Chit Chat Stocks - Micro Bubbles & Meme Stocks - Jamie Powell

Episode Date: June 15, 2021

Jamie Powell joins us this week to discuss frauds, bubbles, and meme stocks. Jamie works at FT Alphaville and shares how he got there. Listen in after the interview to hear Brett and Ryan discuss their favorite stories including Netflix and Spotify. Let's go! Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Follow Jamie Powell on Twitter: https://twitter.com/ajb_powell?s=20 Email Jamie Powell: [e-mail] Subscribe to our YouTube channel: https://www.youtube.com/c/ChitChatMoney Follow us on Twitter: https://twitter.com/chitchatmoney Visit our website to see more from your hosts Ryan and Brett: https://www.chitchatmoney.com Email us: [e-mail] Timestamps Interview | (2:28) Interview Continued | (19:00) Show Notes | (50:12) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. Today is Tuesday, June 15th. Today we have an interview with Jamie Powell. This is a fun one. And it's not the Fed Reserve Chairman. We made that joke with him, but... I don't think it landed, but yeah, it was fun. We talked, not really stock specific. I mean, I guess we got into some companies, but really just sort of what we're seeing in the market, what he's seen in the market, kind of where he thinks froth might be. Any highlights for you? Yeah, so we should explain who he is. He is the journalist at the Financial Times, and he writes for Alphaville, FT Alphaville.

And that is basically the European Wall Street Journal, the London-based Wall Street Journal, if you need a comparison. So it's kind of the European financial newspaper. And, yeah, he does a lot of opinion stuff on kind of the bubbles, the micro-bubbles, some of the big topics, some of the corporate potential frauds that are out there. So exciting stuff. It was not an uninteresting interview. And my favorite part had to be the discussion about Trevor Milton and Adam Newman's children hanging out, why that might not be the best use of civilization's resources. It was funny.

So that was my favorite part. It was a lot of fun. All right. Before we get to the show, though, a word from our sponsor, 7investing. Use our code CCM. You get $10 off your first month. It's only $7. I think we're getting close to the price hike here, or should I say the flexing of its pricing

power. The flexing, yes, yes. So get in while you can. Lots of good research, seven stock picks each month, plus additional research on top of that, follow-ups, video stuff, tons of stuff. You could spend a lot of time on their website learning about investing, learning how businesses work, all that good stuff. It's a good idea sourcing place, for sure.

Exactly. All right. Without further ado, let's get to the show. Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chitchat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation.

Now, please enjoy this episode. All right, today we are welcomed by Jamie Powell, a reporter for FT Alphaville. So I guess let's start there. How did you end up there? How did you end up in the world of finance? And I guess what do you do now for anyone who doesn't know? um so ft alphaville is the ft's financial blog so it started off in 2008 as the first proper media blog this is the golden age of blogging um pre-twitter pre-most social media

as we know it now anyway um and it's sort of evolved now to become a market commentary and opinion and analysis and it blends news opinion and analysis um like a good blog does right it's one person giving you their point of view telling you a little bit about the news and then riffing on it um um and uh i got into financial journalism in the weirdest way so um i had a very strange 20s um so for my graduate degree i did filmmaking for my um and also my undergraduate i did filmmaking uh and then i did a master's in russian studies which was mainly russian cinema and russian literature and russian philosophy so i got very deep in the weeds there um and while i was doing that a friend asked me if i wanted to come play bass in a new band he was putting

together um and i thought well i've got a bit of free time i'm you know i'm studying i've got eight hours a week of tutorials i'm writing essays but i've still got some time to do something else um so i did that and that started to kick off as my master's finished so it went from playing small shows in london to playing and meeting all of the big agencies meeting all the big labels going on tour playing important shows um uh doing lots of recording etc etc getting on the radio um but it the thing about the music industry is is that it's kind of like a video game like you need to pass each level right to make it on to the next step it's not like a normal career where if you have if you get fired from somewhere it might not always be your fault it might not always

reflect fully on you like in the music industry once you're not signed or your first album bombs you're dead and you have to completely restart from the bottom again with a new project new identity so basically we got to the point with uh well we were like talking to major labels and independent labels and we just didn't get signed and it just bled from there we just like bled out for a year from there which was super frustrating because it's all about momentum and then when you can just see the momentum die there's nothing you can really do it's just that's how the music industry works right um so i did that um until i was 23 24 and i kind of thought well you know what i probably should get a real job so um i took the first person who had

which was a education software startup here in london um i worked there for four years and while i was working there um i got really into finance in my free time it's quite hard to explain but i think it kind of started when i had a friend who was an analyst at um nevsky capital which was a really famous emerging markets hedge fund here in london um uh it was run by martin taylor who i think he's interviewed in the jack schwager book like one of the most recent ones one of them yeah one of the yeah i think the hedge fund wizards he's in um and um you know when we went on a holiday to italy together for a weekend with some other friends and he was talking about jobs and he was like oh i was like what do you actually do as a job because you know all i know about hedge

funds is that you guys make lots of money like that was my my nose my knowledge of finance like i had read economics books i had like a decent understanding about economics but i didn't really understand the finance economics always quite split out academically so um i um he told me and i was like oh that sounds kind of interesting what's he like studying you're making judgments you're making bets um using lots of data it's very dynamic i was like that sounds like an interesting thing to do it's a bit more like what i enjoyed doing at uni which was reading a lot and studying and then making calls basically on old texts not something that's constantly moving um so he was like here are five books to read you should read these five books see what

you think and so he gave me a list of five books five books i'm sure you guys have read you know included guy spears book uh the warren buffett biography the snowball right i think it must have the david ironhorn book as well and one or two others um and i thought well i read those five books in a month and a half and i thought this is fascinating so i just kind of in my free time at the startup i just read a lot and i was reading a book a week um and then i did my investment management certificate which is kind of a graduate i am it's like a graduate cfa it's like a junior cfa you do if you're a first year at a fund fund house in london so i did that in my free time and i was applying for junior jobs but i was coming up against the barrier of well your cv is completely

bonkers like we've got you versus someone who went to cambridge and did maths right so like in the end i was really struggling to get past the fourth or fifth level of the interview process like i get through and then i just you know in the end you just it's fair enough you lose out to those people um so and i saw fd alphaville was hiring and i'd always read it and i always enjoyed writing at school uh so i thought you know what i'll just have a go at the application like i think my knowledge base is pretty good and i got the job so they took a swing on me so i've been there since um early 2018 march 2018 so three and a half years now and um kind of continuing on the learning i was doing from from before basically but doing it as a living so right

were you uh doing any investment writing prior to joining or was it kind of just writing and then you learned about investing you're like i combined these yeah it was that it was that i think i just got really interested in i just you know markets are super like as someone who wasn't that interested i was 25 26 i just found it like really engrossing and really dynamic um so i wasn't really doing much of investment writing you know i was meeting up with people and i was getting a bit of a name for myself on twitter and i was i was building i was doing getting a little bit of momentum that way but i hadn't got to this but i was struggling to get in the door and i think that's the key thing with um anything in life whatever you want to do it's just getting you're getting you're getting

a job which will get you in the right direction eventually right so yeah yeah and then some of the stuff you've written about i mean you cover a lot of different topics but is the kind of a the golden age of fraud i guess is what a lot of people have termed it i guess that's what jim Ken Chanos coins it. Do you kind of agree with him that we're in that? I know that your experience, you may have started in 2018, so you weren't kind of doing this during the dot-com period. But what makes this two to three-year period different from others? And are you seeing it in the United Kingdom too? Because I know there's a lot of examples here in the United States. I think we are in an age of the golden age of fraud. I think

