Animal Spirits Podcast - The Collaborative Podcast (EP.26)

Episode Date: April 25, 2018

Morgan Housel joins this week as guest host to discuss venture capital, annoying finance phrases, Disney vs. Netflix, Tesla, Jeff Bezos and much 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

Welcome to Animal Spirits, the podcast that takes a completely different look at markets and investing, hosted by Michael Batnick and Ben Carlson, two guys who study the markets as a passion and invest for all the right reasons. 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 Ritholds wealth management may maintain positions in the securities

discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. We are looking at a chart on the left-hand side. It says go passive versus active. And on the bottom, otherwise known as the X-axis, it says 25th to 75th percentile of returns. And it shows the variance of different asset classes. And this is David Swenson's advice. And it starts from U.S. bonds to U.S. equities to hedge funds to buyouts to venture. And the point of the chart, and that was very wordy, we'll include this in the show notes, is for bonds, you go passive, for equities, you go a little bit more active on the bottom, all the way in the bottom, you get to venture capital. So speaking of going active with venture capital, Morgan, what do you think of this chart? My first reaction

when I saw this was, shouldn't it be the opposite, actually? Like, if there's a huge dispersion in venture capital returns, where sun funds knock it out of the park and then a bunch of funds don't do that well. Isn't that when you want to index? Isn't that when you want to own as many firms as you can? But then I think more the point of this chart that I think Swanson was probably trying to make is a lot of those top firms, most of the top firms, and most of the gains in venture and private equity accrue to kind of the same firms year after year, cycle after cycle. And a lot of those firms, they won't let you invest in them no matter who you are. So it's one thing to say, oh, you should index. You should own every venture capital firm

out there to spread out to it to make sure that you're owning one of the winners. But the reality is you can't own most of the good companies. So Morgan, my experience with the venture in private equity worlds is that they all say that they're top quartile managers, which makes sense. Every single firm is top quartile. Wait, why is that an issue? Is that possible? Well, of course. But they all come up with their own metrics to show that, oh, well, if you adjust our IRAs, we're actually top core. I love Charlie Munger's quote, there's an iron rule that only 20% can be in the top. I love it. So the range of returns are so big in that space that you'd only want to invest in the top quartile.

And some would say like top decile. But the question is from your experience in venture, Morgan, what should these investors even be looking at to find those top quartile ones? I think we first have to take a step back and say who should be looking at venture funds. And I think the vast majority of individual investors or financial advisors who are listening right now is the answer is probably not them. I think it's a very specified base of investors who should be looking at venture. If you are an institution that structurally has either a perpetual time horizon, or at least in theory, at least, whether or not you're actually doing that day to day. And your assets are large enough that you can put three or five percent of your assets in venture and still be able to write large checks doing it, then it might make sense. But the vast majority of investors should not.

But I think when you're looking at it, I think if you're looking at a firm that doesn't have a track record, then I think it's more along the lines of how you would evaluate other investors. of just listening to their thesis, looking at their background of what else they've done and just trying to gain trust in someone. And I think if someone doesn't have a track record, it really is just kind of you're taking a bet on that person without much, without much data to go on.

And I think if you're looking at firms that truly do have a track record, it's important to measure their returns on some standardized way across all different firms. Because again, like we were just saying, every firm will come up with their own metrics of adjusted IRR to show you how good they are. So it's important when you're comparing firms,

not just look at what they, you know, what returns they've presented to the world, but actually really digging deep down into those returns. Ben, I'm sure that's something you had a lot of experience with at your previous job. Right. And that was the hardest part is, are you betting on the people or the process? Because especially with these firms, when you're investing in these funds, you know, you're betting on a lot of ways, but you have no idea what the holdings are going to be. And so it really is a process-driven thing. And especially in the venture world, the endowments that we would always talk to, they want to get into those ones that are pretty much impossible

to get into that have been so good for so long and it's yeah it's just a really tough space i think which kind of shows why there's such a wide dispersion between the top and bottom performers i have a question how is it process driven if it's it sounds like it's more like faith-based than anything i mean i think a lot of it is effectively faith-based but there are it's it's growing there's a growing crop and i think this is one of the most interesting things that's going on in venture right now that doesn't get a lot of attention because it's so nascent there are a growing number of firms because there's so much venture data out there that didn't exist 15 or 20 years ago, a number of firms are taking a more systematic approach to their portfolio

selection and effectively building models and then pouring as much data, as much deal flow as they can, into the models. Isn't there such a limited amount of data on these young companies that don't, they're just like an idea? It's not nearly what there would be for the individual companies. It's a completely different set of data where you're looking at the founders' background, the founders track record, what other investors are going in this and whatnot. And it's not nearly as precise as it would be in public markets, both because there's

historically just not as much data. and you're looking at completely different, and I think much softer metrics. But it's becoming less finger in the wind. Like, let's hope this works and cross our fingers. And it's starting to become more systematized than it was two or three years ago. I wonder if the public will ever have access to private markets. Isn't that an oxymor? Yeah, I guess so.

