Animal Spirits Podcast - The Future of Education (EP.154)

Episode Date: July 8, 2020

On this weeks show we discuss the two types of investing mistakes, hangovers and sunburns, when markets actually make sense, migration out of big cities, Tesla's unbelievable run, a world with no yield, the joys of indexing, options for college kids in the fall 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

Today's Animal Spirits is brought to you by our friends at Y Charts. One of my favorite features of Y Charts is the ability to drill down into an index. So it could be the Russell 2000 Small Caps. It could be some international index. This week, I looked at the individual holdings of the S&P 500, and I broke them out into 50 stock increments. And I looked at their median market cap, price to earnings, price to sales, price to cash flow, price to book, and then year-to-day returns. And we're going to talk about that on the show today. and it's kind of neat how you can drill down to these specific features and then look at them by

their measurables to figure out what is going on underlying in the index and what is really driving the index. So go to Y charts, tell them Animal Spirit sent you. We've had a ton of advisors reach out in recent weeks telling us that they like the fact that they could save 20% on their first subscription. So tell them Animal Spirit sent you to get 20% off. 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 Holtz 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 Ritt Holt's wealth management may maintain positions in the securities discussed in this podcast. So in my old age, there's two things that I'm having. a much harder time bouncing back from. And those are hangovers and sunburns. So this week I was out on the water quite a bit for the fourth.

And I got a little sunkissed one of the days. And the next day, I couldn't bounce back from a sunburn. Where did you get burned? Because I don't see it on your face. My whole stomach and chest, I must have missed some spots. And I had some red blotches that I just must have not reapplied because we were out for a while in the water. And it reminded me of this, one of my favorite analogies from Jason Zweig's book

your money and your brain. And he said that in investing, there are two basic kinds of mistakes. The first is instantaneous and infuriating. He said, you buy in the price tanks or you sell in the price soars. You instantly know you did something wrong and you immediately kick yourself. The second kind of mistake is not obvious at first. While you're lying in a towel at the beach, there's no single moment when you can look at your skin and see it turn from a healthy bronze glow to a neon red of a painful sunburn. A burn occurs so gradually that the transition is invisible. An investment mistake is often like a sunburn. It results from forgetfulness, carelessness, or creeping commitment to a choice that you may

never have been happy about in the first place. But after the fact, there's no mistaking it, and it can burn like hell and you're sorry you did it. So, again, there's two mistakes. One of them's fast, one of them's slow. Don't you think that because the markets are moving so fast this year, that first kind of mistake where you almost know instantly whether you're right or wrong, don't think that can have unintended consequences where you're not having the slow burn.

So a lot of these people who think they're either right or wrong because markets are moving so fast. They could be making more long-lasting mistakes because of it. What do you mean exactly? Well, I mean, obviously the market itself is a scorecard. And you know the score every day because of what happens. So right or wrong in the short term, that doesn't mean you're always long-term right. But I think that because things are moving so much faster than it, like the average bear market time to break even in the past that we looked at during the height of the crisis was like 24 months or something. Now we're almost, I think the S&P is 5% below all-time highs.

So stuff has been happening so fast that you just wonder if investors aren't having enough time to learn from their mistakes in front of this stuff and that it's going to be a case where people take the wrong lessons from this crisis. Is that possible? Well, using another Jason Zweig, oh, no, maybe this is Kahneman. I think people always learn, not always, people have a tendency to learn the wrong lessons from any sort of adverse experience in the market because they, learned the wrong lesson. They learn a lesson that is too specific. They learned that I shouldn't

trade tech stocks at 90 times valuations in the case of the 90s, the late 90s, instead of learning the lesson like, oh, I probably shouldn't day trade. So I think that this crisis is no different. Maybe the speed at which we're learning these lessons is happening quicker. I think that could be something to that. Are you surprised that we haven't had another, I don't know, seven or 10% correction at least? We did. A few days ago, was it two weeks ago. We had a six percent down day. How quickly we forget. Oh, okay. So that was a one-day correction. Yeah, that's true. And I think there was, hold on, let me just look. I'm pretty sure there was another 8% there along the way. So not quite 10%. Back in May, we had a three-day, I don't know, 7% or 8% drop,

maybe. Anyhow, yes, point taken. The volatility never really went away. What it did was the volatility shot back in the opposite direction. So instead of falling fast, now we're rising fast, I looked at the median absolute daily return for a 20-day rolling period, which is very specific and sort of data-inide, I guess. And we've been above 1% for, I think, 90 days or something along those lines. Sentiment trader had a pretty incredible stat. The S&P 500 fund or SPI has been up at least 0.5% for five straight days, which incredibly, that's tied for the longest streak since its inception. That can't be right. That's, I mean, it kind of makes sense, though.