particularly in the last 18 months it's felt quite overwhelming as even as a journalist just to know what to write about i just sometimes i wake up and like look at stuff that's happened on twitter i'm like it's it's almost made me feel jaded about like so jaded about markets like how the volume of it um yeah it's it's i mean it's such a big topic but yeah i do think we are i'm And I'm not sure what the causes or symptoms are, but it seems to me that, you know, the behavior of some market participants at the moment is just so egregious and so unchecked that it, that, and it's not just in the U.S.,

it's definitely here in Europe as well. Maybe it's even worse in Europe, arguably, that I don't know. It's quite hard to know how it reverses back like we did in the dot-com era because, you know, the end of the dot-com era was marked with two or three giant frauds and prosecutions. We had Enron, we had WorldCom and a few others. Adelphi, maybe I'm getting that right. There were a few other blowups around that time, like big companies,

you know, billion dollar blowups, but it seems the moment where there's some, we're losing tens of billions of market caps some days in some companies when the most obvious information comes out about that, you know, and or like public information. It's not like someone's whistleblowed on the company or, you know, like, for instance, with Enron, the SPVs, which Andy Fastow was using to mark their assets as false values, we didn't really know that until it blew up, right? like that information was private you could see the sbvs and all these weird transactions going on but it was a bit of a sideshow to actually just enron's business just looked very precarious and very um volatile in terms of its revenues by the time it blew up and they were doing all sorts of

odd things in broadband etc um and electricity arbitrage um but now it's like i mean i remember reading the hindenburg report and right and i'm not saying you know i don't want to be calling anything a fraud i've got to be very careful what i say because i'm a journalist but i remember reading the Hindenburg report in Lordstown and I think they were talking about there was an order

for 100 trucks or 200 trucks and the order was from a company registered to an apartment cheap apartment block in oh yeah

I remember reading that Ryan knows this it was almost like a billion dollars worth of orders yeah yeah and I remember reading that

and thinking that's just in such plain sight I was kicking myself in the way for not noticing it you know

but that's the volume thing as well I was like I was aware of all-time motors, as you're aware of all the other ones. Anyway, it seems like when you lift up the trunk of any of these businesses, there's nothing there. Yeah, as an investor, I get scared about what is this company doing? Yeah, I think in the last two to three years, it's hard to know. I think the main point I would make is that we've been in a 20 to 30-year period of very light regulatory action,

action whether it's the sec or in the uk it's the fca or fsa as it used to be or in europe with the european regulators whether it's baffin the amf consul which is the italian regulator but the problem is when you're like underfunding these places for so long and um not giving them the resources they need to do their jobs and they can't compete for workers you know if you're a in plimpton or are you going to go to the sec like and the money is you know the money difference is just gigantic so you just end up losing you know you get this talent drain effect and the people who do go to sec don't want to upset wall street because they probably want to go into a job a private job afterwards um and i think like like investments compound that can compound in government

authorities and regulators and um i think we've just got to the point now where everyone just feels a bit handcuffed and there was a great a book by jesse eisinger called the chicken shit club about this um just about how everyone was scared about going after big frauds or big criminal action whether it's the new york ag or the sec because if you lose a case it's a massive blot on your record and if you go after someone that might hire you they're never going to hire you and it's just this well i just i think i think i will i think that's the thing that surprised me the most is a lack of government action or regulation around this world. I mean, SPACs were obviously becoming a huge thing last year and no one was doing anything. And then we

hear the SEC is like looking into it and you're like, okay, they're looking into it, but now it's over. And like, is this going to be, I mean, you know, Chain Horse also says, you know, regulators are archaeologists, right? But I think it's never been clearer really in this market environment, but now they're archaeologists with blunt tools, I think. Maybe they used to have sharper tools back in the day so right right right it's kind of like i don't know if you've watched the show billions but it just yeah very realistic yeah have you covered uh do you cover green still at all i know that's something yeah we kind of don't know what's going on i could tell you a little bit about green so like i haven't written about it um but um it's the ft um so we've had a

big corporate um blow-ups and uh in in europe we had wirecard which was a payments company the European technology company. It was a fintech company in payments that turned out to be a gigantic fraud. Half the business was made up and the other half of the business made no money. But of course, they were growing EBITDA at 30% every year.

And when they got into the German blue chip index called the DAX, which only has 30 companies. So it's like getting into the Dow, right? And yeah, so that was a disaster for corporate Germany and the stuff. I mean, I can't go into that, but worth reading up about that one if you've not read about it.

It's absolutely bonkers. Going back to the regulator point, there were people at the regulator trading the stock as they were investigating it. So just to get an idea about what was going on there. But Greensill, yes,

Greensill was a, still a bit about it. So it was a very boring business. So it called itself a fintech business, but basically what it did was reverse factoring. So it just inserts itself between a business's suppliers and the business.

So the suppliers want to get paid faster. Let's say Tesco is a big supermarket chain, the biggest supermarket chain in the UK. They normally pay their suppliers in 60 days, right? So suppliers would rather get paid in 30 days but get paid a little less. And Greensill would sit in between Tesco and the supplier and collect the money and get a little bit of yield.

so it really just a boring old financing business right and of course you can see why it would work because everyone wins right like Tesco keeps its payments terms the supplier gets paid faster and Greensill makes a little bit of margin and then what they were doing was they were taking this money owed to them and they were bundling it up and selling it to an investment investment funds mainly one run by credit suites um and um it just i i don't it's not everything has come to light and but it it seems there was a lot of shenanigans going on in the business and not all of the uh receivables might have been real um and um they were doing financing of of receivables that had the sales that had yet to happen are you projected sales um and it was that it was a

class it was a classic thing actually in markets where you get a finance company growing at 40 or 30 or 70 and in the end like the only way you could grow that fast is by loosening your standards because there's no secret sauce in finance it's all about like underwriting and due diligence and making sure you're lending to good credits, right? Or whatever, you're writing insurance for people who will not crash their cars, et cetera, right? Like that's the secret source of finance. And if everyone could grow at 30%, then they would.

But unfortunately, there's not enough customers to grow at 30% offering the correct terms. So if you loosen your terms, you can grow faster. And that's basically, I think, what happened at Greensill. But there's a real interesting political element to it because lex greensill who's australian financer who ran the company founded it um he worked he was involved with the uk government for a period of time and david cameron our former prime minister was also an advisor to the business um and it turns out that david cameron

had been lobbying the government to let greensill manage some of the covid loans um that were being dished out so there's also this kind of insider westminster political element to it as well so it's taken on that whole extra level of scandal but at its core it's really just a bit it's just it's just someone that overstretched themselves and maybe maybe to the point where um it got into the kind of gray legal areas but um i can't really go further than that because um as you might know libel law in the uk is extremely aggressive right right we don't want to yeah yeah yeah cox panoramic wi-fi includes advanced security to help protect all your connected devices you'll get real-time alerts oh like this one so you don't have to worry about malware or when your kid

downloads a song from a shady link and now all your computer can play is red color red color where are you all blocked thanks to advanced security included with cox panoramic wi-fi advanced Security must be enabled in the panoramic Wi-Fi app. Restrictions apply. Another topic you've written about a lot is sort of the electric vehicle companies. We just talked about Lordstown Motors. What do you think has made that such a speculative area, I guess, is what I'd say. And then what's the craziest company that you've seen in that?

