Big Technology Podcast - Meta's Stock Plunge + Market Volatility — With Josh Brown of Ritholtz Wealth Management

Episode Date: February 9, 2022

Josh Brown is the CEO of Ritholtz Wealth Management and a regular CNBC contributor. Brown joins Big Technology Podcast to discuss what's behind Meta's historic $251 billion stock plunge, and Amazon's equally shocking $190 billion rise. This is a discussion about Meta and Big Tech, but as you listen you'll get a window into market fundamentals like "whisper" earnings targets and why growth stocks are going out of style. We also discuss what happens inside companies when their stock prices plummet. You can find Josh's podcast — The Compound and Friends — here: https://pod.link/1456467014 And here's my 'Metaverse or Bust' story: https://bigtechnology.substack.com/p/for-facebook-its-metaverse-or-bust

Hello and welcome to the big technology podcast, a show for cool-headed, nuanced conversation, of the tech world and beyond. Look, if you've been watching the stock market over the past year, you've seen some, or the past week, really, you've seen some of the most unbelievable fluctuations in stock prices, especially when it comes. comes to the tech companies, perhaps that you've ever seen. You had Facebook losing $250 billion in market cap, basically overnight. Amazon gaining $190 billion in market cap overnight. Step moving up 61% after hours after an impressive earnings result. Well, this is, of course, like totally crazy market movement, and it's really tough to figure out what's going on and what the implications are and the repercussions will be for the companies. And so, So to discuss it, we have, I guess I am so excited to bring on. It's Josh Brown. He's the CEO

of Ridholt's Wealth. He also wrote three books, How I Invest My Money, Clash of the Financial Pundits. Backstage Wall Street, you can find him on Twitter at downtown, downtown Josh Brown. And I always love watching him on CNBC. He's a fellow CNBC contributor. Josh, welcome to the show. Thank you so much for having me, Alex. Thanks for being here. I want to get into the more systemic stuff, you know, as we move on through the show. but why don't we just start with the one that really has me scratching my head, and I know you have a strong perspective on this, and so do I, so it'll be fun to get into it.

And that's meta. So last week, meta lost daily active users in the U.S. for the first time, went down by a million a day. But it also gained 9% monthly active users. Its family of apps now is used by 3.59 billion people each month, and actually beat on revenue and missed on profitability because it was spending on the next bet, which is metaverse stuff, Oculus, VR, AR, and things of that nature. So, you know, it does, I understand how the, you know, market will react poorly to the fact that it is shrinking in North America, at least when it comes to daily active users, and didn't hit the profitability marks that it did.

But it doesn't seem like a terrible miss to me, and maybe I'm crazy, but you go up 9% monthly active users, your revenue is up. Okay, your profitability took a hit because you're investing in the future. So why does the market then go ahead and take Facebook down by $250 billion, which I think, you know, I've heard Scott Galloway talk about is the equivalent of like putting BMW, Mercedes, Twitter, and Pinterest, and snap together in terms of the amount of market cap that it lost? So there's a couple of things going on here. The first thing is there's the number and then there's the whisper number. And the whisper number is away from the research reports that the sell side broker firms put out,

like the real number that everybody in the back. of their head is saying Facebook better do this or else. And that is not unique to Facebook. That's just how the street is. So there's always the earnings number. That's the consensus expectation. And then there's the whisper. And sometimes the whisper is above. Sometimes it's below. It's absurd. Obviously, we live in a digital age. People are not even sitting at stakeholders, whispering numbers to each other. But this is the culture. I can't control it. I can only explain it and apologize for it. So that's the first thing that you'll hear from Wall Street, guys.

The second thing is that... We'll pause on that first thing. So basically we hear, and I've never heard about this board, we hear the estimates that analysts want the companies to hit, but what there's this underground, like what WhatsApp or signal groups among investors who are like, you know, Facebook is expected... I don't think it's that formal. I don't think it's that formal.

So it's just this, like, what is it then? And it's just like they think that they should actually do better than what the street is expecting. Do they set expectations low for the street so they can beat them? Yeah, exactly. It's called sandbagging the quarter. So they will give a range of guidance to analysts during the previous quarter's conference call. There will be several. See, this tends to matter more for smaller mid-cap companies where there's like seven analysts covering it.

