Animal Spirits Podcast - The False Breakdown (EP.24)

Episode Date: April 11, 2018

How to solve the financial literacy issue, the downfall of Bill Ackman & David Einhorn, how much money people think they need to retire, Drew Brees diversifying into diamonds & 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 Ritthold's wealth management may maintain positions in the securities

discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Quick update on the paper short Tesla trade. That was a false breakdown. My apologies, that breakdown was of the false variety. And it's now up 23% off the lows. And as my friend J.C. Peretz likes to say from false moves come fast moves. Okay, explain to this to me. Explain technical analysis to me. What are the candlesticks look like today. Let's not get into that right now. But I will be speaking at the CMT annual conference this week, which sounds like a joke in light of this. But I am actually going to be there with Josh on Friday. Look forward to see all the market technicians that could be in front of me for this week. They'll be waiting for you with pitchforks. Yeah. Anyhow,

so let's move on to some personal finance stuff. April is the National Literacy Finance Month. That doesn't make sense, but it's something like that. National Financial Literacy Months. Okay, there it is. That was a false breakdown on your, on your book. There was actually a story this week, and TIA CREF does survey every year. And I know that this is an anti-survey podcast, but we're going to use it anyway because I see these all the time. We're going to walk that one back just for this one.

Yes, exactly. And the next survey that we cover. So there's always these financial literacy surveys given, and they're very simple questions about compound interest and debt repayment. and the numbers are never good. And so there was one from TIA Kref and the Global Financial Literacy Excellence Center, which sounds like another Zoolander school or something for kids who can read really, really good. And they found that in the survey, adults could only answer about half of the 28 questions on personal finance. And it's simple questions like, if you had a dollar and gained 5%, how much do you have the next year?

And then how much do you have the year after that? Most people don't even know what a collateralized debt obligation is. Can you believe that? Unbelievable. And so the stuff that comes out from this stuff is, usually the fact that we need to teach financial literacy in all high school or college. And in some ways, I think that's true. But in some ways, I think that that probably doesn't solve the problem at all.

Because a lot of the studies show that simply teaching people financial literacy doesn't improve their financial lives at all. So what do you think the solution is here? It's tough. I don't really know what the solution is. But I think about the fact that, and I'm making this out, but like a third of people in this country think that the world is flat. Like, there's just a lot of dumb people out there.

And I'm reminded of the George Carlin quote, think about how stupid the average person is and realize half of them are stupider than that. A classic. So my line of thinking on this has changed. I thought for sure a few years ago that we need to just teach financial literacy to people. But how much of that stuff you learn in school

do you actually apply to real life? Probably not a lot. So there was a study in Yale in the 1960s that I thought was a good precursor to this. And they wanted to figure out a way to influence students to get more tennis shots because people were not doing it at the time. And they split it up into two groups. And one group was given all the knowledge about getting their shot.

And then they asked them afterwards, you know, you're going to get your shot. And, of course, everyone said yes. And in the end, only like 3% of them got the shot. And then the next group, they did the same exact lecture, but instead of asking them, are you going to get your shot? They gave them a map to show where to go get it. And at that time, it went up by like 10-fold, the number of people who did it. So simply, like, telling people what to do knowledge alone is never enough to, you know,

get the desired behavior. You have to actually give people a map. So I think that's part of it. people just need a simple system to follow, and they almost need a coach or someone to hold their hand to do it in a lot of ways. Thaler wrote all about this idea and his classic book, Nudge. Yes, which I think is a good model, that people need that sort of system in place to help them make good decisions and make it easier for them and not just, you know, here's a book

and go at it. They need systems and, yeah, they need to push in the right direction. There was another survey that we came across. I don't really know. It doesn't say the source of who answered these questions, but anyway, I think the idea is still valid. So people were asked how much money they think they will need to accumulate to live comfortably in retirement, and the answers are pretty startling.

36% of people think they can retire on less than $500,000. And for people that don't have a lot of money, $500,000 sounds like all the money in the world, and unfortunately, that's probably a goal that's too stretched for them to ever accomplish. But even if you were able to save $500,000 upon retirement, using the simple 4% rule, that's $20,000 a year, which is, you know, not a ton of money to live on. I'm ballparking. I'm assuming, I don't know, 60% of people are going to have to live on less than that. And the other interesting one was, so what was it, 37% said they need more than a million. And the stat that we found is that there's only one out of the 20 people in America is a millionaire. So 5% of the population.