Because I guess there's been a few. So what's the craziest EV stock you've seen? um i think electric vehicle stocks well it's hard to mention them without mentioning tesla and tesla's run in 2020 where it 10x i think last year and um that that's created a lot of enthusiasm for the space that previously had been like almost non-existent you know price baguette sentiment in markets and it just completely changed the sentiment towards a whole number of businesses tangentially involved in evs whether it's charging um battery tech um you know fuel cells etc um um yeah and and i think that's been the main driving force i just think

that um and and you and you mix that in with um younger people's concerns about the environment correct concerns and then wanting to put their money into something that will do good that's extremely like moral moral like a moral element to investing is seriously powerful force and um not that every ev company completely overlaps with an esg mandate but i mean most of them do and i i um i don't think it's just institutional money so much i just i just think that like people wanted to be part of this clean future and oh and it happened that these stocks seem to be going up you know two to three x in a month and then you combine those things together and you but it's a very powerful force.

But I think it's mainly price. I think price and just a hunger for green investments from mainly the retail community, but also some institutional money as well. And then, of course, on the other side, Wall Street willing to feed them. Yeah, and then you have the loosened SPAC regulations where you can make the 2024, 2025 estimates.

Everyone's going to check their revenue by 2025. There's no requirements on that. That stuff is absolutely incredible. but yeah no um the fun thing is just opening spec decks i mean i did this big spreadsheet of all the ev stocks and their 2023 versus 2020 numbers i.e what was in the spec decks and it's just you know okay companies can go from 2 million to 300 million of revenue like we know that's possible but we also know that the distribution of those companies is extremely small like if If you've ever read Michael Marbuson, you'll know that.

And that will be – it's not unfair to say that we will see that more frequently in this age because businesses can just grow a lot faster in the information age. I think that's also true. But, yeah, I think some of those projections – we've already seen some of them begin to unwind. And I think that's going to be a big theme in markets over the next year, just looking at what they said in their SPAC deck, looking at their 2022 numbers and being like, ah, okay. It was 10% of what you said.

yeah exactly yeah what's the uh what's the craziest one you've looked at or come across i still think nicola is the craziest i think nicola is just bonkers you know i mean it's it's still training at seven billion dollar market cap right now yeah it's at a seven i looked it up yeah it's at a seven billion ev a seven billion market cap six billion ev um it still doesn't have a product it still has a zero revenue like the founder i think the craziest thing about it is again going back to our point about some of it being in such plain sight was reading the um again Hindenburg Hindenburg did some fantastic work in the last year these are all the plaudits they've got um but remember reading the Hindenburg report and and thinking

what the the brother who used to be a paver is now director of hydrogen and you know at the company and um uh on stage they had no like they when they had the truck unveiling i think it was in 2017 or 16 you could see the wire underneath the truck like turning on the the headlights like it wasn't actually being powered by anything it's like external power source and then there was obviously like the truck rolling down the hill which had no wasn't being propelled by anything um and i think like the fact i mean it caught up to all like an 80 or 90 billion market cap so that i mean that's on where the shares outstanding are now and i think the shares outstanding have gone up so maybe it was like 70 mark last summer um but the fact is still got a 7 billion market cap

and it's rallied 50 in the last 30 days and trevor milton is worth 6 billion i think no he's worth 5.5 billion and he's still got 10 equity so he's still got 600 million of equity in nicola like how like in what kind of age are we in where i have no pro like if these things blow up these things happen and there's always been frauds um or fraudulent behavior i don't want to say this is fraud um in markets but like we're getting to the point now where people are so rewarded for it where the incentives are so obvious for you to do it that's the kind of that's the scary thing for me so when trevor milton never has to work like his family have generational wealth you know there's gonna be milton's running around and two two three four five you know yeah

in 240 years yeah and they'll be friends with adam newman's kids you know like that is that's kind of scary like that goes against like what we're told how the world works like fundamentally um and that's yeah i think that that i think that's the really worrying thing for me is fine like if he just turned into being a nobody and he had a couple of million whatever but like the fact he's got now billions of dollars it's just mad um for effectively failing like that's just not how the system should work and somehow we've got to get to the point where it can happen so yeah i say nicola i think just because the size it got to and yeah the size is still out and it's it's clearly the size has gone anywhere

yeah exactly it's not going anywhere like yeah all right do we want to talk about the Microbubbles. Yeah, we can transition to that. So there's a lot of investors that we talk to, and you can see like, I don't know if anyone can see it on Twitter, there's a lot of takes out there that we're going to see a lot of these mini bubbles, these short bursts of volatility, either due to just the Wall Street Bets stuff, or just everyone can react to things automatically now. Do you agree or disagree with this? And really, have we already seen that transition in the last two years? I think it's here to stay.

I think it's a new, it's a change in market structure and we, you know, zero commission broking and the rise of, and the app and the game. I mean, markets are a game and I don't think we should,

like people can pretend like there is, everyone loves, everyone calls it the greatest game on earth. Like investors love talking about the game of investing, but I think the gamification of it via apps

and not having any cost to trading have just made it, have supercharged it and you combine that with social media and the fact that there's just this constant feedback

and the feedback loops are so tight and so much stronger now I think I think mini bubbles are here to stay mini bubbles and busts

I mean we were seeing it in crypto in 2017 as well right so it's not particularly new we had ICOs coming along people would pump them

on discord channels and then they get out and they would collapse and that was over like a day or two but now we're seeing it over six months maybe

um um but yeah i i think the information i think the the speed point is really important here because i was thinking about it you know in 99 i remember my dad's mate was a stockbroker and my friend in 99 was like telling me at school i was like 12 he was like oh yeah marconi it's like the hottest stock at the moment so i remember going home and like looking up the stock price at the back of the paper and obviously marconi was like a zero two years later but um uh they were an i tech company an it company in europe but um but i think if you were trading the stock back then right you can either call up your broker and get the price or you might have had the internet at work which was good enough to check it um but to sell it i mean

and to sell it on after a big move you'd probably be so late to it that you just throw in the towel and being able to like track like every one of these game stop and like guys night like these retail trades they know what candlesticks are they they know about tentacles they know what the theme is there's always like a thesis around these companies they may be completely and wildly incorrect like as we saw with clover health or um you know getting a short uh interest wrong etc but um they know what they're doing and they can react much faster um you know in 2000 if a stock could get down 20 you might only know the next day right and then you might have to call your broker and the trade might only get executed by the evening and i just think

That now being compressed into five minutes, it's a completely different world in markets. But I still think it's a small corner. I mean, we might see it go into large caps, maybe. But again, I say AMC was like a $30 billion market cap at one point, right? So what am I talking about here? Tesla's kind of a... Yeah, I agree.

Yeah, Tesla, I mean, to be fair, I think, I mean, you could talk, because I think it's easy to deride Tesla Q on Twitter, and they're quite fun to poke fun at. But last year, they were quite right that some of the call option activity in Tesla last year was completely bonkers. As soon as the stock began to crack a little, you'd see gigantic purchases of call options out of the money,

dragging the share price up. And I have no idea who was doing that. I mean, there was some suspicion it was SoftBank when that SoftBank story came out about the NASDAQ last year. But, yeah, I think Tesla is a bit of a blueprint. And then just on the short squeeze, call options, easy to get in and out. But then we're seeing everything stop at AMC. But I do think it's here to stay.