And you can really influence where those consents. numbers go. In Facebook's case, you got 50 plus analysts on the cell side covering it. And then you have all these by side analysts that don't publish their research, but they've all got their own estimates that are internal at asset management firms, hedge funds. And the general idea is that there's the consensus number, whatever it is. And then usually the whisper number is like a penny or two above. And it's childish. But that's how it's always been. But I think I think what's more important in the case of Facebook is this concept. There's no such thing as good or bad on Wall Street. It doesn't exist. It's not good or bad is not the thing. The thing is, was it better or

worse than expectations? So Facebook's earnings were good. Like they're making a ton of money. And yeah, they spent a little bit more than people expected. And the growth rate that they're projecting was a little bit of a shock, talking about three to 11 percent growth after people have grown accustomed to this company growing 25, 30 percent reliably. That definitely shocked to everybody. So it's not that it was a bad quarter. It's that it was worse than expected. And so everybody then resets their expectations for the next go-round. And in today's day and age, we don't do that over the course of weeks. We do that in seconds because it's not humans and nobody is sentimental. It's software. So the software, the software, the software

is doing the trading based on parameters programmed by humans. And these re-ratings, which is a fancy way of saying a big stock price fluctuation, these re-ratings happen in seconds, not days, not weeks, not months the way they used to. And I think that can be shocking to casual observers of the stock market. They can't believe a company like Facebook could be worth 25% less from a Wednesday to a Thursday. It's like inexplicable. Yeah, it's unbelievable. I mean, that's how I felt watching it. And I pay attention to stock market. But I mean, this is again why I thought having you on would be great because you can give us this window into what's actually happening. So one of the, I would say like just this concept of value valuation. Um, what what a company's worth market cap. Like it's a,

it's a sandcastle. Nobody gets nobody. You don't get to keep it. The next wave comes in and could completely wipe out the sandcastle. It's not like this thing that's chiseled in stone. So Facebook was worth a trillion dollars like 15 minutes ago. And now it's worth 600 billion. That 400 billion wasn't wiped out. You see, this is the thing you hear on TV all the time. Oh, Facebook had 400 billion of market cap wipe. No, it's not wiped out. It went, it went to Amazon. So it's somebody else's market cap now. The money still exists. It just doesn't belong to Facebook. So take this with a grain of salt. Whenever you hear such and such company is worth blank, yeah, today it is, right?

But it's not, they don't get to keep that forever. Maybe they'll be worth more, but just as quickly, they could be worth a whole hell of a lot less because in the end, it's not really their money. It's their shareholders' money and their shareholders could decide in a moment's notice that they want that money to be invested in something else. But it has real implications for the company inside. Especially when it comes to employee compensation, that market cap goes down, that stock price gets 25% shaved off. All of a sudden, those people that were counting on the money, you know, to make their decision of whether to stay or go, those equations change when the market cap loses.

I think it's less shocking in Silicon Valley. I think people that are Facebook employees, they've been on this roller coaster, they've seen the stock. Don't forget, Facebook got cut in half its first six weeks as a publicly traded company. company. And I peoed at 40. It was $18.20. Right that day. Yeah. So people, so I think it's less shocking for a technology company to suddenly shed 25% a day. It's more shocking if that happens at Procter & Gamble. It's more shocking to see that happen with, you know, a big insurance company stock or, you know, something that appears like the perception from within and without is that you know it's a blue chip company and it's stable and it never has big growth and

it never has too little uh growth it doesn't shock you so with it's not that surprising to see a gigantic tech stock go through a rewriting like this um it is the biggest ever in dollar terms you've never had a publicly traded company lose 240 billion dollars in a day it's just it's a quarter of a trillion dollars it's a lot of money it's never happened but Apple, Microsoft, Alphabet, they've all had days where they were 180, 170, billion. The thing is, all of those were in March of 2020, the onset of the pandemic. This is really remarkable because it's idiosyncratic to Facebook itself. It was not market driven.

It happened to have taken place in the context of a very volatile NASDAQ, but this was really Facebook specific in a way that you probably have to go back to Lehman Brothers, Bear Stearns, you know, to find a day percentage-wise that was that bad for such a large company that had nothing to do with the overall market. Yeah. So why don't we then kind of hammer back on the point that we started with, which is why do you think it was so big? Because, yes, it was definitely a, you know, resetting of expectations. But, you know, were the algorithms programmed to the point, or was the whisper earnings level,

you know, missed so badly that it caused such a shock to the stock? I think the perception, look, this stock is owned by sovereign wealth funds. This stock is owned all over the world in size. It's a huge part of almost every index fund, similar to Apple on a slightly smaller scale. It finds itself in every growth fund. It finds itself in every tech fund. Interestingly enough, it's not even classified as a technology company by, standard and pores. It's actually in the communications. It's with, you know, it's with