Opside volatility like this doesn't happen very often where it's strung together like that. I'm going to take his data as good because he does excellent work. That is a shocking statistic. Five straight days is the longest ever since 93. Does that surprise you as much as it surprises me? I feel like that's not that impressive. I guess just the fact that I think on a daily basis, the market is down 45% of the time. So five in a row, that's like flipping five heads in a row, whatever, I guess.

and having it be above a certain threshold, that's probably a pretty low probability event. Hmm. My mind is blown. All right. Anyway, what were we saying? The reason that the market has been so resilient is not a secret anymore because it's the biggest companies. And I wanted to really drill down to see how this looked in the S&P 500. So they're technically 505 companies in the S&P 500 because some of them have different share classes. Not true. 505 stocks. There's only 500 companies. Semantics. Erroneous. Not semantics. Setting the market straight. All right. 505 share classes. How is that? sound. 505 stocks. And on Y charts, you can sort all these stocks by every sort of measure you can

think of. So you can look at market cap. You can look at returns over certain periods of time. You can look at all the different valuation metrics. And I wanted to break it down by size. And so I broke them down into 50 increments. So it would be the top 50, then 51 to 100 and 100 and 100 and 150 all the way down. So I broke these down by market cap and then PE ratio, price to sales, price the free cash flow, price to book, and then year to date returns. And I broke them into these. different segments going down. So there were 10 different segments, basically. So I broke these into deciles. And I expected to see the fact that obviously the bigger companies have outperformed. It was still, even though I expected this, it was a little shocking to see basically going from

top to bottom, biggest to smallest. The biggest companies obviously have the best returns, but they also have the highest valuations. And then you go down the lowest stock. So the top 50 had a median market cap of $200 billion, and their year-to-date returns on a median basis. And you have to use median for this stuff because averages could be all over the place. Median return was positive 2.4%. The median return for all S&P 500 companies, this is roughly six months into the year, is negative 11%. So obviously, the biggest companies are holding it up. And the top 50 stocks were the only ones that had a median positive return. But if you go on to the bottom 55 stocks in the S&P 500, they have a median return of negative 38.5% and a PE, a median PE of 14 versus 23 for the S&P. So it went right in a row of not only

do the biggest, to have the highest returns, they have the highest valuations. And it basically goes down right in a row. Do you think the market has ever worked so neatly like that where all of the things we've ever learned are prices, what you pay, value is what you get. And it shouldn't be that it's always like you get what you don't pay for. But this year, the most expensive stocks and the biggest stocks have the best performance. And usually investing is way more counterintuitive than that. It doesn't always work so neatly. And I think that's what makes this year so bizarre is that it's not counterintuitive. It's intuitive. So it's like, if you paid more, you got more. That's not how most people are taught that the markets have worked historically.

Well, so this is just a case of, as we've been talking about, a nauseam, mega cap growth. The biggest stocks are growing the quickest. And it's not just their share prices that's growing the quickest, although that certainly is the case. Their valuations are expanding, the growth in the business fundamentals are expanding. It's all working right now. Yeah, it's just, you're taught over the years that investing is very counterintuitive in what you think should happen doesn't always happen. But this is one of those cases where no, actually this year has been actually kind of intuitive and not counterintuitive. It's just, it's bizarre to see it play out this way. So this is kind of wild. Square, I just pulled these

companies randomly. Well, not so random. They all are in the same sort of theme. Square, Spotify, Shopify, Tesla, and Zoom. Tesla is now the biggest auto manufacturing the world by market cap. Those five companies are worth half a trillion dollars. Peloton and Slack are each worth another 17 billion. None of these companies are in the S&P 500. Now, one of the inclusionary screens is that these have to be American companies which Spotify or Shopify are not. But there was an article about Tesla maybe being added to the SP 500, which is kind of hilarious that they're talking about adding it now. Another inclusion that they have for meeting the index is they need to have a positive gap earnings over the last 12-month period and positive earnings in the most recent

quarter, which Tesla has not been able to do. Have there ever been more smart people wrong about a single stock than Tesla? Is that possible? It's up 235% this year. Over last month, it's up 60%. The last three months has up 170%. It could fall 50% from current levels and still be more than 60% above where it was when he said funding secured at $420 a share. What do you think is going on here? Is this shorts capitulation because this is one of the most heavily shorted stocks ever? I mean, you can't even explain it anymore, can you? I have no idea. So the short interest on Tesla is still, the last reading was as of June 15th. All right. So this has gone from a peak of, it looks like, almost 25% in May of last year.

Now it's 8%. 8% of shares are still outstanding so short. So obviously, though, if you stayed in this short, I don't know, you're the meme with those guys carrying the coffin. You've been that for like years. I just, it is wild to me that so many people were so sure about this thing and then it continues to rock and higher. Obviously, the explanation is always, well, it's detached from reality, but I don't What do you even say about it anymore?

I don't know. It's really something. So this is an interesting quote, an S&P spokesperson, said it to Barron's, quote, the committee can use its discretion when it makes sense, end quote. So we've got rules, but, you know. That just shows you. Index funds, I've always said, are nothing special. They still require decisions, but they're just, they're low turnover.

I don't know, what is it, four or five percent turnover a year. They're tax efficient. They're long term. They let their winners ride. There's nothing that special that can't be recreated. And they require a decision. So it's not perfect, obviously. I did get a rebuttal about the chart crime from last week. We solved the case. Someone ran the numbers for me, one of our listeners. And he says Shopify has a P.E of 10,000. Remember you wanted to know why the NASDAQ chart from last week. Shopify has a P.E. about 10,000, and that's a 5% weight. But there also are substantial positions with negative PEs. And so they basically said either the negative P.E ones were just ignored or they use the absolute values. So he said it's probably more of a case of not a chart crime, but it's just garbage in, garbage out.