Whether it will be to the same degree when people have lost money and they're bored, I don't know. That's the question. There will be a boredom factor to this, for sure. But I thought it would happen by now when people could go out and go to bars and stuff but like turns out it's not so um yeah that thesis has collapsed so yeah you think there's any way to like uh for regulators to step in at all or is it because there's i don't know if they should step in man i don't like they should step i think i think the

thing that the thing they should step in is the supply of these companies like making sure like the ceos are well you know the ceos are vetted properly like the disclosures are good you know we saw with clover health that they didn't disclose i think there was a common reference an sec investigation or an fda investigation there was a uh they didn't disclose that and their filings and that sort of stuff like having clarity on that the sec probably needs to do better with and the regulator needs to do better with and and stopping people who have been involved in frauds in the past like launching specs and that that sort of thing but i think with something like amc and gamestop you know we've seen silly things happen in markets before and maybe

on options trading i think there's something to be said on that but um like barriers in the end it is just a game right like i mean you know like quantitative funds have been doing this kind of stuff for ages and no one lift battered an eyelid you know the flash boy stuff um was equally as egregious at times in my opinion so um it is just markets like markets change and um it's painful for a lot of people who think that everything should trade around fundamentals but it's a new environment right and you need to adapt just as people need to adapt for like low interest rate environment etc so yeah the uh and it seems like the uh if people want to risk a lot of money and if they are going to lose a lot of money i mean that's yeah that's up to them also i'd also say

with game start i mean a lot of these people are in for a couple of hundred dollars or a couple of hundred pounds there's very few whales really you know like and the ones that are big you hear about in the news but i think it's a lot of people just punting a couple of hundred for fun you know i don't think it's i don't think it's hopefully it's not ruining a lot of people's finances although i have seen there are a lot of people more than i thought who have several million dollars of tesla stock because of last year and i that that that does worry me a little like there are some youtubers who are sitting on five million dollars of tesla stock you know for up from a hundred thousands and that and they won't sell so i that that that's that's a bit more of a concern

for me but did you see this story where it was like the guy who's like uh i've got well i forget what it was 12 million 12 12 million yeah he's like i just i just quit my job and i was like how'd you quit and he's like and i'm not selling i was like why'd you quit your job yeah what was it nine that was when it was like 850 right so it's 600 now so yeah i mean yeah but in the end that's their decision and like i yeah i don't know like there has to be an element of in markets where you let this stuff happen i think um and it bleeds out like you can't just you know we can't just like create market environments for one type of investing to work like i think yeah but um but it's super it is kind of fun and you don't need

participate either like you know don't don't short meme companies like how's that how difficult is that you know what do you think about this ceo is kind of leaning into it and sort of leveraging it i know we saw with amc i think this last week i saw cleveland cliffs this morning do some total antagonizing or it was maybe last night they were saying like they were just doing basically the script of like amc they're like we're heavily shorted we hate the short interest on our company and it was on cmc it probably looked like kramer or something and they're trying to basically broadcast to the world is that kind of what you're asking about too well more like i mean in amc's case they're giving free popcorn to shareholders like that kind of like like come in you know kind

of like selling stock yeah i don't know i i mean they can lean into like in the end like they do like AMC like it's still in a precarious financial position they have a fiduciary duty to make sure the company doesn't go bust like I don't know leaning into what keeps the share price high lets them raise more equity I like if they if they if what they're saying is not true then there's a massive problem there but right I think everyone's I mean the risks were in the uh in the prospectus last year last week literally said um you know this stock is incredibly volatile it's detached from fundamentals trade at your own risk right like the people people know what's going on i think um and i yeah um yeah i think i think more the question is shareholders should be asking like

when when the stock goes absolutely bonkers is why um why the ceo while they aren't selling shares i think that's really the question they should be asking so yeah yeah it's a team effort we we're gonna yeah yeah and you're gonna help you we'll help you help yourself out at the end And it seems like AMC was one of the smart ones. There was a lot of software companies or maybe just tech in general last year trading at 50, 60 times sales. And a lot of times they weren't selling stock. And that kind of seems like, I don't know,

you're not using your share price correctly, but who knows? I think, yeah, those companies are interesting, like the SaaS stocks. Like clearly like when the economics work for those businesses, they're just incredible companies. I mean, like you can't, every time I look at Adobe's quarters, I just like, holy shit, this company is insane. So when those businesses get to scale, so you can kind of understand the valuations and why they might not want to be diluting shareholders who have like stuck with them, whether they're anchor investors from the venture days or whether it's institutional shareholders. But yeah, there was probably a few cases last year where they should have sold more stock. um but then i then again those businesses unlike the meme stocks they depend heavily on their share

price to attract talent so selling stock is trickier i think for those businesses as well right um and i do think that's an i've written about this a lot but um cisco had this problem in the 2000s where because the share price got so high and then it fell and never recovered and the company still did very well um it was very hard to attract talent because no one wants to join a company where the share price is going down or going nowhere um i think microsoft probably had this problem in this era as well so ideally if you're a tech company you want 25 compound growth in your share price like google's had or you know amazon has had because someone who joined five years ago is now going to be rich like i can't imagine what it's like if you joined tesla

in january as a engineer and you got your stock options with like an 850 strike and now you're underwater and the guy sitting next to you with less experience who isn't as good as his job is now worth 20 or 30 million dollars because he joined three years earlier it's going to definitely create issues for companies like that i think um for kind of john like an employee level and culture level so um yeah it is yeah yeah anyway yeah it is an interesting uh interesting point other software companies last year but interesting um what about i i guess with these i guess you'd call them pockets of irrationality or sort of uh speculative mini bubbles do you think they have any variance on the overall market or is it kind of just in their little corners

well we saw um amc and gamestop i think they're now the two two out of three of the largest companies in the russells so clearly there's an index people are investing in these companies okay the amounts on large 0.8 0.7 of the whole index it's not like it's gigantic it's not like apple you know in the in the s&p 500 but um i do yeah there is a market structure element to it for sure especially if they can sustain the share prices um but i think beyond that um i'm not sure it's just it feels like a sideshow but i think we should get it i think the concerns will grow a little bit more for if it really bleeds into like the wider larger market but i just think there's not enough there's not enough money to do it to be honest with you um

so but yeah um for financial markets at large i don't i don't think i think it's i think it's more of i i it's kind of like a sideshow at the moment and i don't think it's going to go away But I don't think it should be viewed as anything more than that, like anything more. I think it is a change in market structure, but it's a profound one for some people. If you're short selling a company that might go bankrupt for a high short interest, that is a change in market structure where you just begin to avoiding those companies. But it doesn't feel super significant at the moment, but that could definitely change. yeah yeah and it seems like it's above kind of our like pay grades where you know there could be like the value factor stuff the momentum factor stuff that comes into play like that

could be affected but that's really really behind the scenes it's hard for us to tell yeah yeah wrap up questions yeah i guess we should do that um this is stuff we just ask everyone so what is one financial saying that you disagree with so i don't think about this i think it's I think it's the kind of buy and hold mentality um which I always see as a layover from Warren kind of if you've read lots of Warren Buffett and um follow a lot of famous investors you know a lot of them it's kind of low trading um not not trading much buying good companies holding on to them and that's kind of gone with the market environment from the last 10 years which kind of got the kind of tiger cub era of investing you know like buying quality at a high