Google and Netflix in the communications basket. But either way, it's an important stock globally, globally invested in. And the perception is that this kid has his head up his ass. He's living in the metaverse. In the meanwhile, his competitors in the real world, in the three-dimensional world that you and I actually inhabit are eating away at a lot of the things that we thought were had moats around them and just just listen to the count of how many times TikTok was mentioned on the conference call. So I listen to these calls. I use an app called quarterings call. Yeah, Q-A-R-T-R if your listeners are looking for a way to really quickly. I skip right to the Q&A. I don't listen and so that you could do that with a push of a button on the

quarter app. So I try to listen to that 30-minute Q&A where like Goldman Sachs, all the analysts, they can ask their questions, TikTok, TikTok, TikTok, TikTok. It's, look, here's the truth. They've never had a competitor in any vertical, the size of TikTok. They have beaten the shit out of Snap and much, companies that were much more than them in terms of reach, in terms of global reach, in terms of how many users, they never really have had to build a product to compete with something as large as TikTok. So they're hyper-focused on making reels an advertising platform.

The problem is Reels is not catching on at the speed that they would have liked. And it's not clear that it's effective for advertisers yet. And so they are fighting not as an incumbent in this particular case. They're fighting as like an upstart. And that I don't think that's something that Facebook has had to do since 2008, like taking on MySpace, really. So that's an interesting dynamic. That is definitely in their heads. And you could tell by how often they tell you how much they respect TikTok and what a great job TikTok is doing.

They hate TikTok's guts. They would love nothing more than for the U.S. to kick it out of the country like what almost happened before the election. Exactly. But the other dynamic is, and I said this on TV, this meta business is ridiculous. They changed the companies. name to, I guess, like, I guess like set the table, like this is our whole focus now is going to be the Metaverse, this is the next big platform, it's the next big bet. That's great, but then you can't tell us in the next breath that you're not going to make

a dollar on this for 15 years, which is the other thing there's, which is insane. So I think there's a lot of confusion and, you know, people say, oh, what's in a name? A lot. it's Silicon Valley. The name is the name. It's, it's important. It tells people what they're invested in. So now you have people basically invested in something where they're, they're like switching their focus to an unprofitable business after having been known as one of the most profitable businesses in the world. And I think that represents an albatross now that makes it very difficult for people to get bullish again. Right. And so it's interesting because like in this

conversation like we've heard about this um you know the whisper target for earnings and the algorithms that are trading and i was about to say hey you know so maybe it's just this like uh you know system that was ready to get set off with the trigger and it got set off and actually the fundamentals of the company aren't any different than they were the week before however some of the stuff that i'm hearing you say is that actually you know this is the ticot point i've been listening to earnings calls with Zuckerberg for years also and i've never heard him talk about a competitor that way So perhaps what we just saw with this great offloading and the earnings miss were the numbers finally catching up with the other things that people were seeing and confirming the fact that

this company has shifted and become weaker and the market responded. Yeah, I think that's right. Alex, I think you nail it. And it's not that they're a weak company because let's face it, they are still generating absolutely enormous revenue, enormous cash flow. And if any company has a shot to really build this next generation platform and bridge the gap between 2022 and 2030, when we're all walking around in a virtual saloon with digital cowboy hats we've bought from Gucci and we're playing poker with each other, seated at a table together, like if anybody can really do that and make a holodeck and make it profitable and put ads in there, it is going to be Facebook or alphabet. is probably nobody else that has the guts to spend money this way. But while they're doing that, and I talk about bridging that gap, it's a very long gap

to bridge if in the real world you're under assault by all of these real world competitors. And I think that dynamic now is unequivocally true. And the stuff with Apple iOS is not going away. So they're going to solve for it. They're going to have workarounds. They're going to try to play up to their advertisers that, all right, we can't track those old metrics. But look, we just created new metrics that might be even better. They're going to fight.

They're going to do their best. But it's not going to go away. The fact that those ads will be less effective in Europe and then eventually North America, it's inescapable. And so I think that that's part of that re-rating and part of that rethinking. They just do not seem as dominant. Now, even worse, look at that in the context of what Alphabet just told us. Alphabet's advertising platforms are absolutely on fire.