So a data crime probably. So I feel vindicated. That's all I want to say. I was acquitted. So we are seeing a V-shaped recovery in some areas of the economic data. One of them is the purchase applications index, which is at a new high, new multi-year high, nowhere near the pre-GFC highs. But new highs, this is kind of incredible.

incredible. What do we make of this? I guess this has to be demographics more so than people just fleeing the cities, probably a combination of both. I do think this crisis has trends that were going to happen anyway. It's just sped them up. And this is one of them where people said, all right, if I was going to move in 12 or 18 months anyway, let's just do it now. And it is surprising that. So Bloomberg had a piece last week saying that Manhattan home sales fell the most on record. And median price of a completed deal fell 18% from your, earlier. And the purchases of co-ops and condos in Manhattan fell 54% from a year earlier. Wait, hold on. Hold on. Say that one more time. So the number of, say that one more time?

The purchases of co-ops and condos in Manhattan fell 54% from a year ago. So obviously, there's no demand in Manhattan. It's going the other way. People are leaving. And it was the biggest fall ever. Similar thing happening in California where their embrace of remote work and people probably moving out has led to one bedroom apartment rents have dropped 12 to 15% depending on where you're looking. One survey said 28% of people in the Bay Area who have the option to work from home plan to relocate out of the area and 27% said they'd leave the state. I think that the rush out is real. Again, and you're going to probably have young people filling that gap eventually, but maybe that fill of young people take some time as they try

to figure out what to do. But the real estate market has remained strong. And I think it makes a lot of sense, actually, that people, this is the impetus for people to say, all right, let's do this. If we're going to do it anyway, we're doing it now. Yeah, I think it doesn't make sense. So the JP Morgan guide to the markets is, I think they put it on monthly and out. It used to be quarterly. They have some new charts in here that I think are helpful. And one of them is they show the S&P 500 earnings growth estimates as of. 1231, 2019, and as of 630, 2020, and my new joke is, we make plans and COVID laughs because they showed, this is pretty wild, year-year change estimates for energy were the

highest going into the year at 20%. As of the halfway through the year, it's down 105% for earnings. Other places like tech were actually supposed to be up 10% as only one. I mean, some of these obviously the biggest hit ones are consumer discretionary, falling 57% and industrial's falling 49% financial 36%. They were all positive. And now out of the 11 categories or whatever, obviously eight of them are negative. So speaking of energy, Berkshire just did something with their cash pile. What is it? 130, 140 billion dollars. They spent $4 billion to buy the natural grass transmission and storage assets of dominion energy. There's another $6 billion in debt. So it's a $10 billion deal. This is a good stat.

With the purchase, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States up from 8% currently. So Buffett is basically turning his company into utility. Still not the blockbuster dealer hoping from him, huh? Why can't he step in and just buy 10,000 restaurants or something and helps the people out? Does he really need all that cash? I don't know. I was kind of hoping for a bigger one. This is one that shocked me the most from the JP Morgan stuff.

They did a breakdown of developed market government bond yields. And I guess it makes sense. but they eyeball and they have it yield on the one side and then the percentage of bonds for government bonds under that. I like this chart. So they show roughly 90% of all developed market government bond yields are below 1% at the moment. So call it 10% above 1%.

I spoke to soon. I was talking about the next chart. The cash cap returns. I'm sorry. Proceed. This has been the case in a lot of European countries for a while now in Japan, obviously since the 90s, which we've talked about in the past. And then they show cash account returns. So interest you could earn on a savings account. This is

on a hundred thousand dollars. So even back in on an annual basis, this back in 2006, you could have earned $4,500 a year. Even at the turn of the century, you could earn $6,000 a year. So obviously that's 6%. Now you can earn about $280 a year in a savings account for an income, which is nothing. So again, just a completely yield deprived world. And there are just so many consequences from this in terms of retirees having to live with risk if they're going to earn any money. You can't just move to the beach and live on the interest anymore. I mean, investable assets have to go somewhere. And sitting in a yield earning nothing for a lot of people is just not going to cut it.

I think this is why valuations, I think any historical mean reversion and valuations, I think you can completely throw out the window at this moment. If you say, since 1871, 15 has been the P.E., like, interest rates have never been this low. There's never been this many people involved and invested in the markets. In the Great Depression, there was 1% of the population invested. By the time that was over, basically no one owned stocks. By the time the Great Depression was over, I don't know, it's probably a rounding error. Now it's concentrated in the hands of few, but it's still 50% of Americans are involved in the stock market.

That money has to go somewhere. And bonds, even though they provide a hedge, just don't provide anything else. at the moment. So money has to go somewhere. This is the seeds of a lot of the anger is that these interest rates are distorting market prices and creating asset bubbles. Yes, which again, I think leads to way more macro inefficiency where we could probably see more mini booms and busts. So I think people are always expecting the next big one. I think we're going to have a lot of small ones instead where we're going to have just huge spikes in volatility where we get a bunch of, I don't know, people are always expecting a 50 to 60% drop. Maybe we get just more 20 to 30% ones that are over

a little quicker and they just scare us like it happened this year. So this next chart, which is one that they've showed in the past. It shows, again, as Ben said, the income earned on $100,000 in a savings account. But what they did this time was they show the income needed to beat inflation. We're not there, of course. And then it shows the income needed to beat education inflation and the income needed to beat medical care inflation. And that's not pretty. Right. They show the current levels, and it says you would need to basically earn 5% to get healthcare, and obviously we're nowhere near that. So that's showing $5,000 a year almost in health care costs going up, which this is not going to cover. But do you really think if the Fed waved a magic wand and said

short-term interest rates are 4%, would that really make life better for people? Would that make life easier? Because obviously, there would be a commensurate rise in borrowing rates as well with that. So do you think that the gains from saving would offset the losses from borrowing? Because obviously, there's another side of this where people's borrowing rates are lower than they've ever been. People that have good credit scores. Absolutely. True. But even people with bad credit scores are getting much better deals than they had in the past if they can get access to financing. But the thing is this disproportionately affects people that have the ability to borrow large sums of money. This all ties into the inequality thing. I don't know. It's hard to play revisionist history.

