly, like a company like investipedia, I used that when I was coming up when I knew nothing. Like, I would have to go literally type in the definition of words that people were using when I first

started out in the business. I was an intern in my senior year of college for an investment analyst. He was a technology analyst. We were tracking all the short interests of the companies that they covered. I did not know what short interest was. I assumed it was like interest you earn like on short term cash equivalence. I had to go to like investopedia and ask and I finally had to ask him. I'm like, no idea. What is short interest? And he explained it to me about shorting stocks. And again, I'm a senior in college. And I go, okay, I kind of got it. And I go back to my desk and I call my brother and I say, hey, John, what does shorting stocks mean? These are the things that I didn't know. So anyway, you can make fun of people for not knowing that stuff. But that's how you learn, right? I was once

in those same shoes. You unkwelled yourself with help of Investopedia. Pretty much. All right. So we've got, in the bad news camp, we've got, and we should have probably spoken about earlier, but just real quick. 7.8 million Americans falling into poverty in the last five months. The poverty rate jumped to 11.7% in November, up 2.4 percentage points since June. 11.7%. Here's what the federal poverty line is. $26,000 for a family of four. This gets back to our minimum wage thing. You know what this doesn't count? All of the people that are just barely above. You know what I mean. So if 11.7% are below this line, then what? Are 15% below $30,000? Well, yeah, and if people can be so close that they're pushed into it, then yeah, just being close. So Ben Castleman talked about

this on Twitter and he said, basically, how did this $600 check say people? He said the $300 a week in unemployment benefits does. And he said, 4.5 million people that would have fallen into poverty if the unemployment program would have expired will not be in poverty anymore. But to your point, that $300 a week, they're so close to the line that they're not technically in poverty, but they're still right there. That's pretty sad. Yes, this is helping them, but without this, it would have been way, way worse. The University of Notre Dame has a real-time COVID-19 income and poverty dashboard. Some horrible figures in here. If you are white, then it's around 10%. 10% of white people are in poverty. It's more than double for black families. So it's closer to about 20%, 25%, just over 20%. Another

big demarcation is high school or not. So if you have a high school degree or below, then you're at about 23%. Some college or above, and you're about 7 or 8 percent. Wow. I mean, this is hypothetical. Could we see the universal basic income come about because of 2020? I hope so. If MMT is going to be a thing, isn't this what it's for? I sure hope so. You'd think if we figure out we have the ability to print this money and there aren't any adverse implications, this is to me like, this is where you can help. Because Ben Castleman said, these extra $300 in benefits would return the poverty rate to pre-pendemic levels. So then you'd think like, okay, let's make those pre-pendemic levels better as well. Here's a survey. From November 9th to November 15th, 1,700 U.S.

investors, people with $10,000 are more invested in the market. It was optimism index, I guess. How optimistic are you in the stock market? Not too optimistic. Okay. So this has more room to run then. Is that it? Well, I'm saying it's interesting given where stocks are. And a lot of the metrics that we look at internally inside of the stock market, a lot of the stuff that sentiment trader does, a lot of stuff that we look at is showing like extreme enthusiasm. But those are like stock market indicators. If you ask the average person, they're not feeling too bullish on the stock market. Right. You know, for obvious reasons. So this is another watch what they do, not what they say type of thing. People may say I'm not very optimistic, but their dollars in their portfolio show something else. Yep. Oh, real quick. I was reading Mark. Mark Rubinstein substack. He has one called Net Interest, which is very good on financial services. Do you remember the Apple credit card? Yeah. We haven't heard anything about that. I get a few emails from them every once in a while asking me to sign up, but yeah, I guess I don't know if it ever really took off. I'm sure hardcore Apple people use it. Yeah. That's it. That's it. Okay. Maybe if they paid Bitcoin, they'd get more people to sign up.