Whether we're talking about YouTube, which has just become this absolute juggernaut, could be worth as much as Netflix someday. Or we're talking about search, which has never been better. Like, Google does not seem to be struggling with these same iOS privacy issues that Facebook is. That could change. But so now let's say you're a fund manager and your job is to invest in social media or the internet. Like, that's your portfolio manager and that's like your universe. Of course, you would rather have money invested in alphabet than Facebook given that perception of, well, these guys haven't figured out and these guys don't.

Now along comes Amazon, and Amazon for the first time ever breaks out their advertising numbers, and they're sick. Amazon's third-party advertising platform is sick. And that's yet another competitor for investment dollars away from Facebook. So Facebook now has a lower valuation than both Alphabet and Amazon. you could say, okay, this is when value oriented tech, tech investors may step in. And that's true. Maybe that's what stabilizes the stock. But the other way to look at that is, who the hell wants to invest in a tech value stock?

Has that worked for IBM? Is that worked for Cisco? There's a lot of cheap tech stocks. Qualcomm, these are stocks that tend not to go anywhere for years or even decades on end. So I think when you're a tech company, growth is more important than anything else, and Facebook's got to somehow get back to finding that growth. And it's not going to be that easy. Yeah. And I definitely want to talk about that growth because it seems like growth has been a detriment, at least to some investors, when they're pulling back right now in the stock market.

So let's talk about that in the second half. And I also have a bone to pick with your point about the meta name. So folks, this is going to be fun. fun after the break. Stick with us. We'll be back right after this. Hey, everyone. Let me tell you about The Hustle Daily Show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending. More than two million professionals read The Hustle's daily email for its irreverent and informative takes on business and tech news. Now, they have a daily podcast called The Hustle Daily

show, where their team of writers break down the biggest business headlines in 15 minutes or less and explain why you should care about them. So, search for the Hustle Daily show and your favorite podcast app like the one you're using right now and we're back here on the big technology podcast with josh brown CEO of grid holds wealth management also a regular contributor on cnbc you can catch him on the halftime report and other great shows um i always love watching josh on on on air and and make sure to catch his clips on youtube always a great perspective and um thank it's been myself to be speaking with him right now so thanks again for being here josh let's talk about the meta thing. You've, you've been on air and here previously made an emphatic point that

Facebook never should have changed its name to meta. I have a different perspective on that. I would love to hear it. My thought is that what we're seeing right now, especially with the TikTok stuff and with the recent earnings, is that Facebook's flagship business is hitting a ceiling. And in tech, when your flagship business hits a ceiling, the only thing to do is move on to what's going to be, what you believe is the next computing platform. And so I do think. think that for Facebook right now, or meta, as they call it, it's Metaverse or bust. Just like Microsoft, when the desktop operating system in Windows was hitting a ceiling, they went to cloud. To me, it seems like going to meta, you know, whether it's going to work or not, if that's your vision of

the future, you go all the way in. And so I don't have a big problem with the name change. What do you think about that? Well, we're not talking about where the focus of the company should be. We're talking to that nomenclature. And you'll notice that Microsoft did not rename the company Azure, which which I think may have gone fine had they done it because by the time it became apparent that Azure was going to be the horse that they were going to be riding. And in fact, they plucked Satya and Adele from that unit to run the company. So like when it became apparent that that was what they were going to do, I think it would have been viewed as odd by investors given how many other businesses are under the Microsoft

umbrella, but they probably would have would have been okay because that was not a business unit that was wildly early and lossmaking in the way that meta is. Second thing is, we might have a disagreement about what you consider to be Facebook's flagship business, because I think it's Instagram, and had they done a name change to Instagram rather than meta and then told the story about the role that Instagram will ultimately play in the metaverse, which I believe. it's going to be an important role, that might have been a little bit more common sense and maybe a little bit easier to swallow.

So I think, I still feel they jumped the gun, but I do agree with you. They do need to figure out the next platform. It's hard to imagine the Facebook app itself ever growing again. Like I just, I feel like it could maybe maintain as more births and new people turn 18 and decide they want to be there. But I mean, I don't know any kids that are like, I can't wait to get on Facebook. So I, it's hard, it's hard for me to picture that even stabilizing. I think it's, I think Instagram really is, is where the growth is going to be while they, they build up meta, not Facebook. Two last questions about Facebook. Just kind of your, your gut on a few things.

Do you think Reels has a chance of challenging TikTok in a real way? And then, you know, gut check. Is the Metaverse actually going to be a thing? Or do you think? think that it's just kind of like this hobby horse for gamers that will never expand beyond where it is. I think the, let's do the last one first. I think the meta, I think the metaverse is great because it's whatever you say it is. No, still truly. So I have an investment in Roblox.