What if rates were 4% and instead of the market doing 15% the last 10 years, it did 7%. What people would be happier? People like to gripe. That's the point. If you've been in the stock market and if you had a balanced portfolio, yes, you've lost out on some bond returns and savings account returns, but you've more than made up for it in the stock market. And for most people, their home is their biggest asset.

But again, who owns stocks? Yeah, it's disproportionately the biggest. But again, 50% of Americans are involved in the stock market. True. In some way. That's why the home is the biggest asset for the majority of the middle class. So if they're able to finance or refinance at lower rates, that's going to give them a bigger bank for their buck, too, if they're able to borrow for less. Again, assuming that they are

able to go through the process and get some financing. So the Chinese stock market is going bonkers again. It was up, I don't know, 6% yesterday. Here's a stat for you. The MSCI China ETF, which is a I share's product, is up 14 or 15% year to date. I think the drawdown was only 20% this year, which is pretty wild. So through mid-March, The drawdown in that, I think it's MCHI. The Shanghai I Composite is at the highest level since, I think, early 2018. And there was a weird, funny headline yesterday about how they were trying to figure out why the Chinese market was up so much. And there was like some weird hidden language, not hidden, but in a news journal, something about how the state wants to be more aggressive having a bull market.

Didn't they do that a few years ago? Yeah, we had a big bubble in, I think, 2015. And isn't it possible that can't China just say we want a bull market and it happens? Can they basically do that? I mean, why not? They basically told people yesterday buy stocks and the stock market was up 6%. Okay. So then, I mean, if it was that easy. So the Chinese market had a, I don't say a bubble. It went vertical and crash in 2015. If they can cause it to go up, then they should be able to prevent it from going down and they can't do that. Here's the deal. I think it's easier to cause a bull market than prevent a bear market. How does that sound? Oh, 100%. Yeah, totally.

So that's what I think they can do. Okay, hedge fund investor, greatest trade ever, extraordinaire John Paulson last week announced he's going to shut his hedge fund down to spend more time with his management fees. Hey-oh. Is this the biggest one-hit wonder in the history of the markets, right? And it's not even close. So before he had that giant trade, he was structured credit? What was it? Or some merger arb. I think he had like a two or three billion dollar fund and Gregory Zuckerman wrote the book on that called The Greatest Trade of All All Time. The Greatest Trade Ever. Oh, sorry, the greatest trade ever. Yeah, it was very good. And honestly, you read it and you come away with a lot of respect for him because he could have

taken his profits three or four times in that subprime train. It didn't. He kept pressing it and pressing it and made it bigger and made billions of dollars. But ever since then, I saw him speak an endowment conference a number of years ago. And I mean, people were just throwing money at this guy because they thought he could do it again. And obviously, he got to $20 billion. Did he scale the $20 billion or more? It was like $40 billion. He cashed in big time. And honestly, if people are throwing money at you, can you really blame the guy? But he obviously never did it. And I think most of the money he ran was his own at that. But I think when you have something like that happened, it just totally distorts any probably sense of reality and risk management or

what. And he just hasn't been able to recreate the magic. I wrote about him in my book, Once you have a trade like that and you could count on one hand the number of people that have made a trade like that, that's like the Soros, Drucker Miller, Sterling trade, where you just turn $1 into $1,500, nothing else that you do is ever going to move the needle because you're never going to strike lightning like that again. So I don't feel bad for him. No, but I don't think anybody does. but I'm sympathetic to the fact that it must be really hard to, just purely from a money

management standpoint, it must be really hard to not try to recreate the magic, to try to just go from the biggest grand sign of all time to, yeah, I'll just do a couple of buntz. He did this thing in 2011 at the height of the gold market where he tried to do share classes denominated in gold. He really tried to go for it with some of these things. Obviously, it didn't pan out. But I think greatest one-hit wonder of all time in the finance markets. easily. All right. So this week, Robinette said he sees a lost decade for the 60-40 portfolio. Pretty sure he's been pounding that drum for a few years now. But there was another headline. Financial analyst Gary Schilling says the stock market could see in 1930s like decline.

A bit of a headline reality mismatched there. He did say that stocks could plunge between 30 and 40% of the next year. But the quote was, I think we've got a second leg down. And that's very much reminiscent of what happened in the 1930s where people appreciate the depth of this recession and the disruption and how long it's going to take to recover. So when you see in 1930s like decline, obviously you think 90% decline. He didn't exactly say that. But Christine Benz was out with a tweet that I thought was well said. I'm not saying a 6040 portfolio is the be all end all. One size can't possibly fit everyone. But anytime I see people asserting that 6040 is dead, it seems like a good reason to hang onto your wallet, expensive merchandise and their

accomplished strategies coming right up. And the thing about this is that if you think a 6040 portfolio is dead. Basically, what you're saying is bonds are not going to return much, which is very fair. And stock returns are not going to be as high as they were in the recent past. Also, very fair. I just wrote about this. I agree with that. However, there's this other idea that there's an alternative to the 6040 portfolio. And if you think stocks are going to do bad and bonds are going to do bad, then good luck trading bad stocks. This idea that you can trade more or overcomplicate things and do well in a lousy market environment is really a fool's errand. And saying the 60-40 portfolio is dead is basically like saying diversification is dead.