price and just holding on to it um but i i i think that is a because it's done very well over the last 10 years it's become a very popular mantra um and i and it's not been true and lots of you know if you brought the nifty 50 in in 1973 or 4 like those were those were 50 very good companies and it completely underperformed the market for the next 10 years or 20 years um and not many of businesses still remain actually um but i also think it's it also i think it misreads buffett a little because i think that the buy and hold mantra comes from an era of buffett where he was dealing with large pools of capital and that was pretty much the only way to invest right like if you've got 10 billion to invest um into one company there's very few companies you can do

that with um so you're either buying businesses and and they're de facto you're holding them because there's no liquidity, or you're buying very large companies. He's done very, very well at that since the 80s. But actually, if you look at Warren Buffett in the 60s, he was all over the place. He was a bit more like a Druckenmiller-type investor. He was doing spin-offs, warrants, in and out of little companies, net-nets. As soon as they met their their cash value he'd be out etc so i think um i do think it's like the buy and hold mantra is more of a function of liquidity it should be used relative to like how much liquidity you have and i don't think um or how much liquidity is available to you or relative to your needs and for a lot of

investors um i'm not sure it's it's that applicable that is if you're active investing like if you're doing passive investing then sure like uh you should be dollar cost averaging and buying the indexes like but you know if you're trading an index fund yeah yeah exactly you don't day trade index funds but if you're buying stocks like i was thinking about this um i know a few guys who were in bed bath and beyond right and they brought that at like five to seven bucks but and in january it got caught up in the game stop stuff and the thesis last year was good they got a new ceo they're cutting costs it's a great brand like the new ceo can turn the business around you know it's trading at like eight times normalized earnings like if you can if the

cost cutting works and they can maintain the same level of revenues so the thesis was like solid and classic value thesis but then it got caught up in the GameStop stuff in January and it went to 50 bucks and you've got to be like if you're buying if you bought if you bought and hold it at five bucks you're like I think this is a great business I'm going to hold it for three years see what happens and it goes to 50 then you've got to be like well I'm at you know I'm out right like I've made all my i made more money than i probably should have in a short amount of time like what's the use in buying i'm not gonna you know i'm not gonna buy and hold this and the same goes for any quality quality companies that you you know ones in the quality bucket that get caught up in this

world as well um so yeah i think that in this and when there's as we're talking about these mini bubbles mini bouts of volatility maybe it helps to be a bit more nimble and i think yeah i think the buying whole thing maybe maybe it's going to end up being not the best 10 next 10 years versus the last 10 for it um right right yeah because that's kind of in the i guess the circles that we kind of the people that we talk to it seems extremely consensus and we're kind of in that boat as well like you know by quality at a reasonable price darby stuff like that but it is worrying if it's like all right we all agree with this and you know that's a little bit concerning Yeah, I think there is. I mean, Paul Marshall, who's a really well-known UK hedge fund manager, runs one half of Marshall Waste, which is the biggest hedge fund in Europe.

He made this point in his book that the Tiger Cub way of investing has become so popular that he's a bit concerned about it because there's so much crowding in these quality names. um what's that aerospace parts company that everyone is trans dime you know something like that which is just such a consensus long i don't know like how how far can it go i don't know maybe it can go on and like that's a great business and it's what they run the capital structure is very clever and they run the business very well um and i've heard it being pitched to me by a tiger cub before you know with his eyes lit up you know just in love with it um but um i do think that um as we know in markets you know the value in the 2000s worked fantastic like that was a golden era of value investing and now it's gone away and there's always going to be new eras and new ways

to make money and i think thinking that the kind of quality buying whole world is here to stay i'm not sure we'll we'll maybe we might not see a 2010 to 2020 period like that again so um but yeah but it's a good thing to have on your arsenal though yeah yeah kind of a random question But if you talked about Buffett in the 60s, if he were an emerging manager today, where do you think he'd be looking? He'd be buying SPACs at par and waiting for them to get caught up in the retail mania. He'd be doing stuff like that, I think. Yeah. That was the best trade last year.

Just buy a whole bunch of SPACs at cash. There's no downside. The downside is like, what, 5% or something? and the upside was with the warrants was like you can make you know a thousand percent on some of these things like quite easily and i know a canadian hedge fund that did that last year and they made an absolute killing they just brought all of you know they just did like one percent in 20 spacks and they had like a spec pool at cash and yeah i think he'd be doing stuff like that i don't think he'd be doing you know american express 10 waiting like you know um you can do

both as well you can do both but i think it's worth like thinking outside of like i don't know that that would that i think that's that's kind of how i would that's what i imagine he'd be doing and he'd be doing a lot more of european and asian stuff as well because there's a lot more it's that you know those markets are not as um well covered as the us so there's a lot more um the information is poorer so it's just there's no more opportunities i think in europe and asia so yeah what is uh last question here what's one piece of advice you have for anyone that's considering getting into finance or business or financial journalism well i think with financial business and finance are different um and i i've never worked in finance i have worked for a proper

business um but um for journalism i mean look there are hundreds and thousands like there are hundreds of thousands of people who want to go and work in an investment bank or work at a hedge fund um there's hundreds of thousands of english graduates very smart people who can write who want to be journalists of an agile journalist but i think in this age it's good to differentiate yourself by having some knowledge base which might not exist amongst the people you're competing against and i think um the people who've done very well at the ft um i'll tell you like rob smith who's done the green stuff story like he's been covering credit now for six years and he went in um to his first job as an english graduate from cambridge and but over two or three years

just became very very familiar with how credit agreements are structured how bond documents are structured who the main credit and bond investors are in london and europe and just building a really insane knowledge base and i and i think um if you're going into especially financial journalism now if you can offer something like that you make yourself incredibly employable like and when i joined the ft um not like there's people the ft who've got great financial knowledge but like not many people can reconcile a cashflow statement with a balance sheet, with a P and L right. Like, but I could do that. So that was something I offered different.

Like I could read a financial statement and like know what was going on. And I'd say, if you want to work in financial journalism, like whether it's FX or like money, like structure of money, like bank plumbing, like having some knowledge, some like very deep knowledge about one subject will really stand you in good stead because it means you can write about it really quickly. and have an original take or know where the story is rather than just writing out what the press release says.