I happen to believe that that's the actual metaverse right now. It's closer to the metaverse than anything Facebook is doing. But like it's expand on that. Yeah, I want to talk. It's interactive. It's interactive. It's completely immersive. It's young people spending a big chunk of their day there and actually living their lives there.

And, you know, I have a, I have a 13-year-old and he has conversations with his friends on the game console. So, yeah, they could FaceTime, but very often they'll go into Fortnite and just talk to each other. They might be talking about school or what assignment somebody has. But they'll log into games to, to me, that's Metaversy. That's not like I have to wear a helmet and walk into walls like an idiot. That's like I'm actually living this portion of my day and interacting with other people in a virtual setting. So you think about musicians doing concerts inside a Fortnite, you think about people building

their own games and then earning money from the licensing fees on a platform like Roblox. That's the Metaverse. I don't think the Metaverse is logging in to, to, you know, via Quest or Oculus to have a business meeting. I don't know anyone that's trying that really wants that or is trying to do that. So look, there are going to be thousands of different things that are going to be big technologies. And if you want to, you could say, oh, this is the Metaverse. Like, there's no question that companies like Disney are thinking. about movie formats that are immersive, where you actually walk onto the virtual set of a movie,

maybe even become a character in it. Obviously, that's the kind of stuff that they've been doing for 50, 60 years, and they put you on a ride. They want you to feel like you're inside the movie. Why wouldn't they do that digitally? How could they not be great at that, right? So do we want to say that's metaverse or do we just want to say that's entertainment? I don't know. If we want to say it's metaverse, then the metaverse really could be anything and everything. So I don't know that we're going to ever, or at least not anytime soon, say that any one company has a shot to own the whole thing, including Facebook. It'd be very hard. Now, will they have a head start in technology? Maybe. Because as we talked about, they have more money to invest than almost

anybody else, right? At least for now they do. We'll see how big the losses get, but at least right now they do. Cash balance went up over the past quarter, though. Yeah. Yeah. So we'll see. Look, if they lose another $200 billion in market cap the next time they report earnings, the investments might have to stop. But it's premature. Maybe they'll get more of a leash than we think. On the Reels question, I'm probably not the right person to give you a good answer there. I don't dance. I don't do skits. I have no idea. I have it. I have a, I have a, TikTok. I'm a verified TikToker. I've posted about 12 videos and they're all terrible. And I'm not doing anything personally on Reels. So I don't know if Reels is going to overtake or even

really compete with TikTok. Maybe I'll ask my daughter and get back to you. Yeah, definitely. I'm going to try to write about it this week. So she wants to be quoted about which one she's using. Just let me know. Growth stocks. So you talked about it a little bit in the beginning and the first segment about how tech companies. want to be growth stocks. And I think like the fact that the tech companies had all this growth potential is a big part of why they achieve such amazing valuations during, you know, the end of last year, you know, Apple going to $3 trillion, which is like crazy. It took what, 40 years to get to $1 trillion, $18 months to get to $2 trillion, and then another year or so to get to $3 trillion.

I mean, I might be fudging the numbers a bit, but that's directionly accurate. But now with the fact that the Fed is about to raise rates, it seems like the market is a little being a little, little bit more careful about growth stocks. So why are growth stocks and I'm talking about like big tech stocks are obviously, you know, first and foremost in that category? Why are they so vulnerable now after being such a prized investment previously? The reason they're so vulnerable is because people are using a discount rate. They're taking the net present value of a future stream of earnings and they're discounting that back to today. So the idea is like, And Amazon is the classic example of this.

You're buying Amazon in the late 90s, early 2000s. They tell you basically that there is absolutely no interest in generating profit right now. Instead, they want to grow user base, revenue, market share. And then later, all of a sudden, once they've done that, they can pull a different lever, focus on profitability, and it'll be a gusher. and it's really audacious what they did and it worked and around 2015 if you look at a stock chart of amazon sometime around the second or third quarter of 2015 it became a parent that amazon pulled it off and not only was it a high growth but they had built enough scale that the profits were going to start to gush out of that thing like like uh like they struck oil

And if you look at a stock price of Amazon, pre-2015 and post-2015, you see a really big difference in the way we started to think about that premise. Let me build the platform first. Let me get the market share first and then we'll focus on profitability. And all of a sudden, there was a sea change in investor attitude. It helps that interest rates were extremely low during that period. a time, but there was a sea change of investor attitude where all of a sudden the only thing people wanted to hear about was Tam. Total addressable market. How big can your company get? Not how profitable can it be this year. How big can it get? And think about the logic behind that.