I mean, this can't be indexed. I mean, I'm sure there's going to be plenty of ETFs in the coming years that will be like private equity like returns or private equity like investments and I'm sure people would try to do the VC thing too eventually just to try to like you said Morgan in a quantitative way. Maybe it'll be microcaps stocks. Yeah, microcaps. Well, I mean, what's interesting too is that in the last couple years you had firms like Fidelity that started investing in Uber and some other big, you know, quote unquote startups. I think that's an interesting thing too. If you have if you have mom and pop investment firms like in mutual funds to start writing checks to private companies, it blurs a line between public and private in a way that makes sense

because there's so many huge mega companies like Uber and Lyft and Airbnb and Palantir that in any other era would have been would have been public companies. And just the fact that they're quote unquote private, I think there's still a lot of capital that mom and pop investors could have access to. So it sounds like you're talking about all the cash on the sidelines. A lot of cash on the sidelines, more buyers and sellers. So speaking of annoying finance phrases, let's talk about a few of our most favorite hated. I don't know what the correct terminology is

but there's a lot of things that you hear that just either don't make sense or rub you the wrong way a lot of things you hear pundits say or people write about or tweet about and the two that I chose and it's hard to really pick two because there's literally hundreds

one is Druck says as if Druck and Miller Stanley Drucker Miller is infallible and it's just the people who tend to say Drux says tend to be of the charlatan of the charlatan uh variety well that's true of anyone who quotes any hedge fund manager to if hedge fund manager is doing this then everyone else should do it to like it like it's really applicable true but i guess it's usually drug says it's never like tepper says

or or agman says or anything like that's always when you use druck it's like your boys of them like yeah it's like the nickname yeah right okay then the other one is we're in the whatever inning as if anybody could know which inning we're in right really what so one of my favorites is that's always in the headlines is jitters. I love how scientific of a phrase is. Why did market sell off today? Jitters is very precise. Jitters over X. Like scale of one to 10, one being totally calm, 10 like you're just paranoid. Where does jitters fall? Jitters has to be like a six probably because it's always... Jitters is about a six. It's the start. It's like the start of things. Investors are a little jittery. And my other favorite one is I've seen this movie before

and it ends badly. Right. Just based on the idea that every market cycle recession has played out exactly like the last one. Yes. And after the market crashes, you close things down and everyone goes home. So it just, it's over. And if you saw this movie, you knew how it ended, wouldn't you know, like, what the middle looks like, too? That's getting too technical. Yeah, this is not an M. Night Shyamelot movie. Morgan, what really tickles you? Yeah, one that's always driven me crazy is a phrase earnings misestimates. And we probably see this all the time. And my, my rebuttal is always, no, earnings don't miss estimates. Estimates miss earnings. The idea that the earnings did something wrong rather than the forecaster who was trying to predict the earnings.

And, like, you give the example of weather. Can you imagine if the weather forecaster, like, thought it was going to be sunny and it actually snowed and he said weather missed estimates. Like, no, you just bat at your job. It's okay. It's hard to predict. But don't blame the, don't blame the earnings. They didn't do anything wrong. And then one other that I've always seen was crazy, kind of in personal finance articles is when someone says, this person is debt free except for their mortgage. It's like, well, that's a big, that's a big asterisk right there. You're debt free except for the six figures of debt that you've piled on top of yourself. That pushed like tens of millions of consumers into financial hell during the Great Recession.

So, you know, I've always equated it like someone saying they're vegan except for steak dinners. Yeah, the S&P is up 20% this year, X all that down companies. Right, that's right. It's so easy. So now that we have Morgan here, I thought this would be a really fun topic to talk about. By the way, you haven't even said, so this is Morgan Howellsell of the Collaborative Fund, huge friend of the show. We didn't really do an intro at the beginning. I just snuck in here. Just wanted to hang out with you guys.