So, you know, almost 40% of people think they're going to need more of the money. a million, but currently only 5% of the population in the U.S. is a millionaire. So that's just sort of a pipe dream line of thinking as well. Yeah, so moving from the layman to the Masters of the Universe, there's been a lot of news in the hedge fund world this last week. There was an article in the journal, Bill Ackman's Pershing Square faces waves of investor redemptions. Which is not surprising when you look at his numbers, which they had these on CNBC and I was kind of shocked. So in 2015, he lost over 20%. 2016, he lost almost 14%. And then he's down again, almost 9% in 2018 after losing

4% last year. So, I mean, it's mostly, I'm assuming, big institutional capital with him and family office money. But after three and a half, four years of not only losing on an absolute level, but on a relative level, too, you can't be surprised by this idea that people are fleeing. So even after this really poor period of performance, since 2015, 4 through 2017, Persian returned 494% after fees, more than double the S&P 500 returns over the same period. So if you've been with him since day one, you have done extraordinarily well. If you've been with him over the last three years, you've done really poor. Which is one of the reasons it's so hard to perform a manager of managers approach,

which is what I used to do in the endowment world, because you see this glorious track record and you think it's just, it sort of messes with your mind because you're waiting for that mean reversion to kick in, which doesn't really have to happen based on these masters of the universe. It could be that he never returns to those glory days, or this is just a bump in the road. In 10 years from now, we say, oh, my gosh, you should have been buying Ackman hand over fist. You just don't know. Yeah, I'm very excited to see where this goes, because you're right, like there's no reason to think that individual performance should mean revert, but this could be an extraordinary time to invest with him. I guess we'll find out. This reminds me of a study that

either Morningstar or Vanguard did than I referenced periodically. Over the last 15 years, called 15% of mutual funds have outperformed their benchmark, but 75% of them have underperformed for three straight years. And then, of course, at the time, you have no idea which of those are going to come back. But the point is, if you want outsized returns like investors have gotten with Ackman, you're going to have to expect this. Now, the problem is in real time, it's impossible to know whether this is a bump in the road and he recovers or if this is sort of the beginning of the end. And so the other one with Ackman, his kind of peer in terms of his age group that has

done really well, too, is David Einhorn has also run into problems. So he was down 14% in the first quarter after having a few years of poor returns on his own and basically anything he's invested and hasn't worked. His shorts are up bigger than his longs. And so he's just gotten demolished. And so they actually had a story about him in the Financial Times, kind of going over some of his struggles. But what's interesting to me about this one is the fact.

that Einhorn has been labeled a genius, and I think him and Ackman both have had magazine covers where they're called The Next Buffet, which doesn't look so great now. But the funny thing to me is that now that Einhorn has been such a hard time, his big performance came, and a lot of these hedge fund guys, big performance came in the early 2000s. They really did well at the tech bubble and then sort of riding that wave from the 2000 to 2002 bear market. But this article tries to sort of backtrack that out and say maybe he wasn't a genius because the majority of his gain in 1999 when he kept up with the market was from one spin-off stock. So it's kind of funny how the narrative shifts from, oh, this guy is a genius. He did the tech bubble fine and did well in the late

90s and then he turned around and invested in value stocks in the 2000s. And now the narrative is, oh, he was just lucky. So it's always somewhere in the middle probably, but it's crazy how some poor performance can change that narrative from the past even. Yeah. So this is from the FTA, two of the things that they pointed out that were pretty stunning to me anyway. He has 19% of the funds capital in General Motors. That's his largest long position, which was down 18% in the first quarter. And then he has what he calls a bubble basket that he's been shorting for the last two years almost. And there is Amazon and Tesla and Netflix. And boy, that's, that is tough. Yeah, he's been talking about it for a while. The funny thing to me is that this reminded me of

the fact that you probably a year ago wrote a post, and you tried to show some of the most successful hedge fund managers in history and match up their birth date with their performance, subsequent performance. And I think the last two in your chart were Acme and Ninehorn, correct? Yeah. Yeah. And it's kind of crazy to me that these are pretty much two of the last star managers that aren't in their, I don't know, 60s probably, and they both run into hard times. Like there really aren't that many star hedge fund managers anymore. It's all robots. Yeah, pretty much. It's the quant, I guess. I think the best hedge fund manager out there today is REM Capital.