Let's say money is free, which it basically became free. Okay. So capital is not the scarce resource anymore. What's the scarce resource? Companies that can dominate an entire TAM, an entire total address. That's the thing that everybody wants to be invested in. Because once you dominate a TAM and you have the users, then you can focus on profitability. You can raise prices. You can introduce new products. You could do whatever you want. So Netflix, investors in Netflix caught that fever, right, Tesla, we saw that phenomenon play out, like in a host of technology companies that were focusing instead on TAM and market share and growth and we'll deal with the profits later.

And it worked. If you were an investor in any of those businesses, it worked. So I think that C change was made possible by ultra low interest rates because if you're borrowing money and you're only paying three or four percent on that money, you can afford to wait four years for a stream of earnings. If you're an investor, you're taking that money, you have a certain amount of coupon that you owe back on that, but it's not high. So you don't need profits today to pay the interest. You could be cool, right? You could be patient. You could wait for those earnings far out into the future. Now, you look at a two-year treasury. It was

15 basis points a year ago. It's free, free money. That's now 120 basis points. We've priced in four Fed funds quarter point rate hikes, right? So now a two-year treasury is yielding one in the quarter. That affects all of the rates for everything all over the economy. Everything takes a level step up, right? That's the basis of what money costs, not just the United States It's all over the world, right? Even in Europe and in Asia. It has this ripple effect. So now money costs something.

It's not free. You got to pay the Vig on the money now. You got to pay the juice now. So now you're saying, well, shit, there's interest due. I don't know if I want to wait 10 years for earnings. I don't know if I want to give all of these venture-backed startups that just came public at these massive valuations. lucid and uh you know all these um all these electric vehicle companies and alternative energy

companies and solar businesses they you know when money was free i could wait seven years for a stream of earnings now i have now i have to pay this this this this big i actually want profits today so you see this next see change where all of a sudden profits are in vogue and old school banks, oil, utilities, consumer staples, those stocks dominate the fourth quarter and so far the first quarter of 2022 because investors have changed their mind on what their tastes are, what their priorities are. And this plays out every year, every decade for hundreds of years that sea change in investor predilection. Right now, they want steady cash flows profitability, high quality balance sheets, current income. And as weights go up, they're going

to be looking for companies that have the ability to raise prices and pass along those higher costs and more importantly, increase their dividend in order to compete with the higher rates on bonds, which we know are going up now. So you're going to see, I think, a challenging year for companies where the premise is, don't worry. We're going to grow the user base. We're invest a ton of money and there'll be cash flows later, it's going to be very tough for those companies to find a receptive audience among the investor class. And that's how rates affect valuations, prices, and the trend for growth stocks. Right. So it seems like, I mean, those companies that you talk about, you know, let's have some, give us some patience and we'll

have results later. Tough. Those are tech companies. Mid-cap biotech. have been cut in half since last fall. Why? All their drugs, half is effective? No, of course not. The premise of investing in biotech is we're going to spend millions, tens of millions, hundreds of millions on drug development and discovery and R&D. There is no payoff.

Maybe for a decade, the most successful blockbuster biotech drugs of all time took seven years, nine years, 12 years before even a dollar. was coming in. Again, you can do that when money is free, harder to do when the cost of money is rising. And you see that all over the markets right now. Josh Brown is with us. He's the CEO of Ridholt's wealth management, also CNBC contributor and the author of How I Invest My Money, Clash of the Financial Pundits and Backstage Wall Street. I want to cover inflation and a little bit more about the market volatility. So we have a few minutes left. We'll do it right. after the break.

And we're back here on the big technology podcast with Josh Brown, CEO of Ridholt's wealth management, a very engaging speaker on all topics, finance. I'm sure you stuck with us up until this point. You understand that Josh just has a great way of explaining the way that the financial world works. And now I'd like to talk about the truth about vaccines. We have time? Can we get into any of that?

Can I talk about Ivermectin, please? You know, it's not just for horses. All right. You want to do that next time I come on? I'll save that. Look, I think that a good cancellation strategy is something a small media company needs. So, you know, we don't have to wait. I got three boot, three shots and then got COVID.

I'm just kidding. I'm double-vaxed. I get a booster every week. I'll do whatever you want. Just leave me alone. All right. Go ahead. What do you got?