And diversification is never going to die. It's just people's expectations have to be ratcheted down. And I agree. If you're trying to sell something that's more complicated that's going to fix that, it's not either, it's simple. You either take more risk and live to accept that and live with the volatility or you take less risk and you increase your savings rate or you decrease your spending. I think those are the options. It's not something people want to hear, but that's what it is. So Morgan Housel had a post basically how nothing is forever. And there was this really great chart that he pulled up how old a business was when it died and the likelihood of a business dying, basically. And he showed from a company that's 10 years old to a company that's

25 years old. And I guess it's easy to assume, oh, this company's been around. They're in the clear, I guess. Just not the case. The likelihood of you dying is pretty equally distributed, whether you're a 10-year-old company, 20-year-old, 25-year-old. So it's basically roughly 5% of all firms, no matter how old they are, have a chance of going out of business, which is interesting. So there was another one from Morgan Stanley that showed this was interesting. This was basically the weighting of the S&P 500 bicyclicals, which is financials, industrials, materials and energy in growth stability and defense, which is tech communications, healthcare, consumer staples, discretionary utilities, and reeds. And it shows that the more growth-oriented firms

now make up about 80% of the S&P, where cyclicals make up around 20%. And the cyclicals are the lowest they've been ever, it looks like, going back to 1926. In the 20s to 60s, cyclicals were 60% and it was 40%. And then even by the 1980s, it was basically 50-50. Doesn't this chart a lot? alone render so many comparisons of the past just completely useless. Not even withstanding interest rates, but look at this alone. Yes. And my point is this is one of the joys of investing in index fund. You didn't have to call this in advance to ride this wave. You didn't have to look at the companies or the sectors. The index funds just did this for you. And the same thing with Morgan's chart about companies going out of business. The ones that go out of business, they slowly fall by the

wayside and you never hear from again. But the biggest ones that rise to the top, you're there for that wave. Not saying that that's perfect. And people always say that market cap waiting is imperfect. And of course, it is like every investment strategy. But it saves you so much time and effort from trying to get these trends right. This is why I think, even though it's not the quant version, that the S&P 500 is really a winner take all momentum strategy that you don't have to bet, that you don't have to figure out in advance for yourself. And it works very well when the market is going up. Yes, as usual. So Uber this week announced that they are buying post Mates, which is a food delivery company, I still don't get what the name Postmates means,

like what the connotation is there. I don't know why that's named that. So they're going to buy them for $2.7 billion. They talked about buying Grubhub before, but some European delivery company bought them for $7.3 billion. We've talked about this before, how these are kind of crappy businesses, and they're still obviously getting a lot of money because their revenue is going up. But isn't someone going to make this work eventually? Here's what I don't get. Why does something like pizza delivery work, but these restaurant delivery services continue to lose money. Why is that the case? How can a pizza delivery firm like Domino's or Pizza Hut or whoever have their fleet of drivers, but everyone else has to outsource to someone else?

I think probably because I would love to hear people that know the space, correct us if we're wrong, which you probably are. The pizza places employ these drivers and maybe they take a portion of the wages off the consumer shoulders. Whereas if you're using DoorDash or whatever, DoorDash is taking money from the business. They're taking money from the person buying. And they still can't make it work. But DoorDash is charging them a fee. Why aren't these restaurants just hiring their own fleet of drivers then if everything's going to go take out and delivery for now on? Well, maybe they will. But here's another reason. When you're doing pizza delivery, you can make four drops at once. If you're doing DoorDash, the driver has to go to the pizza place, then to the

person's house. Then they have to go to the Chinese place and then to the person's house. And then they have to go pick up Mexican and go to the person's house. So in the same story, they said Uber posted a... How do you crack that nut? Yeah, that's true. And keep the food fresh and warm. That's a good point. So they said Uber posted a $2.9 billion loss in the first three months of the year and laid a bunch of people off.

But Postmates is probably losing money too. So are they going to make it up on volume? Synergies. I don't know. Eventually, I guess someone will figure this out where they should. And if not, they just probably wasted a bunch of money. You know, it's a prediction that has not come true yet. Thank God.

So the unemployment rate is now down to 11%. remember 25% was 30% at one point. Even the Fed was saying that's possible. Yeah. I guess we've dodged a bullet short term. Isn't it possible people keep using this detached from reality thing? Maybe the stock market did know something because we've had, I don't know, five million jobs added back in the last couple of months. Isn't it possible that you can give the stock market a little more credit than people have given it, that it knew some decently better news was coming? Well, it knew that the Fed was going to buy 500 billion dollars worth of ETFs. Okay. So $500 billion, did those ETF purchases put people back to work then? Is that what happened? I don't know, man. I don't know. Don't you think that that thing will just look at, I mean, obviously it was a psychological thing, but it just didn't do anything and the Fed was just pushing paper on for no reason? I don't know. We will debate this forever and ever. We got an email this morning. I live in New York City and I'm vacationing in Miami. In the Northeast, we are actually careful. Here almost nobody cares. People regularly walk around with no masks, go to restaurants, house parties.

in many ways act like nothing has changed. Being quarantined in New York City, I had no sense of how this is going on and how these people react to the crisis until I came down here. Say what you want about irresponsible Floridians. I think this is an important data point that human nature and can help inform us of how people behave coming out of the crisis. So this person is just saying that people forget quickly and go back to work. And maybe that's a commentary on our sense of, I don't know, freedom, entitlement, call it

whatever you want. I don't know. But this is just, I'm having a tough time. right now with like the mask thing that it's gotten so so political that if you wear a mask you're like a lib tart or something it's embarrassing it's so embarrassing i heard this morning that the average age for new covid people is 15 years younger than it was a few months ago so now it's spreading to young people and just the fact that people refuse to wear masks because they think that it's a political statement.