And as we know, in this day and age, corporate earning releases are incredibly, at worst, they're deceptive, I think, in this day and age. I mean, there's a few ride-sharing companies who are listed where I honestly think their corporate earnings are just, it's like shambolic like it's incredible like we're gonna be adjusted profitable soon yeah adjusted profitable but then you read like you to get to the actual pnl you have to scroll down like 40 pages and that's in the press release right uh it um and the and they adjust change

adjusted ebitda um every month or every quarter like they've added something they've taken something away like lyft take away their insurance costs i think well of course i need to provide insurance to your drivers that's an operating like but the problem is is like if you're well versed if you're like a great journalist and you've got an hour to write the lift i mean you know there's a big time pressure in journalism as well i think this goes underappreciated but sometimes by investors it's like sometimes you've got an hour to publish a story about lift earnings right and like actually knowing what to look at is part of the trick and if you're new on a beat you're just going to say lift expect to be profitable by the end of 2021 shares moves up

seven percent um the ceo said this and that would be your kind of news story right you know one one investment bank sell side said this but actually to be like lyft lost another 800 million as a quarter as it profits as it promised to be profitable on an adjusted basis by the end of the year like that you know like just knowing what the right angle is when it comes to like numbers is a skill in itself so that's what i'd say it's like financial it's like build up a base of knowledge so you can feel comfortable doing something getting to that point um and uh you they'll really send you a good step because there's not many journalists um who have that level of knowledge um at the moment so fascinating yeah all right i think that's gonna do it that's

our questions where uh where can listeners find you like twitter handle so i'm on twitter and always forget my handle actually um you're not that to be not to be no it's that so my handle is um ajb underscore powell um and uh those are my initials and um i'm also you can email me if you want uh jamie.powellft.com i mean my email is like out there so um if you've got a juicy story or something you think i should be writing about you should let me know because uh i'm always interested so yeah perfect all right uh thank you for your time uh have fun thank you guys cheers all right welcome back in thanks again to jamie powell for joining us had a lot of fun uh but next we have our own show notes kind of riffing on the world of investing in our own way uh and so

i guess i'll kick things off um and it's not really a story but i was reading jake taylor's book this week called the rebel allocator and if you don't know who jake taylor is he runs i'm blanking on the name of his fund but we had him on a month ago if you want to listen to an hour discussion with him yeah and he's just really insightful he's also on the uh acquirers podcast but he wrote this book called the rebel allocator and in his book he uses this three pencil concept to illustrate how businesses kind of create value or how businesses can succeed or fail and by the way good book i understand why charlie said he couldn't put it down he just read right through from the beginning to the end. It's easy to read. It's a lot of fun. But basically, I'll

try to convey what this illustration looks like. So it's three pencils, essentially all pointing to the same place. And there's one in the middle. So it's kind of like a triangle. But if you get what I'm saying, and then the middle one's kind of like a pendulum, it can kind of swing. And so on the left pencil is marked cost, the middle pencil is marked price, and the right pencil is marked value and so what he says is in order for a business to thrive the value derived to the customer so the right pencil has to be greater than the price the customer is charged the middle pencil which has to be greater than the cost of the good or service which is the left pencil which kind of makes sense but then you've got those in between spaces and between price and cost you've

got profit obviously but then between price and value you have brand and you can kind of swing that pendulum that middle pencil which is price and determine like if you get really really close if you have minimal profits and you're providing a huge a lot of value then your brand's stronger that kind of thing and then vice versa if you're starting to raise or maximize profits you can kind of mortgage that brand so i do you think do you kind of like this approach to thinking about like brand equity um and then also what companies do you think have the biggest gap for you as a consumer between value and price yeah so and then just to define that again the value is the value to it's not an investing sense it's the value to myself or a typical consumer versus what you're

paying yeah i think that approach works yeah it's a good analogy and i think that's whatever way you get to it when you're identifying a consumer brand or a well i guess not even a consumer brand there there's brands for companies that are selling b2b you have to decide what kind of value they're providing and how much you know they're charging people for that and then that can help you determine the pricing power or the you know potential pricing power some companies might not want to do that uh and then companies with the biggest gap i mean the easiest one would be some of these subscription services like spotify you're using it at least for myself i'm using spotify two to three hours a day and it's only well i'm on a family plan so it's only what is

it 17 18 bucks a month for six total i guess four on that plan so you know four or five bucks a month i mean that's tremendous value there some of the streaming services for video you could argue were but and i guess maybe disney plus is providing a lot of value now for only seven eight bucks a month yeah but netflix is kind of more closer to fair value now i mean it's not it's still fairly cheap what about chipotle i mean it's food it's food i don't know it's just food interesting i don't know i think the people i think i think the people look this is not an investing take but the people i think chipotle is like the best thing in the world you just don't know how to cook i'm sorry like uh whatever go past it sorry reason i ask about restaurants is because the illustration

in this example was it's pretty clear yeah it's easy guy from the the guy who was telling this story or portraying this lesson uh built sort of an empire and i think it was like topeka kansas or something like that on fast food restaurants and so he's like every time we add an extra cost that'll help the customer that's expanding the value yeah and i was restaurants wise the only one i could think of that really does that for me would be chipotle yeah i mean they're they're pretty good at trying to provide a lot of value and they probably do a lot of pricing power just because of the fresh you know pretty decent quality i'm saying it's not that consistent it's pretty consistent compared to other restaurants but like sometimes you'll get a dud

you know and they have that good uh esg brand for um all the environmental stuff they do it's quick it's very convenient yeah i mean they definitely have some pricing power but i i don't know that one there's some others i think more like digital services have a lot more pricing power yeah that's probably true all right what's your story okay this is i guess speaking of streaming subscription services netflix is moving into a whole nother product category this was i think an underrated story from the week that not many people were talking about i guess there's all the meme stuff that's drowning things out right now uh but it was an interesting announcement from the streaming giant there's netflix.shop and it is a new website that

just launched for merchandise and apparel all based on netflix shows i'll give the quote from the press release netflix.shop will drop exclusive limited edition of carefully selected high quality apparel and lifestyle products tied to our shows and brand on a regular basis so just merchandise Nice. First off, though, I guess this gets me thinking, you know, we've been doubters of Shopify at whatever it's at, 40 times sales. Maybe it's lower now, 30, 35 with a little I guess you never know. It's still, you know, premium valuation. And we've kind of been a doubter of Shopify's long term returns as an as an investment from here. But everything they do and this is with Shopify and a partnership with Shopify, with Netflix here. it feels like everything they do is i'm thinking well we might get proved wrong on the shopify uh

you know we're not short or anything but just kind of the bear take yeah i mean it's a no like it's a no-brainer for businesses that want to start like an e-commerce site that's the place to go even netflix yeah yeah and yeah i think even walmart no no walmart does this own they have their own else did one my camera like a big chain like a while back i'm sure they have a few in there yeah but the only ones that really do their own now are would be walmart target amazon and then some of the other platforms but yeah i don't know i feel like we're going to get proved wrong on shopify i'm okay with that i mean we're not going to lose any money but i i keep feeling like we're going to get proved wrong i mean yeah the business is kind of bulletproof

to be honest yeah it's uh the only quarrel is over valuation yeah that's usually a bad short thesis if you ever have one i guess true true all right well what do you think about this netflix shop thing good idea can it be meaningful to netflix's business i don't think so and i well what question i don't think it can be meaningful to the business maybe it's a good idea just to kind of build like more avid fan bases around your shows but i don't i'm not the kind of consumer that would buy this stuff also there's not any i don't know i feel like well you gotta get out of you gotta get on your own yeah i know but i feel like merchandise that sells the best is like comedy related merchandise if you're referencing shows i think this is what it

would be right yeah but do they have any comedy shows that are yeah they have the exclusive to them yeah they have all the comedy they have what all the number one i mean like bojack horseman's like the number one uh animated show now i mean yeah they have if you did if if i saw someone walking around with a bojack horseman show or a shirt and it had some quote on it i don't think anyone could relate to it i think that is not true because if you look at the rankings of that show it's pretty high i think cnbc could do it or not cnbc sorry nbc or peacock could do something like this i think or hbo i'm not sure if netflix is there yet on the comedy side i mean i don't know i think i disagree i think i i don't know they have all basically all the new comedies

would you buy a shirt from netflix oh i mean i'm not a no but i think plenty of people will yeah i suppose but this is like it seems like ferrari to me like ferrari's merchandise and apparel stuff it's not that relevant to the actual business no but it builds the huge brand yeah yeah i mean well netflix is a bigger brand than ferrari but the the apparent like it's not necessarily to make money it's just to get people to like your franchises more i think it's a good idea and you know again we always say you're i guess one a lot of people look at optionality and we kind of think it's an overused term we always think it you know you should have a high bar when deciding whether a company has optionality

But I think with Netflix, it's clearly the case. They are kind of, and the way I like to describe it is they're kind of patiently waiting with a lot of levers like this that they can pull to make money. What are some other companies that you think are like this? I would say Facebook is pretty clear. They were waiting on a lot of things with shopping, stuff like that. Nintendo is one of those. A lot of the video game publishers come to mind for me. But that's bias.

