The Compound and Friends - How Not to Invest With Barry Ritholtz, Dip Buyers Winning, Coreweave

Episode Date: March 25, 2025

On this TCAF Tuesday, Downtown Josh Brown is joined by Barry Ritholtz, Co-founder and Chairman of Ritholtz Wealth Management to discuss his new book release "How Not to Invest". Then at 39:18, hear an all-new episode of What Are Your Thoughts with Josh Brown and Michael Batnick! They discuss the latest market moves, cybersecurity stocks, the Coreweave IPO, levered ETFs, and much more! This episode is sponsored by Betterment for Advisors and Rocket Money!  To learn more about Betterment for Advisors, visit http://Betterment.com/advisors Cancel your unwanted subscriptions today by visiting: http://rocketmoney.com/compound   Sign up for The Compound Newsletter and never miss out! Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ TikTok: https://www.tiktok.com/@thecompoundnews Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Ladies and gentlemen, welcome to the compound and friends. Tonight's show is brought to you by Betterment Advisor Solutions. Tonight's show is also brought to you by Rocket Money. Rocket Money is a personal finance app that helps find and cancel your unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. Rocket Money has over five million users and has saved a total of 500 million in cancelled subscriptions, saving members up to $740 a year when using all of the app's premium features. This is very simple, folks. You want to cancel unwanted subscriptions so you have

more money left over to invest in the market. You want to reach your financial goals faster by using Rocket Money. Go to rocketmoney.com slash compound. Today that's rocketmoney.com slash compound. All right, guys, tonight's show is supersized. We start off with a conversation with Barry Redholtz. My partner, my friend, my mentor, Barry's out with a new book called How Not to Invest. Great idea. Can't believe nobody's come up with this. So basically, Barry details all of the ways that people sabotage their own

investing and their own portfolio management. And we get into a conversation about some of the items in his book and the way that he sort of thinks about why it's so important to have negative examples of things that you shouldn't do and why that's helpful to people. So I think you're gonna love that. And then immediately following, it's an all new edition of What Are Your Thoughts?

It's Michael Batnick, it's me, and we have a whole bunch of stuff on the menu tonight. We talk about the two big IPOs that are coming, eToro and CoreWeave, and kind of bring you up to speed on some of the positives and some of the negatives. We also take a look at the dip buying that's taken place over the last week, giving us all a little bit of a reprieve from the correction. And there's a mystery chart and there's a make the case and all the usual stuff that we do.

So I'm so happy to have you guys here. This is a great show. Buckle up and we'll send you right in. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.

Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Hello, welcome to The Compound. wealth management may maintain positions in the securities discussed in this podcast. Hello. Welcome to the compound. I have a, I'm going to do a Barry introduction. A very special guest. Extra special. Extra special guest. Mr. Barry Ritholtz. Barry is my business partner, my friend, one of the first people who inspired me to start writing about investing and markets. And he and I have come a long way together. And I am so happy to let you guys know we are talking today at the threshold of the launch of Barry's new book. This is your, it's hard to

believe it's only your second book. Right. I am Right. I am like clockwork, I crank them out every 15 years. The next one will be 2040. That'll be out. Well, this one is perfect for our audience. It's called How Not to Invest by Barry Witholtz. Looks like you got a forward by Morgan Housel. I guess I was busy when you were trying to figure. Morgan is the one who's been nudging me for years

to write a book. And finally it's like, I know how busy he is. I thought if I said, I'll do it if you write the Forward, it would make him go away. Yeah. Bad planning. So let's start here. One of the things that you kind of have as like your recurring theme is what not to do.

And it's so different from what so many market commentators, investment writers, uh, harp on, which is like, do this, do this, do this. And you have always said, well, I can start by telling you what not to do. And I've heard you do that with clients, and I've heard you do that with your own column as far back as thestreet.com. And it's kind of like your calling card, like here are the mistakes to stop making,

let's start there. Why do you think that's so important? It mostly came about, in the beginning anyway, by accident, because I would get emails from either clients or prospective clients or people that you know read the Washington Post or the street.com or Bloomberg and said what about this what about that. And you know when I when the publisher first reached out I said I have an idea, why don't we

call the book Debunking Investment Bullshit. But they're proper, they're British, they weren't very happy with that. They let me mention that in a footnote, which is kind of fun. But you know, a few people have been asking me to write another book for a couple of years, and my answer was, hey, we have a century of books. We have 10,000 books telling people what to do. Most of them are still pretty mediocre investors. What do we, do we really need another one?