Yeah, for a half hour every day. So kind of shifting away from some of these masters of the universe who may have gotten themselves into some trouble from being overconfident to the opposite side of things where people are maybe... Wait, I'm going to stop you. Oh, that's right. You had some more to go on here. Let's stay with this for just another second.

Okay. So there was a really good article in The New Yorker about Michael Novogratz and what he's doing with the crypto fund. and Gary Steingard, I think that's his name, the person that the author of the article wrote, it may help to think of hedge fund managers as an army of men, and they are mostly men, walking down the street with dustbusters, trying to suck up cash and assets from every nook and cranny in the universe. And that is like the typical thing that people think of when they think of hedge fund managers. And it's not fair to paint with such a broad brush, but there are

certainly people in the hedge fund industry that fit that bill. And there was another article in the New York Times this weekend about a story about a newspaper that was purchased out of bankruptcy by a hedge fund in 2010. And now the newspaper is revolting openly against the company because they're downsizing, they're cutting staff, they're trying to be profitable. And they wrote a piece and in it they called the owners of the newspaper vulture capitalists. So I just thought that was like an interesting thing that's going on. And I guess maybe it's sort of unfair to blame this entirely on the hedge fund that bought them because, after all, newspapers are having a really, really, really, really difficult time these days. But I just thought that was an interesting

article, nevertheless. That must have been a fun editorial meeting to decide we're going to write an article against our bosses. Yeah, well, I guess they had the mentality. Listen, we're getting fired. So why not try and do something to salvage this? And I think they plead for the current ownership group to sell to somebody else. All right, now, Ben, you were saying Well, you sent me this one, and it's a story from the Harvard Business Review, and it talks about how a little bit of knowledge can lead to huge overconfidence. And this is kind of the opposite side of the coin of the hedge fund managers who, I think, can become overconfident because they are so smart and brilliant, and they can probably get caught up in their own skills and their own ideas. And the other side of the equation is, you know, when someone just gets a little bit of learning, then they take that overconfidence and assume that they know everything. And so this was called research, learning a little bit about something makes us overconfident.

And I thought this is kind of interesting. So it says small bits of data, however, are often filled with noise and misleading signs. It usually takes a large amount of data to strip away the cast of the world to finally see the worthwhile signal. But the classic research has shown that people do not have a feel for this fact. They assume that every small sequence of data represents the world just as long as long sequences do. So people get a little bit of data and a little bit of knowledge and assume that they know everything that's going on. And I think that this is probably true a lot of people in the investment world, too, is when they first, start learning, they think they know everything and just kind of go with it.

I certainly experienced this when I first got into finance. But it is interesting that they said that true beginners will be the first to admit, I don't know anything, right? But it's like after you learn a little bit, you think that you have mastered the world. Yeah. And I think that this is true in a lot of fields, I'm sure. And so the behavioral explanation of this is called the Dunning-Cruber effect, which what? I'm laughing because I was actually just reminded, I don't think I've ever told you this, but I was short in Green Mountain Coffee in 2011, and I was looking at their multiples, maybe of cash flow or sales or whatever it was. And I was like, look how expensive this is compared to their peers. And I was using like just like the Yahoo Finance peer comparisons.