All right. So what if Tesla were a private company? There's so many like what ifs to think about here. But there was an article back in 2017 by Charlie Grant, who is a Tesla skeptic and he does a really good job breaking this down and reporting the news. So one of the things that he said that I think really gets at the crux of the argument and the dichotomy of opinions between finance and tech people. He wrote CEO Elon Musk is a visionary. but there is a fine line between setting aggressive goals and misleading shareholders. Have they misled shareholders? I mean, that's a pretty serious accusation.

So what he says is that... I mean, they've missed estimates. True. But it says that the estimates are like just impossible. So Tesla was making three model threes on average a day in the third quarter. Mr. Musk should have known in August when production guidance was reiterated that the company wasn't going to produce 1,500 model threes by the end of September. I think that's just Monday morning quarterbacks.

Backing. Like, could you have really known? Like, this is like, you can't imagine a more complicated process and trying to build a thousand cars a day on an assembly line that's almost entirely run by robots for a brand new car for a company that barely existed 10 years ago. I mean, I think there's a point where it's like if we, if you were reading a book about Ford from 1920 and you read that they had a big, a huge hiccup in their production line and their estimates, you know, fell by half because you're trying to figure out how to build a new Model T, you would say, oh, well, you know, of course, that's the natural path of being a company, but good for them. Like, they're going to figure it out and they're going to plow through

because you know how the story ends. But also, I think it's just, it's just easy to pick on Musk, I think. And I should say, I'm not, I don't own Tesla. I wouldn't even call myself a Tesla bull, but it's, it's probably easy to pick on Musk just because of his persona and his profile, then it would be any other company. This company has the widest range of outcomes that nothing that happens, but it will surprise me. I mean, it could be, it could take over the car industry in a few decades, or it could be gone and bankrupt, and I wouldn't be surprised either way. Yeah. Which is part of the reason that makes it so fascinating to me, because it is like the tech versus finance people. The tech people are so optimistic and think Musk is going to change the

world. And the finance people kind of think he's just this snake oil salesman who has been gotten lucky because people are offering him enough capital to keep things going. Yep. And so it's crazy to think, like, the different paths this could take are just enormous. So I don't know how you could ever even imagine about trying to, like, value this company. So I think that this is just totally personality driven between whether you're a believer or a skeptic, and we'll find out who's right or wrong. I guess I don't know which any we're in. This is the 14th inning. But Ben, I'd say to your point, that's a really good framework because I think in a big, to a large extent, public markets don't really know how to deal with a company like Tesla anymore.

Yes. Because, because quote unquote, startup companies that are really still trying to figure out what they're doing and burning billions of dollars in cash, those companies are staying private these days. Tesla is one of the few that went public, you know, several years ago. And I think public market investors are just much more used to proctor and gamble, slow and steady, fairly consistent earnings, consistent dividends. And then you get a company like Tesla that's, you know, their estimates are way off and they're burning billions of dollars and people to say, what the hell is this? I don't know what's going on here. but it's no different than Uber and Lyft and Airbnb that have, I think, in some cases, worse finances, but private market investors are totally used to it and expect it. So there's

less panic. Which, yeah, on the other end of that, it would be interesting. We're talking about Tesla being a private company. What if Uber was a public company? How much more flack would they be getting? Obviously, they've been in the news a lot. I mean, Uber, I mean, it's, obviously they're not directly comparable, but I think Uber's finances are worse than Tesla's. And they've gotten, they had so many other problems in the last year with their culture and whatnot that, I mean, it would be fascinating to see if Uber were a public company in the past year. It's hard to think that they wouldn't be down 50%. But more to the point, I think public markets just would not put up with them

burning several billion dollars a year like they do just on more or less acquiring companies. And they would be forced into a more profitable business path. And that's effectively why these companies stay private. It's just a totally different game once you get in the public markets these days. And that wasn't the case 20 years ago when there were a lot of IPOs of young companies in the 90s and public markets more or less knew how to deal with them and knew what to expect from them. My turn? Your turn.