And in 2023, it was when the year of revenge travel, we, post pandemic had just gotten back from December holiday and there were a few days between Christmas and New Year's before we're back in the office. I just started looking at some old stuff I had written, some research, some notes. And like you mentioned, I started seeing, gee, a lot of this is don't do this, don't do that.

So in my home office, I have this giant bulletin board, and I just started writing ideas on three by five cards and trying to organize them. By the way, anyone who's an app developer, there should be a way to write non-fiction books using, there should be some app that does this, and I really haven't found a good one. But it became pretty clear that the bad ideas, the mistakes, the things not to do naturally

organize themselves, kind of organically organize themselves into, hey, here are the dumb ideas we believe in. Here are the numbers that trip us up all the time. And here's how it manifests in bad behavior, suddenly I had a book. Yeah. I think one of the big things with learning to invest is making mistakes and then learning from those mistakes and then not making them again.

But the cheat code is to just have a list. All right. I promise you these things don't work. And so you still have to make a lot of your own mistakes, but you don't have to make all of the mistakes in the world. And so I think narrowing down, like these are the things that you definitely don't want to do. I want to tell you a couple of things though.

I was not prepared for the size of the book, but then I was delighted as I started to read it because it's like two pages go, next, next, next. So it doesn't read like a book of this size. Was that deliberate? So, first of all, I never expected it to be as large as it is, but it's also a little deceptive, because the last 150 pages are all footnotes. And there's a ton of white space. Like, the chapters are a page and a half, two pages,

three pages long. Which I love. I had to argue with the publisher who wanted to start each chapter halfway down the page. I'm like, you realize this will be an 800 page book if we do that. So they started at the top, it brought it down to 500 pages.

Then I made some other tweaks and we brought it down to like 400 pages. But there's a ton of white space. It's not as, you know, it's not a tome that you have to slot. It's not as throny of a tome. Right. I love Bill Bernstein's told me, he goes, each chapter was like a potato chip. I wanted to stop, but I couldn't. And I thought that was really a fun, nice thing to say.

Yeah, no, the book moves. You dedicated the book to two of both of our intellectual heroes, people that I think have also written a lot about the mistakes people make. So I want to ask you why these two people in particular, Charlie Ellis, who wrote The Loser's Game and arguably the most important book about not making unforced errors. And he wrote this many, many years ago. And then, of course, Charlie Munger, who is probably if you were to look up common sense investing on Google, probably

Charlie would be the first result they would point you to. Was that something that you knew early on you wanted to dedicate the book to these two thinkers and why? So as a little serendipitous, I've had Charlie Ellis on the podcast a couple of times and he's just delightful. Grenis Associates, chairman of the Yale Endowment, board of directors of Vanguard. I mean, talk about a resume. And it started out as a paper. Winning the losers game was him drawing the parallel between tennis and investing. And he makes the case,

hey, tennis is two games in one, like investing. Tennis is a professional game and an amateur's game. And the professionals win by scoring points. They hit with power, they hit with accuracy, they score aces on their serves, they kiss the line, they hit the ball to where you want, they use fancy drop shots and slices. That's how the professionals win.

The other 99.9% of us who play tennis, including me, right? So that's not how we win. We actually lose through unforced errors. We double fault on a serve, we hit long, we hit into the net, we hit wide, we don't put enough topspin on the ball so it bounces right up to your opponent's sweet spot and he destroys it. We behave outside of our own skill set and it bites us in the ass. And so if only we could let the other guy beat themselves and us make fewer mistakes, we win. So he draws. Put the ball in play, not try to hit a hundred miles an hour and not get too cute.

If you can just keep the ball in play, there's a high likelihood the person you're playing against is also not a professional and let them make those mistakes. So long as they haven't read Charlie Ellis' book also, you have the advantage. And then the serendipity of this, I'm in the middle of kind of organizing the book. My last book I dedicated to my wife, so I didn't know who I was going to dedicate this.

And I happened across, so I'm reading one Charlie's book, and I happened across this other Charlie quote, which was, and at the time, Charlie Munger was still alive. So I thought, oh, won't this be nice to dedicate this to two Charlies? But somebody at one of the Berkshire Hathaway annual events had asked him, are you and Warren successful because you're so much smarter than everybody else? And classic mongerism, he said, it's not that we're smarter than anybody else

or everybody else. We're just less stupid. Your goal is to just be less stupid, which, you know, nobody but Charlie Munger would say that out loud, more or less think of it. But if you stop for a moment and consider it, it's really true. Make less boneheaded mistakes and just stay out of your own way and your portfolio will and the market will mostly take care of itself through the miracle of compounding over the decades. Yeah.