Last week, I talked about the fact that my idea to Bob Eager, and I haven't heard from him yet, I'm still waiting, is Disney should just buy out a bunch of movie theaters. on the cheap and have their own movie theaters. A bunch of people wrote in and said, Ben, great idea. They can't do that because there was an antitrust suit in the 1940s that basically said you had to separate those, which I guess makes sense. You wouldn't want the people making the movies to control the distribution of them. Sounds like that's changed because this is a few weeks ago, they got rid of that antitrust. Someone sent me a story on this. And it said with those old decrees out of the way, the road is now open for big studios like Disney and Netflix to look beyond single small theaters, set their sites on national giants if they're so inclined. So, I don't know,

with Netflix creating their own movies and then streaming them to their own digital platform, isn't that the same thing? Why wouldn't these other places be able to have their own movie theater? So I think it's possible anyway. Did I just come out of the closet as a socialist? I think so. For being for UBI? You're going to get some hate mail for that one. Be ready. That's okay. Listener questions. All right. Given the cyclical nature of economics and markets, isn't it fair to say that each year that passes with up markets the probability of a drawdown increases? So while an investor shouldn't time the market, should they allocate knowing every year has a greater percentage likelihood of a fall? My father-in-law recently asked how to deploy some new money. He was

skeptical to invest before the election. Obviously missed that. And now he's skeptical to invest because of market highs. My best advice is just a dollar cost average quarterly in the next year. Is that fair? One of the ones that I always come back to, Sam Lee wrote this piece a couple years ago. And it's called Waiting for the Market to Crash is a terrible strategy. He goes through all these different scenarios of waiting for a 10% pullback to buy or 20% or whatever it is, they happen less often than you think. A buy-in hold or a dollar cost average strategy is almost always better than waiting for that. Even though I look back at the history 40% market, so I'm just going to buy when stocks around 40% or 50%. It doesn't happen that often. It's like once out of every 20 years

the stocks have fallen 40%. If you're waiting in cash that whole time. And how about this? Who says you're going to swing at the pitch? Yes, exactly. How scary was it in March? Maybe not to you, who thought it was just a blip. But to most people, it was very scary, and it happened before you could even get the bat off your shoulder. And imagine how much harder it would be if you have a big pile of cash you're sitting on, not just a little one, but a big one that you've been waiting, let's say you've been in cash for seven years. And now it's here and you go, I can't do it now. What if it falls further? Keeping as simple as my preferred method there. I am a 22-year-old business school graduate as of this past May.

financially, I have no debt, hold about $10,000 in cash, have about $15,000 in a account mostly in spy, max out my employer match in my 401k, save about $1,000 a month. Sounds very healthy. Well done for a 22-year-old. Yeah, I plan on enrolling into a top full-time two-year MBA program in 18 months. I expect to have around $100,000 in some form of student debt. I am struggling with what I should do financially to help out the most in the long run. Would it be worth selling my Robinon holdings for cash to reduce the amount?

I need to take out in student loans. Any advice on this topic would be greatly appreciated. So he knows that he's going to have a huge debt load coming. And he's doing pretty well financially. He wants to just get ahead of the game there. Yeah, by the way, I don't know if you could hear my baby screaming on the microphone. I know Ben can. So thank you, Ben, for sticking with me. And sorry if you could hear that in the background. There goes his 529 contribution for the month. Sorry, Logan. So selling out to basically take out the amount he needs, I guess a lot of it depends on what your loan percentages are going to be. One other way of like doing a simple rebalance here, if he's already saving $1,000 a month, he could, once he has those loans come do,

he could save a little bit less and use that to pay it off, I guess. I don't think you have to be in a huge hurry to sell yet. I'd wait to see what your loans are going to be and what your borrowing costs are going to be. Wait for the top before you sell. I mean, use some common sense. It's easy. Either way, it sounds like this person is doing pretty well financially. And if you get to this point where you're debating this, you're probably in a pretty good position, whatever route you choose. All right. Recommendations, Ben, what do you got? Hang on, I got to pull my notes here. Notes. Wow.

We watched Tenet this weekend, and you haven't seen it yet, correct? So while you're pulling up your notes, I love Christopher Nolan. I think many people do. Big, big fan of his movies. I don't have, like, the mental capacity right now to watch something like that. I just don't feel ready. Also, the reviews have not been good. Like, by all accounts, nobody understands what the hell happened, and I'll see it. I just didn't get to it on opening weekend. Here's my caveats. It was an ambitious movie.