So a few years ago, Tesla did a secondary and it shares like skyrocketed the next day. I wonder what would happen if Tesla had access to private markets. Like what would their investors be? It's hard to imagine their investors being less demanded because Tesla, even though the stock has done really nothing over the last three years, it went from like $4 billion up to whatever, $60 pretty quickly. Yeah. He's got to have a parachute somewhere, though, in terms of really. raising money from his rich friends or another company. I don't know. Someone will buy them. I mean, I just don't see this thing completely going away. No, it's hard to see it going away. It's just a

question, I think, whether the stock is worth 70% less, but they're not going to go away. Well, I mean, the valuation thing is just a ridiculous thing because obviously people are overpaying, maybe overpaying for hope. Are you ready to, are you ready to short it yet? Is that what you're trying to tell us? When the charts tell me to short it, oh, wait, didn't they already do that? Yes, and then it was a false breakout or something. You looked at the candlesticks, and I don't know what you were saying. It was so false. How do VCs look at charts?

They hold them upside down, grab a ruler. So in terms of like the optimist and the pessimist, so I read a book two weeks ago to sell as human by Daniel Pink and he quoted somebody. I forget who, but this is a really good way to think about like just the optimist versus pessimistic nature of humans. There are people who prefer to say yes and there are people who prefer to say no. Those who say yes are rewarded by the adventures they have and those who say no are rewarded by the safety they attain. And I don't think like there's a right or a wrong. It's just

people are different. Yeah. So some people, I say no a lot through like, you know, the promise of being the next, uh, the next forward. And some people say this guy is full of shit. What he did with Solar City was a complete scam. He's over promising. He's under delivery and he's just ripping off the shareholders. And to Morgan's point, I think this is one of the reasons why so many really good professional investors who have great track records have had such a hard time in this environment because it's much harder to make those decisions using a balance sheet or fundamentals or old school ways of valuing business. So our next topic here, that there's a great chart from Bespoke, which shows the market caps of Disney and Netflix. And it starts in 2009 and goes

through now. And Disney is kind of, it's gone up, but it's kind of, you know, peted along in the last few years, and Netflix has basically caught up to it. So now the market caps are the same. And I think this is kind of a similar story of people having a hard time understanding the old world versus the New World. Because Netflix has had a really high cape for the last 15 years, right? This chart is really remarkable. So five years ago, the market cap of Disney was $112 billion. Netflix was $10 billion.

And today they're basically neck and neck. Disney's 154, and Netflix is $145, depending on what it's doing right now. And just to talk about some of like the crude metrics, last year, Disney had $55 billion in sales, Netflix did 12. And in 2017, Disney made $9 billion. Netflix made $560 million. It's crazy. And they're worth the same amount.

They're worth the same amount. It's crazy. So this is why markets can be so confusing and so frustrated. And I know people who have been short Netflix at various points over the last decade, and they get so frustrated at looking at it. Because if you look at Netflix in any traditional metric evaluation, balance sheet, income statement, you're going to be tearing your hair out. I mean, beyond even just like the financials, just think about it.

How is Netflix worth as much as Disney? And I think an important point here is that some people listening right now, might say, you're right, it's clearly above, like, this is the kind of company that is short. Like, it makes no sense. It's crazy. But it's been crazy for 15 years now. It's been crazy for 20 years now whenever they went public. So this is like the perfect example of, well, I mean, obviously it's not a fair exact comparison because Netflix has grown like 40% a year and has been for the last decade. So it's invested. Like every single, every single metric that they that they try and go out to achieve, they beat. But to that point, I think so many people, you know, came up and

learned on the Buffett Graham style of investing that no matter how fast the company is growing, I think there's a crop of people that think no company is worth more than 15 times earnings. Well, so Netflix is a FOIP of 95. Why not? So we took my daughter to Disney early this year. I talked about it before. And I said at the time, we would have spent three times as much as we did to go there because it was such a great time.

And just thinking about that, all their brands they have. So they not only have the theme parks, but they have ESPN, which is not exactly dead yet. they have all the movies they have all the brands so i think if disney comes out with this sort of disney flicks i actually think that they can they have so many own so many movies and brands now um i actually think they can hold off netflix in some ways or at least be a good competitor to them i think i have a hard time seeing people having multiple video apps i think they're just going to pick whatever one is better and just have that i have a hard time seeing the world where everyone has netflix and the disney app and the and you know go down the list just like they don't want

Spotify and Amazon music. And they're like, just like, just give me one. I want to keep it simple. So two good stats from the most recent report. Netflix predicted that they would have 6.35 million new subscribers in the first quarter. They added 7.41. And of the 7.4, 5.4 came from outside the U.S., which is a huge opportunity. So let me ask you guys this.