I don't think Warren Buffett and Charlie Munger would say that they are... Here's how I would phrase it. Warren Buffett has a quote of his own where he says, this has nothing to do with IQ. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. And actually, in fact, we see all the time examples of where it's the opposite of that.

But I digress. It's about temperament. So I think one of the things that temperament means as an investor is like literally not losing your head and literally not allowing emotions to drive you into some of the things that, you know, in hindsight, you look at it and say, wait, why did I do that again? What was I thinking? So that's a really big part of this.

Yeah, Buffett sort of annotated the Munger quote by saying any IQ over 125 in the markets is wasted. It's all about behavior. It's all about controlling your... Listen, you can't control what the Fed does or where Bitcoin goes or what the president does or doesn't do with tariffs. All you can control is your reaction to these things. And I reference a friend of the firm, Bill Bernstein. We've read his books, The Four Pillars of Investing, and more recently his book on the madness of crowds.

And he's not just an investor. He began his professional career as a neurologist. Like the guy is literally a brain surgeon. And he said it's all about your limbic system, the fast system that controls your fight or flight, your emotions, your greed, and your pleasure center. And if you, I love this line, if you don't learn to control your limbic system,

you will die poor. I mean, talk about putting it in stark terms. Learn how to manage your own behavior, otherwise don't expect much financial success. Okay, so for the viewer who agrees with everything that you've just said, before they read your book, how do you know when you're about to do something stupid? How do you know that the thing that you're doing right now

is going to be stupid versus smart? Are there, is there a cheat code that you can just run through some sort of mental checklist and maybe have a better idea that what you're about to do is one of the classic investing mistakes? I think, you know, it's sort of Rumsfeldian. We don't know what we don't know. We're not aware of our own blind spots.

And so there isn't a magic cheat code. There are things that you can perhaps start to recognize. One of the solutions, so I didn't want to just make the whole book negative. Don't do this, don't do that. The last 10% of the book are, here are the 10 things you need to do, and if you do this,

not only will it help you not do those bad things, but it'll be positive. One of the positive things I reference is the idea of a cowboy account. Hey, if you're a stock junkie, if you are glued to watching Josh on CNBC three times a week because you want to know what the next hot thing is, if this is in your makeup and you're aware of it, well,

set up a little side account to have fun with. And if it does well, great. You're more likely to let it run, because you're not fully invested in it. The other 95% of your assets you're leaving alone. And if it blows up, well, it's a cheap lesson. But I tell the story in my own account that you've seen me in Slack when the shit hits the fan and the market is terrible and everybody loses their mind. Every now and then I'll slide into everybody's main and say, hey, just FYI, I'm a buyer here.

I like the market. I mean, you've seen me do this how many times. And it's funny to see yourself get cocky and arrogant. October 02, I bought deep out of the money calls on the NASDAQ 100. And October 2022, it was like really the bottom of that terrible year that Anna's Horribliss. And six months later, that was up so much.

And every time I would open that thinkorswim account, I would look at it and I'm like, damn, I am good. And we all do that. And when Silicon Valley got cut in half, I'm like, everybody's terrified. I'm a buyer. I bought it 50% off right before it went to 100% off. So, like, I should be aware enough when I'm feeling my oats, when I'm like,

who's better than me? When you say that to yourself, the lights and bells should go off like, hey, every time you get this attitude, I know it's house money, but you end up giving a lot of it back. You should be a little more self-aware that big winners are often followed by pretty decent sized losers.

One of the most interesting things over the last couple of years, I shouldn't say interesting, tragic. I had a lot of friends who during the pandemic, there's no sports on TV, so they discovered trading. And in the second half of 2020 and through most of 2021, the stock market effectively went up every day. Straight up. And there were stocks that went up 500 percent, a thousand percent.

I mean, I'm not even exaggerating. Yeah. Yeah. And on top of that, there were a thousand IPOs that year. So not only did you have markets going straight up, but you had all sorts of new companies, new ideas, new technologies, and you had this population effectively sitting at home on their phones with nothing else to do other than, I mean, you couldn't bet on a football game, right? So, all right, so. But Robinhood made it easy to bet on anything.

And they gamified it to make it even more, you know, more significant that you're doing something wrong. So one of the things that happened as a result of that is I got a lot of emails and calls, some from perfect strangers, and some from people that I know my whole life. I'm starting a hedge fund. Hey, this is easy. Why are you going to do that? Well, I sold my business.