Here's the thing. People wanted to get stuff open. I think in the summer we're almost on a reprieve because the kids are now at home and there's not much to do and people want to break. I feel like reality is going to hit in the fall. If this first wave never goes away and it continues to skyrocket and we can't have our kids go back to school, that's going to cause a lot of dysfunction in a lot of people's lives. Is it going to take that for a wake-up call? Because, I mean, at this point, school is definitely in jeopardy.

So Harvard yesterday said... Just one more thought, and we'll get to this Harvard stuff. I was listening to Conan and Tom Hanks this morning, which was amazing. Did you listen to that? Not yet. So they were talking about World War II, and my grandfather fought in Africa. A lot of people, listeners have grandparents that fought in the war. And so you think, like, oh, my grandfather fought in the war, and then my dad's grandfather

probably came here to escape, and I don't mean my dad specifically, but our parents, grandparents came here to escape religious persecution, or whatever, whatever our grandkids going to say. Like, obviously, I'm joking, but, oh, my grandparents wore a mask for six weeks. Right. This is the littlest sacrifice imaginable. Right. Nobody's taking away your freedom by asking you not to get people sick. One of my grandfathers was 17 years old and lied about his age so he could take part in the war.

Previous generations have actually sacrificed. This, for a lot of people wearing a mask, guess what, that's not a sacrifice. That's just not being a jerk to other people. is bizarre to me, and it's kind of embarrassing. Let me just say one less thing before we get to the college stuff. So I was listening to The Daily this morning, and this is really incredible. So there was some sort of survey where the gist was they asked how to deal with protesters that go too far, and one is to crack down hard, police, military, whatever, and the other

is to get to the root of the issue. And people are in favor of the latter, meaning getting to the root of the issue by a 40% margin. And so obviously the Trump team is taking the other side. They're going after the protesters. And one of the reasons why, allegedly, is they think that people lie on racial surveys. So maybe they've been listening to the podcast. All right. So not to get too far on this rabbit hole, but the partisan thing.

So my daughter, Libby, is six. And it's always been a big thing in our family to play card games, especially in the summer. We love playing games, and that gene has been passed on to her. And her favorite game this summer is Uno. And we were up north this weekend, and we forgot to bring her Uno game. And she loves to play it every night. And so we went out to the store to get it. We had her grandparents go get it at Walmart for us, and they didn't have any regular

Unos. The only Uno they had, and I did not know this existed. It's called Non-Partisan Uno. And there's a card that says, no politics with a red circle and a line. through it and they don't allow the colors red and blue in Uno because those are Democrat and Republicans. Oh, come on. So you're supposed to take this out when you have family members who would just like to talk about politics and say, sorry, guys, it's time for Uno, no politics involved. As if people were talking about politics while playing Uno in the past. Anyway,

that was kind of a sad thing that that actually has to exist. And it was purple instead of Red and blue. No, you can't be on. Yeah. All right. So, let's get back to the school thing. So Darren Ravello initially said Harvard announces all course instruction will be taught online for the 2020 and 2021 academic year. Tuition remains the same. Harvard later refuted that and said they think up to 40% of undergraduates will come to campus for the fall, including all first year students. And it honestly makes sense to me that they would want all first year students because otherwise it would be way easier to drop out if you're just taking online classes at home. They also said they're going to address gaps in students' home learning environments and identify those who need to return to campus to continue to progress academically. Students are going to be able to move out before Thanksgiving and do any exam periods and stuff from home. But here's what they're going to do.

So students living on campus will be required to sign a community compact agreement to new health measures, which include mandatory video training, daily symptom at a station, viral testing every three days, which is going to cost them millions, I'm guessing. participation in contact tracing in standard safety policy practices such as wearing masks and physical distancing. Students who test positive will be isolated for and cared by medical professionals at Harvard University Health Services, which is preparing quarantine accommodations for up to 250 individuals. Now, Harvard has the ability and the resources to do this. How many other colleges in the country have that ability to do that? Couple? A handful? Maybe. Somebody tweeted,

if you think what Harvard's doing is outrageous, wait until you see colleges you've never heard of doing the same thing. these other colleges are either going to have to completely open up or completely go online because they're not going to be able to do this middle thing, which Harvard can do. So if you're a college student, what do you do? Here's my options. And I don't know, none of them are good probably. So I mean, one of the people, and it seems like it's only rich people who went to good schools say this, like just take a gap year and try to find yourself. That's for a small percentage of the population who has parents who can allow them to do that. And honestly, if you're a kid, would you want to take a year

off and work in a weird job where you potentially are more at risk? Or my thinking is, if I'm going to go through a weird situation, I'm going to want to do it with all my other peers who are going through the same thing. I don't want to take a year off if people are going to be going through this weird. Let's do this weird situation together. So obviously a lot of people say, well, go to community college for two years and then go to transfer to a bigger university after that because you could save some money, which is a great idea in theory for parents. But try explaining that to an 18-year-old kid who wants to go to a regular school. That's a hard sell. I think that makes a ton of sense, but it makes no sense at all. It makes sense for you 20 years