Over the next five years, would you rather own Disney or Netflix? Netflix. Really? Yeah, yeah. I'll take the other side. I wouldn't be surprised either way, I suppose. because I think Netflix could have that first mover advantage where they just become so ingrained. They are the streaming brand that everyone goes to. So I agree with Morgan on that. But I think, I don't think it's over for Disney. Like, looking at the number of movies and different brands that they have with all those,

if this whole Avengers thing doesn't go away, Michael, you're the one who goes to all the superhero movies, right? I'm going. I can't wait. Civil War. Not Civil War. Whatever. The Infinity War is coming out on Friday and I will be there. See, I don't get it, but everyone else just loves those. So if that stuff keeps going and they can say, come, you know, you have to pay your seven or eight bucks a month or ten bucks a month to watch all the Disney movies. I could see that sort of resurrecting Disney in a lot of ways. So Morgan is a momentum investor and Ben, you are Seth Klarman. I think, I think I'm with you. I'd rather own, I'd rather own Disney. What does Druck think? I don't know. I'll, I'll, I'll be able to companies. So, I mean, if you look at like, there's a few charts going around of Netflix's

free cash flow and it doesn't look pretty. So all of the valuation metrics, You don't have to be Seth Klarman, a Warren Buffett or Ben Graham to look at this and just be like, it just doesn't make sense. But that's fine. Like, not everything has to make sense to you. I mean, there's so many things in investing that don't make a lot of sense. It's just like the idea that every company should be able to back into your discounted cash flow model just relies on the assumption that that's what other investors who are going to ultimately be price setters agree on. It's just not how markets work. I don't know, man. I think the market's getting this one wrong. I think that's one of the hardest parts about investing is, understand. understanding expectations because you can't quantify it. There's really no way to do it. Well, we spoke about this on a previous episode. There's no odds in investing, right? Like when you go to the horse race or if you can see the odds, yeah. You don't see the odds. Like, or if you want to bet on the Warriors, well, good luck. Everybody knows the Warriors are going to win. Yeah. So you're getting paid for that, but there's no, you can't see the odds. There's no expectations built into the price that are publicly available.

We should go into your green black quote. So this is exactly how market works. So Joel Greenblatt from Gotham was on a podcast with Barry. And he told a story about how he went to Harlem to explain to kids how markets work and they knew nothing about stocks or bonds or anything. So what he did was he brought a jar of jelly beans into the classroom and he had the kids write down how many beans they thought were in the jar. And the average guess was 1771, which is basically spot on. There was actually 1776 jars and beans in the jar.

But what he did was before he revealed what the average guess was, he went around the classroom one by one, and he asked the kids how many beans were in the jar. And this time, the average was 850, which is insane. And what happened was kids were influenced by other people's guesses, and he made the point that the second guess is a stock market. I mean, and that's exactly what we're talking about with something like Netflix and Disney. Like, you can, you can try to back everything into a model based off of balance sheets and income statements. And that's, and that's, that's not a bad way to invest. But you have companies like this where it's like, it's that, it's that second tier where you have people who are being influenced by other investors that's really driving

the story. So speaking of stocks that are disrupting fundamental analysis, Amazon had their shareholder letter, I guess, over the weekend. And my favorite quote was from Bezos, obviously, who was one that wrote it, said, one thing I love about customers is that they are divinely discontent. Their expectations are never static. They go up. It's human nature. I love it. I mean, just to make another point, I feel like reading Bezos's letters is going to be the new reading the Buffett letters. Like, it's so quotable and it's so enjoyable to read. But, yeah, I think that that's what's made. And it's hard to be that paranoid when you're so dominant.

Usually when you're so dominant, it's like, no, we know what's best. We're going to keep plowing ahead. When you read stuff like that, then you realize that, like, that's the ethos of Amazon is kind of being scared of your customer's wrath. That's what keeps them going. I also think that listening to Animal Spirits is the new going to Omaha. I think so. It's pretty close, right?

By the way, that Bezos quote is a perfect like summary of why things continue to get better in the world and no one's happy because it's all relative and people like the baseline constantly gets moved. And so even though we have all this great stuff now and things are getting better, no one really thinks that it is. Is it Bezos or Bezos? I say both. Okay, okay. That works. Depending on who I'm talking to. I have a good friend, Matt Copenhefer and his brother says Coppenhefer.

Their family just can't agree. All right. So one of the amazing data points from the shareholder letter, more than 140,000 small and mid-sized businesses surpassed $100,000 in sales on Amazon in 2017. I mean, that's a real business then. I have friends and family who do this and make their living selling stuff on Amazon. That's their defense against regulation when Congress comes after them, by the way, that they're going to say you're hurting these small and mid-sized businesses.