Let's talk a little bit about, I actually have a follow-up question from our last segment about the fact that the market is moving away from longer-term investments. So how does that reshape the economy? Because if these biotech companies aren't going to get, you know, the support from investors, then do they cut back on experiments? Do public tech companies become, you know, less invested in longer-term projects and more interested in shorter-term profits? I'm thinking about meta again, you know, does this, does it lead not necessarily in that case, but in other cases for them to be, you know, focus more short-term? I know every CEO says they don't care about the stock price, but come on, of course they do. Sure. Right. I said something to you before that's applicable here where there's no such thing as good or bad, just better or worse than expectations. So I don't think this is necessarily all bad. And I'll explain to you why. The first thing is the SPAC boom is dead. You're not going to see another 300 IPOs come out. It's going to be much more difficult to go public. Why is that good? Well, we, of course, still want capital formation. We still want.

want companies to go public. We still want founders to, you know, have their dreams realized. But maybe it's not healthy for any company that feels like it to be able to raise money at the blink of an eye. Like, maybe that's not the right kind of capitalism that leads to good results for everybody. Maybe it would be healthier if there were some constraints about raising money, which forced you to actually build a real business, not just hand a flaming bag over to a bunch of idiot kids who are on Robin Hood buying SPACs and have no idea that the average investment they make is going to get cut in half. Like maybe we actually want to enforce a little bit of discipline, valuation discipline,

business model discipline. Maybe it shouldn't be enough. Oh, look, I have a slide deck. I'm worth $80 million. Like, maybe that should end. I don't think that that's a healthy environment. That is the environment that we've lived through for most of the last two years. years. So I don't necessarily think it's negative for the investor class to be more focused on

profits and cash flows. I think it's like a corrective kind of pendulum swinging back in the other direction. It could go too far. We don't want to close out the capital markets to everybody, but there are currently over 900 unicorns on earth. There are 900 companies worth a billion dollars or more that have yet to go public the prior year there were 500 so are we saying that there are twice as many great businesses from one year to the next probably not right there's probably there's probably the same amount of great businesses just double the amount of businesses that are overvalued that's got a that's got a cool off i think for for everyone's own good right so we've had this phenomenon of a lot of new

investors join the market. A lot of investors who have never experienced the down cycle, a lot of investors who are buying things because it has a cool ticker or because the sportscaster they like is tweeting about it or because the ETF has a cool name. There's a lot of that kind of non-economic investment activity that has gone on that I think needs to go away. And it's painful. And we're watching that process play out. And you have SPACs that, you know, were $10, they announced the deal, they went to $30. Now they're back at $3. Like that, that hurts.

That's ugly. And we don't root for people to lose money, but sometimes that's what's necessary in order for a market to regain its sanity. And you might see that later this year in an area like crypto. You might see that in the private market, in the venture market, in the angel market. There's going to be ripple effects from what goes on in the real stock market. There always are. So I think this is going to be a year, let's put it euphemistically, and say it'll be a year of digestion.

We're going to digest a lot of the new companies that have been formed, a lot of the new ideas that have been funded. Some would say overfunded. And it might be a little indigestion in some cases. But again, I think it's healthy. I don't think another three years straight of maniac pace activity is going to help anyone in the long run. So I'm trying to stay positive. I'm trying to test negative. I'm trying to just explain to people, it's not good or bad.

There are good aspects even of a bare market. Right. And just the crypto question. You said we could see it happen in crypto. Do you think Bitcoin has sort of hit the bottom of its slide or does it have for the room to go? If you told me next week, it'll be $25,000, I would believe you. Okay. And then if you said next week, it'll be $100,000, I wouldn't argue.

So what do you tell your clients then when it comes to investing in this stuff? I think the way to do that is to just be honest and say, none of this is trading on anything other than sentiment. there are no cash flows there's no intrinsic value a project could become the most popular thing overnight and become one of the top three cryptos or it could go to zero and if you're going to invest in the space of course you want to be educated you don't want to just roll the dice and throw darts there should be a framework should you know so we have we built an index approach for our clients to crypto we built it with wisdom tree is 11 different coins or tokens in in the index.

It's free floating. We're not in there making decisions each day. Should we buy more Ethereum? Should we sell Solana? The index is the index. The framework is how big is the project to start with? How many engineers are involved with it? Does it serve a real world purpose?

Was it a token just invented to speculate? Did it start as a joke token? You set these rules in advance. You build the index based on them. And then you're kind of at the mercy of what happens in crypto. And some of the tokens that you're invested in will fall out of that index because they lose relevance. And some will double in in market value. And as a result, become larger in the index.