removed from college, but put yourself back in your shoes of a 17-year-old. If you grew up in a place where you see your friends going to college, you don't want to say I'm going to community college because it's going to save me money in 15 years. Okay, so here's how I'm getting in the mind of 20-year-old Ben. So this is 18-year-old Ben. I would have had my 20th high school anniversary this year. So we were supposed to have it obviously got canceled. This is what my mindset would have been. If I'm taking online classes for the next year or two, I'm loading up and taking like 20 credits. And then when college opens up in two years, I take eight credits since I'm already ahead and then I can have more time to party. How's that sound? So you take a bunch of

online classes, which are probably, honestly, not going to be tested as hard and probably going to be graded easier. And then when you go back to school and things are normal, you take way fewer classes. We have more time to goof off and party. What else you got? I just solve the college crisis. That's all I got. That's all I got. There are just no good options in. I think a lot of these colleges are probably going to be forced to open for financial reasons and not have as much online learning. And I don't know what happens. Sometimes you see people say like, oh, podcast is a new college or just listen to podcasts, just read books. It accomplishes the same thing. I think obviously that's ridiculously hyperbolic. However, people who say this are already successful. Of course,

it's tech bros. I mean, it's an absurd notion. Yes. I think that maybe podcasts are a good compliment, but they can't replace all the networking and maturation, all that sort of stuff that goes on in college. What are you going to put on in your resume? I listened to Joe Rogan twice a week. At two times speed. Yeah. Like, okay. Here, have a job. All right. That said, this morning I listened to Patrick Ashonda Sue's podcast, Invest Like the Best. He had this person on Charles Songhurst, who I've never heard of before. That was so great. And while I don't think listening to podcasts can replace college,

Did you have to wake up at 4 in the morning to listen to all these podcasts today? Geez. I was on my bicycle ride. Thank you for asking. This guy was so impressive. And I feel like, just listen to this, I feel like I would have invested alongside this guy. So I didn't see it. I don't even care what it is, what he's paying.

If I can invest my dollars with his dollars, I'd be a happy man. Did you listen to that one yet? No, I didn't. Sorry. You're way ahead of me on the podcast. I got four years of college, of Harvard, in 45 minutes. But here's the thing. people saying, like, why would you spend $50,000 to go to Harvard online?

If I was 18 years old and Harvard said, yes, we'll let you in to our online classes. And I can have that on my resume for the rest of my life. Sign me up today. Yeah, and they're not paying $48,000 their parents are. Right. Or they're getting people don't always pay the sticker price anyway. But if you can have that name, I mean, that would be the nice thing for these bigger schools to do if they have these online, like open it up to more students and allow more students to have that brand name on their resume. So they have an easier time getting a job.

Is college going to be disrupted or in 20 years, this college look exactly like it does today? Probably looks pretty similar, I would guess. I think I'm with you. I think that there's going to be pockets of alternatives, but by and large, the system is too entrenched, I would guess. All right, listener question. I'd appreciate your opinion on diversifying your own investments if you own a financial advisor practice, one where you're paid by AUM. Should you be investing as much in the market?

Should you look to real estate or other alternatives? I definitely think it makes sense to diversify, especially assuming that, you're investing every two weeks in your 401k and assuming that you're close to 100% invested in stocks because I'm making this up. You're a young person. You're not a young person. You're investing in stocks. I think it makes sense to diversify some of your taxable money outside of stocks for sure. Here's the thing, though, if you're looking at alternative investments in real estate, that type of diversification can help you over the long term, but not the short term when diversification probably matters most if your practice is hurting financially. So I still

think the best hedge ever is just cash. Maybe you'd have to have a bigger emergency fund or more sources of emergency capital. If we're in a deep recession in a huge bare market and your practice is hurting, having real estate holdings that you have to then sell at a loss or something is probably not going to help you. So I think maybe the best diversification is just having a bigger margin of safety for emergency fund. I don't disagree with anything you said. But in this specific question, he said diversify. He didn't say the word hedge. So I agree. If you're looking to hedge, Cash is the answer. If you're looking to diversify, I think that... I still think cash is a form of diversification, though. You don't think so?

Well, now it is. I think it always is. I don't think... Diversification is a form of hedging. If you're spreading your bets. I'm saying with tenure at 60 basis points, whatever it is, cash makes sense now. Anyway... By the way, my Marcus online, what do I get? 1.2%. Not anymore. It still is. It's not going to be that for long, but they're holding out as long as they can. I think it's lower. I think it's 105. Did it go down? Okay. What are whatever it is, I'm out yielding the 10-year treasury, and I have zero duration. Not to brag. Not to brag.

I am bragging. Recommendations for this week. I know last week I spent quite a bit of time weirdly talking about that movie The Vast of Night. Boy, the first 20 minutes of that were... It was tough. I watched half of the movie. Did you finish it? Not yet.