Those are companies we kind of look at a lot. any others that you can think of shopify uh is one shopify yeah that's tougher though add out so many different services to help merchants yeah but that's is that really a different lever or is it just the same lever uh you can do ad related stuff mobile apps that like put everything together once you own that many merchants there's you could do like a mall type thing i guess facebook is kind of similar with instagram i actually don't think netflix has that much optionality in 10 year well maybe i'm wrong but in five to ten years well i assume subscriptions is going to make up the probably 95 percent of its revenue sure sure

sure but still the for the for the last 10 years they've done one thing and that's it and now with all of the yes that's not yeah so they they and they could have done a ton of other stuff like they could have branched out into this a lot earlier the netflix.shop stuff so what i'm trying to say is is that the lever there's a lot of levers that they can pull and they could have pulled five years ago and now they're just kind of waiting for that because they don't have to and the revenue has been growing for 20 the subscription business is amazing and now they can just add this on top but it's something they can kind of wait and do it's kind of a power that they you know they have with the advantage they're in when i think about optionality i think they can

add something substantial to their business that is in a completely different uh type of business category uh and like netflix shops could do that right this is not going to add anything meaningful to their business no way no i mean i'm just saying like it's another thing they can do that they have they a lever they can pull that they are that they are pulling now that they haven't for the last 10 years and there's a lot of other ones that they can do which would be you know video games i guess is one although that's kind of not really option well there's a bit and then there's also like theme parks most logical next step when i think about optionality for netflix yeah but it's just not technically feasible right now all right well is that all uh

what yeah what other do you have any other companies that come to mind not top of mind i guess facebook shopify uh spotify too yeah it seems like they're pulling them all right now though and it's not like that's a bad thing or a good thing it seems like they're kind of pulling them all yeah all right which leads into my next story which is spotify uh rumors are that there and talks to acquire call her daddy the call her daddy podcast uh so it's reported that they're nearing a deal to bring alexandra cooper who is the host of the show alexandra alexandra sorry uh and the show call it call call her daddy uh exclusively to its service and the licensing deal would be worth roughly 20 million or more according to people familiar with the matter i

guess is the so that i mean it's wall street someone it's definitely uh her that just means her yeah and so uh it would also include something called a first look agreement with the intention of having spotify help uh alexandra cooper develop other projects as well for anyone who doesn't know what color daddy is it's pretty much like it's all for young women yeah like under 30 it's like under 35 girl talk i guess is the way you could describe it it's perfect overlap for our demographic Like huge, huge for the investment community. Yeah, check out that show right after this one. But did a little bit of, and I think they're still owned by Barstool.

There was like a little bit of like some falling out a year ago. Yeah, I believe they're still under that, yeah. But the Barstool logo is still on the podcast logo or podcast. Yeah, I'm sure they have a contract that ends sometime soon, yeah. Anyway, so it's estimated that they have, well, they are the fifth largest, they were the fifth largest podcast globally on spotify last year and pod scribe which is kind of like a podcast website for all the information you want on them uh estimates that they the show has three million listeners so did a little back of the napkin math here they do one show a week

so if we assume like an average cpm of twenty dollars per thousand listens and they do three million listens and that's fairly conservative i imagine they can get better ads than that 3 million listens per episode They generate 60,000 a week That's roughly 3 million in ad revenue For a year Yeah, and I would say that their CPM is likely going to be higher Not much higher, and they're likely doing

More than one ad I mean, probably multiply that 3 million by 3 Well, yeah I mean, they probably change them throughout the year But they are They're presented by Adam and Eve Yeah, I mean, that makes sense It's kind of like the cash app thing

i'm guessing for for the part of my taking joe rogan and stuff like that yeah the i mean i guess i don't listen to the show so this is up in the air but i would assume they do more than one ad so i i think that that ad revenue is probably pushing 10 million if if they wanted to don't you think they would have had to pay more if they're getting 10 million in ad revenue because i mean well joe rogan what are the costs of goods sold a microphone and a salary yeah so that's the interesting thing here is that you okay there's a lot of variables at play for one you would have said the same thing about joe rogan right he wanted to do 100 million for two years his ad revenue could be a lot more but the thing is spotify takes and it's not just spotify it's

any of these other people that would sign an exclusive deal they take all of the work off of your hands and it's just all this money up front you don't have to worry about the advertising you don't have to worry about anything else maybe you have a producer along with you the back like the back end work the producer yeah yeah a lot of the hard stuff there advertising is really tough i mean all that all that stuff is just taken off your hands yeah does joe does joe rogan even do ads anymore uh yes yes he does there's no way they wouldn't do ads because i mean it could be just trying to attract the audience yes yeah that's part of it too and that's one of the reasons why they're paying so much money for it yeah there's a lot like i said there's a lot of variables at

place so some people can make a lot of arguments for like oh this is a bad deal oh this is going to take so many subscribers to make up for that but there's so many reasons why they would do this i guess do you uh do you think this do you like this acquisition then do you like the strategy in general of making prominent shows exclusive only on spotify yes i do i think it is very smart for one no one can compete with these deals like uh barstool probably can't i guess they're owned by a parent company so it's not economically feasible for someone like them to pay uh one of their whatever creators i guess you will call them 20 million dollars a year and a lot of other small podcast studios cannot do that but spotify can and they can make it work from an economic

standpoint because they have 300 and pushing 400 million maus so 356 yeah they'll be put hopefully pushing 400 million by the end of this year plus the premium subscribers if they can just convince a lot of people to come over to spotify i mean it's just a 20 million dollar customer acquisition cost that they will make up in what apple could afford it i don't know why they continue to drop football and just about everything audio related yeah and i mean yeah apple can do it as well i guess spot you know amazon could do it as well but the smaller studios cannot compete with that and again the 20 million dollars they'll make back up in ad revenue and then on top of that they're just convincing everyone to come over and listen on their service yeah all right uh what

about i mean do you think they deserve that because they used to get the netflix comparison a lot do you think that's maybe more they're more deserving of it now yeah it's a little different it's different it's similar but it's a little i mean the similarities i think yeah you can argue it's similar but it's more ad supported a lot of this stuff isn't behind paywalls so the the podcast industry is a lot different than like the streaming video right i don't know it feels more like youtube to me i mean more of the strategy i mean they get the back they get like the entire catalog of past shows true but also it's almost in a sense uh spotify original once i mean not not really but all the new shows that are only on spotify could those be considered spotify

originals kind of like the netflix original strategy yeah i think yeah that part makes sense too yeah and we'll see how the economics play out there again there's so many variables at play and hey repeating that and saying that it's just confusing and it's really hard because you gotta like write all this stuff out of what the value is you know where the benefits could be what the costs are stuff like that where you know they're trying to build out this ad network right and i guess we use it on this show this can help with that we run a podcast there are not a lot of operating expenses i would imagine gross margins on a podcast are like 98 percent yeah it seems like these are profit like i can't imagine buying a podcast i can't imagine there's a big podcast