So we're big believers that markets are fairly efficient. They're not perfect. But ultimately, the crowd will figure out what has value and what doesn't. And that's the way that we'll be invested. So we run that on the Gemini platform. It's not open to the public. It's only open to our clients. But it's a good solution to, you know, to answer your question, how do you invest for people?

My clients are not laser-eyed psychos. They're successful people. They're real estate developers. They're surgeons. They're, they've won in life. They could afford to take a percent or two of their portfolio and have it invested in the crypto market. What they don't want to do is have a wallet hacked or have their money in a scam coin where there's a rug pull. Not that the money would change their lives or affect the way

they live. It's just who wants to who wants to be treated like a fool. So that's the solution that we ended up coming up with. I'm very comfortable with it. I have my own money in it. And I think it keeps them from making much worse decisions. And it keeps my clients from reading white papers filled with bullshit. Like, nobody has time for that, you know, among my client base. So I think we're solving that problem. We'll see. Yeah.

Do you have time for one last question? Shoot. We talked about Facebook's big drop, the $250 billion drop. We poked at Amazon, right, going up $190 billion. We talked a little bit about SNAP, 62% increase after I was trading right. after reported earnings. I've felt that I've never seen any, well, not even felt, I have never seen fluctuations like that before.

I mean, they're both historic, the Facebook and the Amazon thing. How old are you? I'm 34. Okay. So, I mean, maybe you can help me out. But is this, is this something that we need to get used to in the more volatile market? And, you know, yeah, just tell us a little bit about, like, what's happening here. This is what the market really is.

I think you could make the case that things that used to take weeks or months now take hours and days because of software. So the pace of some of these moves is breathtaking. And a really great example of that is the coronavirus crash. We had the fastest bear market ever down 35% in 16 days. But that was immediately followed by the fastest bull market ever. It was two weeks before we were up 20% plus off those lows. all of that took place within like a five-week time span between the middle of March, 2020 and the middle of April.

That process in the 1960s might have taken two years because information didn't travel at the speed of travels and you didn't have software programs doing the buying and selling of stocks. So we have like this overnight price discovery now on news that would have normally taken weeks or months to circulate. think about it. So it's logical that this is the way the market now is. And it's logical to see that speed. Now, as far as the magnitude of the fluctuation, I got to tell you, this is really what the market is. And I say that I'm 10 years older than you. I'm 44. So my formative experience was like my first 10 years in the stock market, I saw the S&P 500 get cut in half twice. And in my first 10 years were bookended by 98,99, 2000, that whole rock opera.

The NASDAQ ended up falling 85%. And then we had Enron. And then just as like we were like, oh, my God, fucking 9-11. Like literally, that all happened in 18 months. So that's the first thing I ever saw was grown men weeping. and and 85% of the NASDAQ being wiped out. So none of this shit faces me anymore. I mean, two years ago, we saw the price of oil go negative.

Think about that. Right. Think about that. Negative. I'll pay you to take my oil. That's literally a thing that happened. So I would say like, yeah, the fluctuations, it's noteworthy. But, you know, stick around a while.

You will see more. And I only have the benefit of 10 extra years, you know, ahead of you. So now think about somebody who's 24, 10 years younger than you and just started investing last year. Look at the circus they walked into, right? So think about what's normal to that person. To them, the stock market is like crypto, right? So, you know, try not to get shocked or be shocked, but don't stay shocked. because it's only going to get more insane from here, is my guess.

Josh Brown, thank you so much for joining us. It's such a great opportunity to speak with you. I appreciate it. Thank you so much. I'm Josh on Twitter. Follow me on TikTok. On TikTok. No, the real thing, can you, can we tell people, I have a podcast that's called

The Compound and Friends, and we have a lot of fun on that show. My last guest was Tim Dillon, and he went crazy on the podcast. He's the best. but we come out every Friday morning. So that's the best place to hear more of my antics. Amazing. Well, we'll link it in the show notes. And Josh, thanks again. I hope you come back. This was super fun. Thanks, man. Be good.

Okay. Thank you, everyone for listening. Thanks, Nick Guantini, for doing the edit Red Circle for hosting and selling the ads. We will see you actually on Friday. Kara Swisher is coming on for a bonus episode ahead of PivotMIA. Her event was Scott Galloway in Miami. So until then, take care. Appreciate you joining as always. Thank you.