Yeah, you have hundreds of thousands of people that rely on it, man. So what do you got over the next five years, Amazon or. Walmart. Walmart. You're kidding. I'm just, I'm hedging my bet for my Netflix. Yeah, that's, this is like a pairs trade now. Yeah, you got, you have to Netflix and Walmart with Amazon and Amazon and Disney. Yeah, that's true. Oh, well, all right. So you got Netflix and Walmart versus Disney and Amazon. Yeah. Give me Disney and Amazon all day. Either way, I'm going to be subscribed to all of their streaming services because I watch so much TV. So I don't really care. I'll be watching whatever they put out either way. I, I have Netflix for video, but I use

Amazon for music. I'm going to go long, whichever won Michael Shorts. Oh, harsh but fair. All right. So there was an article in CNBC last week about Chris Bosch, who was a former NBA player. And it was kind of a nice, refreshing to hear his honesty. He's made hundreds of millions of dollars. And the headline was, you know, I've made millions, but I know nothing about money. So I think that a lot of people who have, who are wealthy, have a hard time admitting this. So what I wanted to ask you guys when I saw this was, how would you go about explaining the concept the money management to someone who is extremely wealthy but admits I have no idea what I'm doing with my money. You start with diamonds, physical diamonds. Really fancy offices. I mean, I think

at the simplest sense, like investing in money management is the intersection of greed, emotion, and fees. And I think if you think about it in those simplified terms, you know what you're looking for and you know what to avoid. And rather than thinking about it in terms of gurus and growth and looking for the best advice, I think just starting from a framework of what you're looking to avoid and what are the key drivers of the industry, not only in returns,

but the drivers of advice. I mean, that's probably how I would start off by explaining it to someone. I need to improve my communication skills because I'm not even sure where I would start. I would probably tell them to talk to Morgan. I think the biggest thing is is just getting rid of the people

who make promises to you and tell you that they're going to do all these great things for you and sort of try to sell you on how much principle they're going to save you and how much money they're going to make you and all that deals are going to get. So I think, like Morgan said, trying to avoid just the people who are charlatans and who are going to make promises that they can't possibly keep. I think that's part of it.

Just when things sound too good, usually they are. Yeah, you know what? And we spoke about this earlier, how much we loathe, like, casual investing advice. So rather than telling people what to do, you should index, you should pick 20 of your favorite companies, whatever, you know, people will do whatever they want to do. But I think that's probably a more effective tactic is to say avoid people making promises. Right. Avoid things that look too good to be true.

That's like, that's so easy to be suckered in when you don't know what you're, what you're doing, which, you know, he's admitting here. It's so easy to just hear the siren song of people making big promises about what they can do for you. I think the biggest red flag is trust me. Like just those two words. Totally. Trust me. I got this. Like I've probably said that.

a few times and like I've cringed when I said it. It's like, it's hard. I mean, because you're, you're admitting that the person does not trust you at that point. And like, it's just, and their gut instinct of not trusting you is probably right. Yeah, trust me, I got this is, um, those, that's dangerous. All right. So some tweets that we saw this week that we liked. Uh, so Colin Roche or Roche, I think it's Roche.

Sorry, Colin. Uh, tweeted, here's a fun game. Can you guess which funds is the active fund and which is the passive fund? and mystery fund one 12 to 30 components rebalances infrequently stocks picked by committee stocks picks are discretionary no specific second limitations and then mystery fund two hundreds of companies rebalances quarterly strict rules based stock picking criteria stocks picked by committee committee has discretion within pulse and the kicker is that mystery fund one is the Dow and mystery fund two is the S&P 500 I think there's a third kicker to this and that's the correlation between the two over time

is like in the 90s. It's like there's so many differences about the Dow and the S&P in terms of the number of holdings and the selections and whatnot. But if you actually compare the two over the time, there's no difference. I think over the last 20 years, like they are. There's like no difference whatsoever. And so I, you know, that's actually a phrase that I think kind of rubs me the wrong way is when astute finance people say, why are we paying attention to the Dow?