And this is, I guess, maybe like, I don't know, a year or two into like even figuring out what the stock market was. and I was so confident and I eventually covered it I didn't take a big loss but Green Mountain never went down got bought by Cook was one of like the best stocks ever so I can certainly relate to this

How many stacks do you think you shorted throughout your trading career? I don't know Amazon and Green Mountain stick out and maybe I probably shorted Netflix I can't remember what else Of course

I was more of an agricultural guy I was shorting like soybeans and stuff like that Okay Okay so and now you're thinking about putting that back on with the trade war talks. Okay, so the, back to this article, so this is the behavioral explanation behind this is called the Dunning-Cruber effect, which is where a lot of people just don't ask for help and they don't

admit to their mistakes and they sort of go through the decisions with complete certainty instead of, you know, saying, I don't know. So I wrote a post about this a few years ago called The Value of I Don't Know. And David Dunning, one of the guys, the researchers who this Dunning-Cruger is named after says, stumbling through all of our cognitive clutter just to recognize a true I don't know. know, may not constitute failure as much as it does in Envial success, a crucial signpost that shows we're traveling in the right direction towards truth. So it's hard for people who are just learning or people who know a lot of stuff to say they don't know. But I think that's kind of,

that should be the default for most people in a lot of situations. Yeah, there's a lot of really great cartoons that exhibit the Dunning Krueger effect. That's it. I'll follow it. I'll post it at the shot ats. All right. Good stuff. And so the other, the other I don't know thing, which is a good one, which for a transition here. So Morningstar's Ben Johnson. That was a good transition. Yeah, thank you very much. And now we are going to talk about the next topic.

Yeah, yeah. I can't put that on the spot. So Morningstar is Ben Johnson, who is a good follow on Twitter and has a good column with Morningstar. He posted the sector composition of the S&P 500 in 1989 versus the end of February to show much it's changed. The big changes here were technology was only 10% of the S&P 500 in 1989 and now it's over 25%. Consumer staples actually were almost 16% and now they're under 8%. And I think the big

takeaway here, financials were also another huge growth component. They went from like 7% to 15. What do you make of the staples declining, getting cut in half, their representation of the index? It's hard to say. I mean, part of it could just be the fact that they change the way that they define these things over time. And some of the company, I mean, what is Amazon, a consumer discretionary, consumer staples or tech company? So it could be harder to define these things. But I think the big takeaway for me is just the fact that the world is never static. So anytime you take these things, you know, take them a little bit of a grain of salt. And comparing them historically is kind of difficult because you just never know how things are going to change.

And assuming even that today, things are going to stay the way they are, is probably a misnomer. So I give a talk to some local CFA groups every once in a while. And one of the slides I use, I talk about how every time is different. So some of the stats I found that in 1957, the S&P 500 consisted of 425 industrial stuff. 60 utilities and 15 railroad stocks. So it wasn't even until like the late 80s that they added financials to the mix. So it's really hard to compare these things across eras, you know, let alone across different markets.

So I just think that it's just constantly evolving and changing. Yeah, this is definitely one of the difficulties with historical comparisons. Elroy Dimson was on a podcast last week with Meb for his 100th podcast, which was really terrific. And he told Meb that 80% of industries that existed in the beginning of the 20th century no longer exist, to your point. That's wow. Yeah, and he takes all his data back to 1900, and it's got something we've referenced

that before. So there's another one. Brian Hinman wrote this on Twitter. He found from a story, it says that fewer than one in five of the Fortune 500 largest firms in 1970 are still there. And the other one was more than six million firms in the U.S. were studied, and they found that basically a fraction of 1% survive over 40 years. So there's just constantly churning and changing in these businesses.

So any of the businesses that stay there for a long time are actually the outliers. And it's more that change and failure are actually the norm. Well, so maybe that's why investing over, like longevity is so hard in this business because there is so much change. And what worked after the dot-com bubble burst was value and the opposite is working today. Correct. Yes. And I think that those people who don't take it, you know, approach the markets with a little bit

of humility and understand that these things do change and what worked in the past won't always work going forward. I think that's a necessary state of mind to actually make it in the markets. So I guess you would say like these value investors like I know in particular really should stick to us knitting, but man, is it painful living through periods where growth is in vogue and value just isn't. It's really, really hard. Especially when trying to figure out money managers, I always say that the hardest thing to figure out is are we being disciplined and sticking with this strategy in a down period or is it just not going to work anymore? Yeah, and that's that, yeah, we, we talk about it all the time.