I'm notoriously anti-marvel, anti-sequel. Like, I love it when someone does an original movie. I would much prefer to watch an original movie or something adapted from a book than like another Marvel universe thing. What was that movie that I told you that I watched this weekend? I asked if you saw it. Oh, safety not guaranteed. Like that, for example.

Yeah, I like that. Let me say some nice things before I say some potentially mean things. The action sequences are awesome. It was like a visually stunning movie, the great music. But this is like, if you, saw, like, a gorgeous model walking down the street, like a 10 out of 10. But then you talk to her. She has no personality and can't hold a conversation. That's what this movie was. It hurt my brain to watch because it was almost like too clever by half. And everyone keeps saying,

like, you need to watch it again to get the full, like once you get the aha. There was never really an aha moment. It was just like one of those movies that was like, we're smarter than you are and you'll never understand this. I have no desire to rewatch this movie again, even if now I know what happened. Maybe my expectations were way too high, but this was like the poor man's Inception? Or how about this? It was almost like a highbrow fast and furious because it was all action, but without the cheesy one-liners and stuff. Was it like Six Underground? Remember that movie on Netflix? That was great action. No, I mean, here's the thing. Denzel's son is the main character and like he is a good action star. He could take over like Mission Impossible

franchise for Tom Cruise. But if I'm watching a movie like that, I prefer Mission Impossible to this movie. When I got done watching Inception, I wanted to watch it again immediately. Now that happened, this one, my wife and I both said, even though we bought it because we had to, we were not watching that again. And I don't know if I'll ever watch it again. It was just the first two hours and 15 minutes of the movie, you're going, wait, what? And, oh, here's the other thing. You have to watch the movie with captions on. Wait, how long is the movie? The first two hours is 15 minutes? It's two and a half hours. But even at the end, you don't go, oh, you go, huh. I think I might be out. It's honestly, it made us mad afterwards. But you have to watch the closed captions on,

otherwise you can't really understand you're hearing. By the way. By the way, I watch everything on closed captions. I'm with you. I do too. This year alone, I've made the move all closed captions. Yeah, I've been there for a few years now. Not to brag. Maybe that's why Christopher Nolan is so mad at HBO because he knows he wasn't a good movie. Anyway, real quick, two thumbs up for my kids, recruits too. We watch this weekend. That's probably one of our kids' favorite ones. We watch that Nicholas Cage and Ryan Reynolds are in it and Emma Stone.

Netflix? No, we had to buy it on Amazon because it's an early release, so it was one of those early access. Kids liked it. Here's another one. Teacher on Hulu is a show. It's kind of bizarre because it's a story about a student teacher relationship, so it's uncomfortable in that respect, but for some reason, it's actually a pretty good show if you get over that uncomfortable feeling. It's like a 10-episode show. That's all I got. I mean, you might like

tenant better than me, but I think, honestly, not a good watch. I think, I mean, I'll watch it eventually. Who am I kidding? I told people, but if you're a movie fan, you kind of have to watch it. Yeah, I'll get there, just not today. We will be back on Friday with a, what? I got a recommendation. Oh, sorry. I still do you recommend. All right, sorry. Well, this is sort of cliche, but I was waiting The Mandalorian. I know you're not a big fan. I like the first season, but I also kind of agree that it was slightly overrated. I didn't love it. But I think season two, I'm about five episodes in, is so much better than season one. I should pick it up again? Oh, you saw the first season? I probably watched half of it and gave up for episodes, maybe not gave up. Whatever.

I mean, maybe it's not for you. I think season two is excellent. But it also made me think, like, I can't handle 10 Disney streaming things. There's just, there's no way. It's ridiculous. Too many. Right. I can see that. All right, Ben. Nice talking to you. See, that was short and sweet. We will be back. We have one episode on Friday, Saturday, whenever you get time. Joe Taranova is coming on from Vertus Financial. So Animal SpiritsPod at gmail.com, and we will talk to you then.