The Dow is meaningless. It's 30 industrial companies. We should be paying attention to the S&P. They're the same. Oh, Ben is a total Dow snob. Is that it? I'm talking about it. Ben Carlson here? Good. It's the people's index. I don't really care. I think the big thing here,

it's like we've had enough of these active versus passive debates, but I saw Josh speak at a CFA event a few months ago, and he said, because he put up a picture of one of the head committee guys of the S&P 500 and said, this is who's picking the stocks in this fund. It's not quantitatively based or anything. But he said it's systematic versus faith-based, and that's the way that things in the mutual fund and ETF business are heading. That if you can just, you know, that's the way to look at instead of active versus passive debate. So Eddie Elfinbine had a response to this. He said one of my favorite stats,

the Dow changed four stocks between 1939 and 1976. That's nuts. And that sort of ties into Bezos's line about divine discontent. Yeah. And there's another Bezos course about betting on things that never change. That's always what he thinks about what he's making investments in Amazon is what is not going to change over the next 10 years. And let's double down on that.

And then, Morgan, you had a really good tweet. That was interesting. When you use Twitter more, you get smarter, but less productive. Probably balances out. Yeah, I mean, I use Twitter way more than I want. I feel like it's turned into a legitimate addiction, more than, more than I'm comfortable with. I agree.

But I feel like it's probably made me, it's given me more information, it's given me more insight, but I'm way less productive than I would be, because I can't do, I can't do anything without checking Twitter within a 90-second space. There was a great, a great quote. I'm the same way. There was a great quote someone a few weeks ago. I have no idea who it was, but someone tweeted. tweeted, my favorite Saturday morning activity is curling up with a good book by the fire

and then aimlessly scrolling Twitter for three hours. That was Buffett. Yeah. So I tweeted, I tweeted a couple weeks ago that I'm probably 10% happier in life because I've just decided to completely get rid of cable news for my life, like as much as I can. And someone wrote back like, hey, why don't you delete Twitter to it? I'm like, whoa, whoa, whoa. Hey, take it easy now. Once in a while, I'll give myself a self-imposed Twitter lockout for literally, I'll literally you'd be like, okay, for the next hour. Like, not even a week. I'll be like the next hour.

And I'd say it lasts on average, about six minutes. So what I did was I deleted the app of my phone. Like, this is like six months ago. And then I was like, oh, wait a bit. I could just go on Twitter on the internet. So I was literally going to Twitter.com on my phone. And I just reinstalled the app last week. I said, ah, I give up.

I don't know if this is like actually a trend or if it's just a couple of people I know. But I feel like just in the last six months there have been more people discontent with their social media addictions. I love it. I love it and I hate it. It certainly does irk my wife from time to time. Oh, mine too, yeah. Okay, you want to go on some recommendations?

All right, so there is something of a cult-like relationship with this book, Shadow Divers, that I think probably started with Patrick O'Shaughnessy. And it is such a good book. And this guy, Robert Carson, has a new book out called Rocket Men. And it's about Apollo 8, which is the first time we went to the moon in 1968. And I guess he wrote it because that was 50 years ago. And there's so many amazing things in here Like similar to shadow divers

Which was about scuba diving That I knew nothing about Same with space in the moon I knew nothing about it And this guy is such an amazing storyteller I'm just gonna share one passage from it So he talks about this One of the three astronauts, Anders

I forget his first name But anyway Outside Anders window Any trace of sunlight had disappeared And as his eyes adapted To the intense darkness He began to see stars It seemed like a million of them

So many he couldn't even pick out constellations The site took his breath away He looked to his right through the wind up beside him hungry for more but suddenly there were no stars anymore all of them had gone dark there was just a giant black hole as if part of the universe had vanished the hair on the back of Anders neck stood up

and for a moment it felt as if his heart had stopped until he realized that he wasn't looking at a missing piece of the universe at all he was looking at the moon a few seconds after that Apollo 8 disappeared behind it this guy is just an incredible storyteller I feel like so many people think I'm crazy for saying this but I didn't

finish shadow divers I didn't all you're done get out it didn't connect with me. I didn't get it. I loved it. Um, and if you hated that, you're really going to hate this book. It is so good. I thought shadow divers could have been a movie even. So I felt, I felt the exact same way about this book as I'm reading. I'm like, this is, I mean, this is a movie. I feel so many people love shadow divers. I need to try it again. Try it again. Did you read it on a Kindle? Yeah. Paperback. Okay. All right. That's, that's probably my problem. Okay. And then also, uh, to sellus human, which I mentioned earlier by Daniel Pink was really,

really good. And an old book, old-ish, I think it was from the late 80s, innumeracy, mathematical literacy and its consequences by John Annalon Paulos. So he just puts so many things to perspective that you really never thought about. So for instance, he said, terrorists kidnapping and cyanide poisonings are given monumental coverage with the profiles of the distraught families. Yet the number of deaths due to smoking is roughly the equivalent of three fully loaded Jumbo jets crashing each and every day of the year. I mean, it's like Stalin's quote, one million deaths is a statistic. One death is a tragedy.