You literally cannot know the answer to that question. And that's what you get paid the big bucks for is making those decisions, but there's never, you never know. So speaking of the Dunning Cougar thing, there's a story going around this week that, that Drew Brees, the quarterback for the New Orleans Saints and his wife have filed suit against one of their financial advisors because over a period of 10 years or period of seven years, they've paid $9 million. They overpaid by $9 million for diamonds as a sort of devised. versifying strategy in their investments. So they bought an $8 million diamond ring and then I think a few other million dollars and the value of them is down 50 or 60% or something. So he's suing for the difference. I would love to know the origin of this. Like how did he, did he try and resell the diamonds? How did he even know that there was a loss? I don't know. Yeah, that's a good question

because I don't know how the diamond industry works, but supposedly there really isn't much of a secondary market for them. And this is, this is not a diamond pickers market. You got to index those. Yes. That's pretty good. I don't know. I mean, I think in a lot of ways, this is just something happens when you're wealthy. Like, you don't want boring investments in your portfolio. You want to own, you know, commercial real estate and you want to own a restaurant. This is especially true for professional sports athletes, I think. They don't want to just invest in simple, boring things. They're going to make the money over time. Wasn't there an article this week about Joe Smith, the former number one pick? Yeah. He made what happened.

Over $100 million, and now he's more or less broke, and he kind of said it was more his spending and lifestyle that did it to him, but I think it is interesting how many. I mean, it's like the lottery winner stuff that we talked about last week. The majority of them end up broke. And, but I think with the... He was in the league for 15 years. Like, Yeah. He made a lot of money. Yeah, it would have been nice if he would have put some of that in his 401K. So I saw a really good quote from an old article. Lazzup. Barini said, my issue with diversification beyond that, and he was referencing stocks and bonds, is that an incremental or arithmetic increase in the number of decisions you make leads to a

geometric increase in the degree of difficulty. I thought that was really, really well said. And this is something we've talked about in the past before. I think it definitely makes sense if you're that wealthy. If you want to like take five or 10 percent of your capital and you have that much money, you can still make a dent and do something. But just write that off as saying this is going to go to zero potentially. And if it doesn't, then that's great on the upside. But if you're going to go into these type of ventures and really go beyond the plain of vanilla stuff, you know, make it something that you can afford to lose and not put in such a huge amount. Someone on Twitter was saying that this would have been like Drew Brees

putting like 15% of his total earnings, not just like his total portfolio, his total earnings in the NFL into diamonds, which is just mad. I can't imagine. And especially since millennials are killing the diamond anyway, because they're not giving them out anymore, engagement rings. I mean, what is he thinking? Yeah, that was not a great decision. Speaking of Dimson, they shared a study in their world book. I forget what it's called exactly, but we'll share this in the show notes. They went back to 1900 to show how collectibles performed over time.

And jewelry is just not that great of an investment. You know what the best performers were actually? The top two collectibles, and they compared these two, they had wine, stamps, violins, art, books, jewelry, and cars. and the best two performers were actually wine and collectible cars. So Brieze should have probably put a wine cellar in his basement instead of buying diamonds. And the worst is books. Yes. Yes, but they pay the best compound interest and knowledge over time.

That's true. Ben Franklin did say that. The more you know. So there was a really good post this weekend by Oswath de Madaran talking about valuations and specifically in reference to the Fangstacks. I think he's going to have a follow-up post this week. And he said something that was really interesting. He said that stories hold together valuations, and I think we are seeing some of that right now with Facebook in particular really seeing multiple compression.

I don't know what to even think about these. So Swag had a piece in the Wall Street Journal about the tech stocks too. And someone asked Munger, I guess at a recent meeting a couple months ago, what do you think about the valuation of Amazon and Apple? And he just said, I don't know next question, which is kind of how I would proceed with this. I honestly, it's hard to tell. I look today because I made a comment on the tech stocks on Twitter and Amazon trades at 231 times earnings for the trillion 12 months. So how do you even begin to value something like that?

You're asking the wrong person. I shorted Amazon in 2011. Okay, but if it hits 250 PE, then you can short it. Yeah. And there are some legitimate causes for concern with how big these have become, I suppose. that the growth can't continue forever. But I just don't know how you get to the point where you say, are these things going to come crashing down?