But the first 20 minutes were just... I wanted to turn it off immediately. It was bad. The first 20 minutes were tough. But on the big picture podcast, they did the 10 best movies of 2020. And this was number two Because I listened to that What I should have said was

This movie did a lot with a little Like once you get past the first 20 minutes Which admittedly were very tough They said it was sort of Spielberg-esque Just in terms of like style and everything like that This movie could have been a radio show though What do you mean? The whole thing was just them talking

The whole thing could have been done on the radio Well, just get through it It's pretty effective But the point is it was only like It was I don't even know if it was an hour and a half It was pretty short Yeah, it could have been an hour All right. Go ahead. What do you got? Oh, wait. One last thing. I'm sorry. So we got a lot of emails on last week we mentioned for financial advisors. The five links that taught us Fiscontah from abnormal returns sends out. We will link to this again. And last week, it was under the recommendations on the blogs. That's where it will be again. So it will be there for people that missed it last week. Because I got like probably five emails asking you about it.

So we started Season 3 of Dark, which is a show you originally turned me onto. And it's the only show I watch where I have to like lock my phone in a drawer because I have to pay attention the entire time and know what's going on. I feel like I need to hire a tutor from Reddit to tell me what's going on. Because it's kind of like, wait, because it's so many different timelines, but it has got to be the most intelligent show on television. And I just love it. So this is the final season of Dark. I understand. Yes. So we just started season three. we were a few episodes in. I had to watch the 15-minute YouTube primer to remind me what happened in season two because so much happened. But I know a lot of the time I don't know what's going on, but I still, I absolutely love the show.

And I think it's one of the most intelligent shows I've ever watched, ever. I feel like I need to re-watch season one before I watched season two. I don't know why. Season one was one of my favorite seasons ever. I never did season two. I'm not quite sure why.

I think I was just intimidated. I like season two even better. You can watch the YouTube primer to catch up on, the whole season in like 15 minutes. I'm very excited to hear that Ozark is having their fourth and final season. Kudos to them to Netflix because it would be so easy to just milk this because it's such a popular show.

They're going to go on top. I rewatched forgetting Sarah Marshall this weekend. I think that's probably one of the most underrated Judd Apatataw ones with so good. Jonah Hill and Paul Rudd and like the character actor ones. That's great. Oh wait. Hold on.

Question for you. So last night, when I lay in bed, I go to sleep immediately. I don't know about you, but I don't scan the TV, but I did last night. I just so happened to last night, and I turned on, Rudy was on. Probably haven't seen Rudy in 10, 15 years. And every single time I cry at the end, every single time. I don't know if it's the best. It's got to be like a top three sports movie ever.

It's up there. Probably Rocky is right there. Right? How good is Rudy? When the guy gives the clap. Yeah. So good. Yeah, that's good.

So we're probably two-thirds of the way through Hamilton on Disney Plus, which I guess I saw like they had like a 74% increase in Disney Plus signups for that. It's one of those things where it's so popular that going into it, I thought like, okay, the expectations are way too high. I'm going to be the contrarian to poke holes in it. So I went into that mindset like one of those things like everyone loves this. I'll show you. I'm going to be the contrarian to show everyone how it's, but it's so good. It's like the people who do it are so talented and it just, that Broadway isn't even my type of thing. but my wife and I keep constantly going to each other like, how do they do this or how do they come up with this and how do they, the people are so talented. The music is good. Like you have to watch it with subtitles probably and it'll take you a few nights, but I'm enjoying it way more than I thought I would. I did watch the first 20 minutes and had to turn it up not because I wasn't enjoying it. But I thought the subtitles were incredibly distracting from the actual experience of seeing it live because the words moved so quickly. I was reading. It was hard to get a feel for the overall thing. So I had to get used to it.

it. So have you read his biography by Chernow? Yes, I have. That actually was one of the first biographies that exploded me into my love of books. Okay, so I've had it on my Kindle forever, and after I watched, I started reading it, and I read the first. So when you go on Kindle and you click open the book, it says, average reading time. And for this book, it said 26 hours and 52 minutes. Wow. That's tough. And I'm going to probably skim a bunch of it and read some, but can we have biographers do two versions of their book. One, the 300 page for the layperson with just the best stories and anecdotes. And the other one with the detail behind their fourth cousin and how they died when they were 16 and they never heard of before. The turnout version is the college lecture.

You want the podcast version. Yes. Just give me a 300 page biography. It doesn't have to be 800 pages. I don't have to have the whole lineage of the family going back to the year 1400. But anyway, I'm probably going to skim through it and read most of it. But I just, when you see 26 hours, I'm immediately going, I'm out. Yeah. Yeah. Anyway, all right. Oh, wait.

One last thing. We forgot to mention as we were talking about the education thing. We spoke to Edley that does ISAs, which stand for. Income share agreement. So we'll have that podcast out hopefully on Friday to talk about different ways. And I think actually, in terms of managing the risk of college, this is probably one of the better ways to do so for people that don't want to get settled with student loan debt and are worried about finding a job right now.

I think it's actually a really interesting way of thinking about it. And we talk about it from the students' perspective and investors' perspective. Yeah, that was a good one. One more thing. I think as of today, we crossed five million downloads for the podcast. Not bad. We appreciate everyone who listens and sends feedback. And we get tons of emails from people in DMs.

And even the people who never send anything, we really appreciate all the listeners. And thank you for being in the stride of this for, I guess, I don't know, two, two and a half years so far. So we appreciate it. We started in November 2017. We're almost on four years. No, it hasn't been that long. It was 2018. Nope. Are you sure?

Yep. Four years? No, I'm sorry. Three years. What are I talking about? Three years. But still, we started November 17. Okay, so I guess it's close to two years. Three years. Okay. You're right. Whatever. Five million downloads. We appreciate it. Send us an email at Animal Spiritspot at gmail.com and we'll talk to you on Friday, hopefully.