I've butchered that, but more or less. Yeah. The things that are like really vivid and make good stories are always going to get more attention than things that are less vivid. Yeah, enumeracy was great. And I also recommend tuning to the NBA playoffs.

It's been so good so far. So, Morgan, I think this one, if you haven't read it, I definitely recommend this one to you. So I just finished the book, Factfulness. Ten reasons we're wrong about the world and why things are better than you think. And this kind of gets to my point about how the world is progressing and no one really notices.

So this guy, Hans Rolling is his name. He's a researcher. And he goes around and he quizzes people about the state of the world. And so he found that over the last 20 years, a proportion of a global population living in extreme poverty has been cut in half. But the people that he polls around the world, only 10% of them know this. So he asks them, has global poverty gotten worse? Has it stayed the same or has it been cut in half? And only 10% of the people actually guess that it's been cut in half. And so some of the stats from this book I thought were interesting. So he said, 200 years ago, 85% of the world population lived in extreme poverty. And this one kind of blew my mind. By the year 1800, all the people who had been born up to that point, half of them had died during childhood. So half of all babies born up until 1800 had died during childhood. That's incredible. Yeah.

So he was saying the average lifespan now was 30 because half the people died when they were in childhood and half of them died between 50 and 70. This is a really good book just to sort of turn your mind around on the sort of negativity that pervades everything that we. read these days. That's interesting. I think to that point, though, I think for a lot of this stuff,

it's that stuff getting better happens so slow that you don't notice it, but something like a child dying or half of children dying is so in your face and unavoidable that that's what you're going to focus on, even when the gains are stronger and more powerful over time,

but if they're taking place over a 30-year period, no one's going to pay attention to it. In the Daniel Pink book, he referenced a study, somebody suggests like, what if newspapers were only published? that'd be 50 years. We, like,

obviously, not realistic, but just, just making the point that, like, to your point, do we still get Twitter? We still get Twitter. Okay. But like, like, what would be in the headlines?

It wouldn't be, it wouldn't be, you know, tragedies. I'm sure there would be a few of them, but it would be like, look at all the amazing things that humans have done. What would be the headlines

of the last 50 years? We would just talk about, well, I mean, there'd be a lot of bad things in there for just the last 50 years we'd talk about. They'd probably be all about Trump and then there would be like

the moon landing in the bottom. Yeah. So, so, Michael, we talked about this last week about the fact, like, what could cause the future to be better than we think? And his, he had a great quote in this book. He said there's five billion potential consumers out there who are just reaching maybe middle class status. And these people are going to want to buy things. So that's like the huge potential for the world in the coming decades is, is, that's priced in. Everyone, all right, everyone becoming a consumer.

Yeah, that's good. I buy it. All right. Any recommendations from you, Morgan? No, I didn't come prepared. But I know there's some more on the list here that I, that I'm, that I'm, familiar with and I endorse. Okay. I'd also say my wife and I finished The Marvelous Mrs. Maisel,

which I think was another recommendation from you, Michael, so I've just been following your TV recommendations lately. That's on Amazon Prime, one of the more unique shows I've seen in a while. That was about, uh, did you see that? I'm plus one on that. It's really good. It was really well done. Yeah, right? And if you just look, if you just read like the plot and you haven't watched it yet, you'll probably think like, ah, this looks kind of dumb, like, but it's so well done. The writing and the acting is so good in it. Yeah. And she, the star of the show is just amazing. She is so good.

So she was 28 years old in the 1950s. So it was sort of like watching like what our grandmothers were like at that point of time. That was the whole reason that my wife liked it is she just liked like the 1950s theme of it. It's a very, it's a very glamorized time period. Yeah. Well, it was the best decade for stocks. That was the whole point in the show. That's the basis of the show. All right. Is there, is there anything else from you, Ben? Do we have anything else for Morgan? No, that's it for me. I think our one recommendation can be come see Morgan in June at our EBI conference in Dana Point, California. June 24th to 26, tickets are available at theaters near you.

All right, thanks for listening. You can email us at Animal Spiritspod.g.com. We will see you next week.