And is it a Cisco case in the 90s where Cisco got so huge and then proceeded for the next 10 years to completely go down and lose money? Or is it Microsoft where they get so big and then they go nowhere for 10 years? Yeah. So I know that technical analysis is anathema to value investing. But why wouldn't you just use some sort of simple trend following rule to short these so-called bubble baskets? stocks. I would much rather short than when they're going down than when they're going up.

I mean, obviously. Or have some sort of rules in place for when you want to get out of them if they do get absolutely crushed. So anyway, he said that Facebook, Apple, Netflix, and Google added almost $1.7 trillion in market capitalization over the last five years, which was one-sixth the increase of the S&P 500. Put simply, if you were a large-cap U.S. portfolio manager and you held none of these stocks between 2013 and 2017, it would have been very, very difficult, if not impossible to beat the S&P 500, let alone if you were shorting these stocks like Einhorn has been doing. It has just been a brutal, brutal period for stock pickers that were not picking these four or five stocks. And the relative way of thinking about it is kind of interesting

because that's almost another way of thinking about shorting. So if one of these stocks makes up 3% of the index and you don't own it at all, you're effectively short 3% of that holding in a lot of ways on a relative basis if you're judging yourself against an index. And I think that's probably where a lot of value managers have had a hard time over the last 10 years is that not that they've been shorting these and some people have obviously, but it's the fact that they've been just not owning them at all on a relative basis. In Zweig's article, the other crazy part to me about Amazon, and speaking of, I mean, people talk a lot about valuations the investment world, but he said over the three years

ending December 31st, Amazon's a revenue is more than good. doubled to 48 billion. Over the next three years, the sales nearly doubled again to 89 billion. Then over the three years ending in December 2017, the revenues doubled again to 178 billion. So I guess that's the other side of the equation in terms of valuations and fundamentals. It's just, it's been so crazy. And how many times when people saw those doublings do they think, all right, it's over. That's it. Now is the time to short it like you did. Yeah, well, now that the Fed is pulling the way of the punch bowl, wait for the signal. Wait for the signal. So we got a bunch of emails after I spoke about Instagram potentially listening to me in a

bar. And some people said that they had a similar crazy experience that they were even like, you know, saying items on purpose to see if they would show up in their stream. And then we had another person to say that that's impossible, it's ridiculous, but you came across that interesting story in a book. One of my favorite books from the past few years is called The Power of Habit by Charles Duhigg. And it's kind of interesting how smart companies are really at getting to know and understand you. And so they, one of the things he found is that people at the tech researchers at Target

figure out a way to understand the buying habits of their patrons. And then they would send them coupons and discounts based on their buying habits. And one of the things they figured out was they came up with scoring system to figure out if a woman is pregnant based on her shopping habits. And a guy walks into Target to complain and he says, what are you doing sending my daughter, these coupons for baby clothes and diapers? My daughter's in high school.

She's not pregnant. This is ridiculous. Stop sending her these. You're trying to get her pregnant. And a week later, the manager called the guy back to say, hey, I just wanted to call and apologize again. I don't know what happened. This will never happen again.

The guy said, well, a little sheepishly, you know, actually I didn't really know what my daughter was getting into. She actually did tell us this week that she's pregnant and sorry for coming down there to complain. So this guy found out his daughter was pregnant because of her shopping patterns and send her these targeted coupons itself. So it's amazing how well these places can get to. know you based on your habits and your actions.

Yeah. So maybe it's the fact that maybe you get like the same IPA beer once a week and that's how Facebook figured out your, your Goose Island story? No, I'm not a beer drink here. Okay. That's true. So I wrote this a piece this week talking about the cost of college and whether it's worth it. And this is something we're going to visit, revisit in the future in terms of 529 saving

and how much it's going to cost for our kids, but we'll save that for another date. But one of the co-founders of Reddit, Alexis O'Hanian said, you know, and this is something that a lot of people in Silicon Valley are starting to say now, like, do kids really need to go to school? Is it really worth it? Shouldn't they just save that money and start a business and try to go out on their own right away? And I, my stance is sure that, I guess that kind of makes sense from the perspective of a rich entrepreneur, but how many 18-year-old kids can really start a business for themselves and can make that happen if they're not in Silicon Valley or something like that? So I think. I think it's a little disingenuous to say that to young people that they should just skip college altogether. Yeah, I thought your post was really, really good. There was some good data in there that I was not aware of. The average student loan debt per college graduate is just $17,000. Obviously, coming out of school with six-figure debt isn't a great idea, but those are the extreme cases that we hear about. That's certainly not the norm. And furthermore, just 7% of current borrowers have debt in excess of $100,000, which is obviously a ridiculous amount of