that is immensely profitable yeah no that's exactly right and that's yeah i mean we know from we kind of have the inside inside track there where yeah and that's interesting where okay so like netflix or whatever they can spend 15 billion dollars a year and making movies and tv shows is extremely difficult and yeah they're still you know with podcasts um with shows there's still the cost of acquiring the talent but that's really it that's the entire cost and then you're and then you're building back i guess yeah and there's some equipment but that's a tiny cost and then there's building out the back end which would just be either advertising or putting it behind the subscription paywall those are the two options yeah we'll see i like it though what's

your next story okay facebook smartwatch so this is a source from the verge which i think you can trust because they seem to have a really good relationship with facebook uh the verge seems to drop all of the rumors there so maybe they maybe they have the inside scoop to zuck but i doubt it he seems to be out there throwing spears which is a great video uh so this would be the first smart watch from facebook and it'll be coming out apparently next summer the specs it has a display like you would have guessed just like the apple watch but it would also have two cameras and attachment things where you can put cameras on as well and you can have two cameras one for taking pictures or videos and then uploading to whatever so it can help you like

you know do stuff on facebook you can see the synergies with going live on facebook or instagram or whatever and stuff like that and a quote here is that the idea is to encourage owners of the watch to use it in ways that smartphones are used now so zuckerberg and i guess the company apparently wants to circumvent apple and google and then for future future versions of the watch it'll be used as the key quote input device for the company's planned ar glasses is now these are big ambitions and they're working on a lot of tech here and there's that rumor or not rumor that leak that there was 10 000 people at facebook working within this ar smart watch and hardware division is there a scenario where this can win versus the apple watch

maybe i mean apple apple seems to do very well with hardware um an apple watch seems to be now do you have one i don't i don't have it seems to be pretty good like like good tech right which uh i mean there's the one with uh cellular or whatever and then there's one that's like you can't get i'm you blanking on the term kind of like ipads right yeah basically you need wi-fi as opposed to like an iphone um and one of them's much more expensive and i've found that people who have an iphone are reluctant to pay another thousand dollars type like what you're paying for an iphone for a watch um but i don't yeah people like the tech people i think people like the way it looks more than anything else that's true and tracking calories is oddly a big thing

yeah that's yeah which i don't even know if that's that accurate but yeah those things can't be that accurate what they're just taking some electrical pulses uh but it does seem like the apple watches are more fashion devices people kind of use them to look good now yeah and i think the only way facebook could win here is if the tech is like just better yeah maybe not 10x but just kind of in that ballpark it's got to be significantly better to overlook the brand value of apple and then the privacy issues that people have with facebook no matter what i mean we know that that's just kind of a bugaboo now but people still don't like it and i just don't you know i hope i'm wrong i guess maybe it'll be cool to see all this sweet tech go out but i just don't

know how it can be successful i look at the portal the facebook portal i'm a little hesitant to think this would work uh maybe under a different brand like they they it's not even like they could do it under some sort of other company right yeah maybe all right what's your uh i don't have another story so what's your last okay yeah i wanted to i've been trying to wrap up with fun ones and this is what i'm calling the hacker news legend uh so let's confirm some of our priors here with our you know most jobs are not that important important thesis and we're saying that about ourselves too so don't think it's like we it's for most ones beneath us everyone's everyone is in the same boat here uh even you know ceo stuff like that but here's the post from hacker news

there are going to be some quotes here so hopefully listen listening carefully i'll start the quote i currently have 10 fully remote engineering jobs the bar is so low oversight is non-existent and everyone is so forgiving for underperformance i can coast about four to eight weeks before a given job fires me currently on a 1.5 million dollar run rate for comp this year and the interviewing process is so much faster today companies are desperate it takes me two to three hours of total work or effort to land a new job with thousands to choose from what do you think that that that's a hell of a strategy i honestly respect this guy for gaming the system yeah it seems we can SPAC him on a 1.5 million revenue run rate let's I mean we can take a SPAC out

about 100 million dollars right now doing the work for any of these jobs well we'll get to the later quotes here yeah but I mean my kind of thought was I bet all these companies that he's working for have really high gross margins and that operating expense line is just full of bloat which I mean I'm kind of in I'm coming around to the operating expenses at a lot of these software companies are almost all of them can be taken down and the companies would be doing just fine do you believe do you agree with that or uh yes and i find it just fascinating that this guy like is he not in and out of hundreds of meetings every day yeah so that was one problem he said he had is that he always just claims wi-fi issues and then goes on um uh black screen for zoom or

whatever they're using but he says it's become an issue yeah he has to he says he has to do jobs where they're not doing a ton of meetings every day jeez what about like isn't his resume kind of tarnished after yeah that's what i was thinking that's what i was thinking like there might be some you know the sort of the in like two sustainable yes but if you're on a 1.5 million run rate if you do that for a year or two basically depending on your you know depending on what you want to do with your life i mean that can set you up for a lot of freedom i also wonder how many of these tech companies are really going through old employers to vet new employees oh here let's get to the other quotes here that kind of shows what is happening at these companies

here's here's some follow-ons from when people are asking about it within the comments quote i put in about an hour per job per day which makes sense quote many of these positions are senior level data science where measuring progress can be difficult okay that makes sense too and then the last one here which i think kind of hits on the point from an investment perspective quote i target overly funded growth mode companies where they're focused on adding unnecessary headcount to work on poorly defined projects let's get this guy and just become use him as an example to be an activist investor at a lot of these software companies you guys claim you have 80 gross margins trim the fat guys let's get to 30 profit margins here yeah i just that's

so funny it's just capitalizing on these rampant vc funded companies yes exactly like the i think that's a good plan where someone gets say like a series b 100 million dollars or something like that they're they're really taken off hire random headcount they gotta hire like 100 people and that's going to be tough to do some people are going to fall through the cracks you're like what's he up to it's so weird that like companies get when they get in that growth phase they start to target adding more people instead of like oh i thought software scale to be solved i know i thought software was supposed to scale with less people yeah i mean is this why all these software companies and still not just software the silicon valley companies can never get to profitability

they're always theoretically going to get to profitability i think in a bear market we're going to see if there was like a sustained bear market a lot of these companies would get to profitability yeah yeah they just trim the fat yeah and then go more you know how a lot there's that chart and i guess the data that profit margins as a percentage of gdp have risen from like the average over the 20th century at six percent to twelve percent now have you ever seen that stuff yeah and where people argue they're like well when we get reversion to the mean you know that's going to be tough for a lot of these companies and i'm like guys you realize we're on path for like 20 yeah i don't know if reversion to the mean fits in there i don't think

so either i mean if anything if it's just it can march higher yeah it's it's more profitable kind of just by its very nature, like these digital businesses. Yeah, and I guess it depends on what country you're looking at, you know. But that's a whole other discussion altogether. Either way, I thought that was a good way to wrap up the show.

Probably one of the best or funniest posts I saw over the past few months. All right, I think that's going to do it. Thanks again to Jamie Powell for coming on the show. We want to remind our listeners that we are general partners at Arch Capital. Clients may have positions in the securities discussed on this podcast.

We are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. Thank you guys for listening. We'll see you next time.