of money, but the people that are taking on that debt ostensibly are going to be in higher paying jobs, right? True. And a lot of them are graduate degree seekers, too. It's not just people coming out of, obviously there are cases where people borrow way too much in undergrad, but a lot of times, it's people that go to grad school. So obviously, anytime you see a chart about student loan debt, it's going up into the right, like the stock market.

But part of the reason is because more people are going to school. And obviously, student loan per person is higher than before. But when you look at the averages, it's not nearly as bad as people. make it out to be. Right. So that's the quantitative side. On the qualitative side, you said that meeting new people, living on your own and becoming more responsible for your own actions are all underrated aspects of the college experience. I cannot agree with you more. Like, you know, there's a lot of nuance here. It's not black and white, obviously, but the idea that you should not go to college and, you know, whatever, start a startup or disrupt whatever is, it's just,

you know, for an 18-year-old, that's just, that's tough. That's a toll order. And I heard from a few people saying, hey, I didn't go to school and I made it on my own and I'm happy that I did, which is great. It's not certainly not for everyone. And I think it's probably never been easier to do your own thing and start your own business. But if you can start your own business on the side as an 18 year old, go have fun for four years and do it in school where you can build up a network and build some relationships. And I probably should have mentioned this, but obviously you make a lot of friends in school too. I met my wife in college. So there's just a lot of ancillary benefits beyond the ROI of is it worth it?

it for the amount of tuition dollars I'm paying. So I spent Friday at the University of Pennsylvania. My brother goes there. And I haven't been to Philly in a long, long time, but I had a great time walking around the city. That campus is absolutely beautiful. And I was lucky enough to sit down with Jeremy Schwartz and West Gray. And I learned that I am not a good interview subject.

I did not particularly, I mean, it was fun, but I was a little bit uncomfortable talking about myself for an hour. It's sort of weird. Yeah, I'm kind of, I'm similar to that. It's, it's hard to do. Which shows for someone on the other side of the seat, it's kind of tough if you have that person who's not opening up or answering the questions. And you said you had 90 seconds of awkward silence at the end. At the end, Jeremy was like, what part of wisdom do you have for people? And I was like, I don't know, work hard. And then like, it was just Jeremy staring at me smiling. I was like, I don't get me out of here. But it was fun. It's not easy, but that's good.

Okay, any good recommendations for the week? So I found a new person on Twitter this week. Their name, their handle is Sports Talk Joe, and he's definitely a troll, but he's hilarious. He had this really long string of gifts about why LeBron is better than Jordan, and that Jordan was playing against a bunch of engineers and librarians, and how all the talk we hear about all LeBron couldn't play in the 90s is sort of bunk. and one of my favorite gifts was him driving against the baseline on DEVAC. And he goes, like, something like, look at Borat trying to guard him.

Ouch, that's pretty harsh. I would go against take the other side of this one. Obviously, there's better athletes these days, but things are more spaced out. And back in the days, you could just get hammered on defense by those guys. Like, the Knicks team that you probably followed in the 90s and the pistons. But his point was, his point was these guys couldn't hammer LeBron. Like, Bill M. Beer was like, was like 16. 10-215, and I'm making that up, but he was like a rail. Like LeBron would dunk on his head.

Yeah, that's probably fair, but... Like, Greg Oster Tag was like the enforcer on the Jazz, and that guy was such a bum. By the way, I'm a Pistons fan, so I take heart, I take exception to the Bill and Beer thing. He was pretty tough. I will say that. Although... Look at a picture. Look at a picture of him. Yes. Oh, I agree. But... He was definitely scum, but I don't know how tough he was. But anyway, I, uh, I do believe that Jordan was the goat. But I actually... went to, when I was with my brother, I took him to the Sixers' Caves game the other night. And I'd

probably been to a hundred Nick games in my life. And the best basketball game I've ever seen was in Philadelphia. Wow. Wow. That game was incredible. That's also because you're a Knicks fan. What does that mean? When's the last time they were relevant? Oh, got it. Yeah, true. It's been a while. Sorry. No, that's okay. But Ben Simmons blew me away. He's the real deal, huh? He is so dominant. He's like Jason Kidd, but like 6-10. And I don't even think, I think that if, like, him developing a shot could actually be a distraction. He's so good without it. Like, John Wald now is, like, trying to shoot a little bit, and I think it's sort of hurt his game. He doesn't even need a shot. That's a good. I guess, like, obviously, if he could, you know, get a 16-foot jump shot,

but I don't think he needs to stretch court. Anyway, he was just, he blew me away. All right, so there's a relatively new book out called Enlightenment Now by Stephen Pinker, and Bill Gates had recommended his earlier book. What is it? Angels or Devils of Our Past or something like that? The best nature of, I can't remember either. Something with Angels, but I read it. Anyway, I never, I didn't read that one, but this one is pretty good. I'm very much enjoying it. You finished the whole thing? No, no, I'm not even halfway done. But I, uh, I said I wasn't going to. I watched the Jersey Shore. How was it? I didn't. Did you watch it? No, I, I, I, I, I figured it. No, yeah, it's, it's exactly, it's exactly the same thing. And I was thinking about how we were talking about,

like the portrayal of hedge fund alpha guys earlier in the show, how it's like certainly a small slice of the industry, maybe not fair to paint with such a wide brush. I feel like that's like Italian people are so pissed like when they see Jersey Shore as a representation of that culture because obviously, you know, it does exist, but like it's really certainly doesn't give them a good look and it's not fair to paint with such a broad brush. By the way, the Pinker book was better angels of our nature and that was a good one too about how things aren't as bad as they seem to some people. Oh, and this one, Enlightenment Now, he quotes Morgan, which was pretty cool to say. Yeah, that's cool. So I got a couple podcast recommendations. I listened to the Mark

Zuckerberg interview with Ezra Klein at Vox, which I thought was pretty good. And part of me thinks Zuckerberg has it kind of figured out because he pretty much said, it's going to take years for Facebook to fix this stuff. And the other interesting point he had was, how do you police stuff that people have opinions on that they're just wrong? So it's not like they're trying to spread fake news, they just have factually incorrect opinions and they don't realize it. So how do you police that stuff, which is pretty much impossible? On the other hand, I feel like he's one of these techno-optimists who thinks that, or he thought at least that technology can only do good, and I think he's finally coming around to realize that's

not the case. So I think in some ways he's probably screwed because he has no idea what he's up against in terms of human nature. The other one, good one was Bill Bernstein sat down with Steve Chen at New Retirement, which is always worth to listen to talk about the markets in retirement and sort of put some common sense thoughts into the market.

A couple book recommendations for this week. I read Famous Financial Fiascoes by John Train and this is a book from like the 1980s. He wrote like the Money Masters which was sort of like a precursor to market wizards. Oh, okay. I was trying to figure out where he came from. That was really good.

And each chapter's on like five or six pages and it goes through some really interesting ones that starts off with like Charles Ponzi and the Ponzi scheme and it goes through some of history's great bubbles and one of the ones I'd never heard of was the Kuwait Stock Exchange in the 1980s just went bonkers and then came back down to Earth because people thought it would have a lot. Yeah, it went totally avocados.

So that was a good one. I actually had to find it used on Amazon because I don't think it's printed anymore. The other one, I saw a post on this this week on the investor blog, a novel investor, and he wrote a piece on why we don't learn from history, which is something I've written before. It's a book, it's just a self-published book, I believe, by a guy named B.H. Little Heart. Is that a stage name? I think it's Little, like, L-I-D-D-E-L, not little. It's not like an Indian chief name. And so it's called Why We Don't Learn from History,

and he uses war and war tactics as a reason for why we never seem to learn from history and how kind of it's a lot of good investing parallels here based on basically why human nature never changes. Very good. Yeah, I think that's all I got for the week. Send us an email, Animal SpiritsPod at gmail.com. Feel free to leave us a review on iTunes and we'll see you next week.