A lot of people sold their businesses during the pandemic too, by the way. Well, I sold my company to private equity and they don't really invite me to meetings anymore. And now I have this huge lump sum. And I've spent the last six months crushing the stock market with my options or with my crypto or with my... And I tried really hard, Barry, to just be like, it's not gonna be like this forever. And by the way, if you're having that much fun trading,

just keep doing it for yourself. Nothing is less fun than having other people to answer to. But of course, nobody listened. None of that worked out well. And I think what you're talking about, that confidence, that moment where you absolutely nail a trade, it's almost impossible to not be infected and think that, whoa, I just discovered, I just unlocked a hidden talent that lay within myself. I never knew. I never knew that I was destined to be the next David Tepper. Right. And it's hard because our brains are wired where if something works out really well,

we want to do it again. We want to have that feeling again. That dopamine rush. You want that hit of, you know. Who wouldn't? So, there's a couple of funny things about that. First, I got a couple of gray hairs. I'm older than you. I lived through

that experience of random newbies discovering their inner Peter Lynch, that they were geniuses in the 1990s when day trading at home was a thing, when dentists were selling their practice to launch day trading shops to become SOS bandits, which was a new way of executing trades where you didn't need a... The turtle traders, Richard Dennis. I can teach anyone to trade. That's right. That's right.

And so, at least Richard Dennis had a formula and a strategy and a trend following approach and a bit of risk management. So it was fairly credible. You fast forward to 2020. My favorite Twitter feed is a guy who called the feed TikTok investors. And what he did was go through the worst of Instagram and TikTok and pull all these like incredibly reckless, irresponsible,

pure Dunning-Kruger effect. You know, how do we support a lifestyle we day trade at home? All we do is very handsome couple. You will remember them. They both had these like gorgeous blue eyes. We only buy stocks that go up. And when they stop going up, we sell them. Hold on, let me write that down.

Only buy stocks that are going up. Got it. Didn't, didn't Will Rogers say that like a hundred years ago? Or my favorite was the guy who said in this sort of southern drawl y'all don't really need to pay income taxes if you File the Constitution as long as you're on a boat in international waters You don't you don't know the IRS anything and there was and he would just just highlight these It got so bad that the Internal Revenue Service

just highlight these, it got so bad that the Internal Revenue Service put out a note that said these are the 42 things that are on social media that are wrong. No, if you're in international waters on a boat, money you earn as a US citizen, you still owe taxes on. By the way, where could you, you're a boater. Yeah. Where could you be situated on a boat that you're in international waters

and not like sitting out in the middle of the Atlantic? What the hell are these people talking about? If you go down to the Mariana Trench about 8,000 feet below the surface, the IRS won't be able to find you. No cap gains, no taxes. You could, you know, eventually when your bones settle in, you won't owe taxes. Now you're a state, your kids will still own taxes, but you'll be off the hook.

One of the things that you've tackled both in your columns over the last 20 some odd years, but also in the book, is what you call economic enumeracy. Or economic illiteracy and economic enumeracy. Right, enumeracy is just you lack the ability to understand basic numbers, and you would be shocked. I know math phobia is a real thing, but you would be shocked about how many people simply don't understand how basic

math works, especially if you're looking at either economic data or market data. It's genuinely surprising that people consider themselves active, knowledgeable investors are just mathematically clueless. It's amazing. But on the economic side, so right now we're in a moment where there's tons of concerns about the things that are happening with tariffs and with inflation and what's the Fed going to do and it's always somewhat confusing for people that don't follow this every day because it's confusing for the people that do follow it every day. There are a lot of mixed messages coming from economic data.

There are different reports that surface on different timelines. And sometimes they're reporting sequential. Sometimes they're reporting year over year. Talk about in the book, some of the things that you try to get across to people that you see them frequently get wrong. So let me just give you a few of the bigger ones. The one that really annoys me is the dollar has lost 96% of its value over the past century, which is technically correct, but completely misleading. Why is it misleading? Well, if you're out shopping in 2025,

you're spending dollars you earned in 2025. No one puts cash away, or at least nobody should. From the early 1900s. Right, from 1925, you shouldn't put that cash away. And then second, if you're telling me how much a dollar a hundred years ago has lost purchasing power, the denominator blindness, the lack of double entry accounting, what's the other side of that equation? Meaning, how much has my earning capacity gone up? What's the average salary, either hourly or annually? How much has that increased? So it really puts it out of context.

How much has that increased? So it really puts it out of context then and in order to I Kind of use an extreme example to show how silly this is Two soldiers going off to World War one in 1917 They each have a fortune a small fortune a thousand dollars one buries it in mason jars in the backyard and the other Invests it in you know, whatever the equivalent of the S&P 500 would have been a century ago. So you come back, each descendant discovers this money a century later. And yet, technically, if you left cash in the ground for a century, the purchasing power is 96% less.

But cash is in a store of value, cash is a medium of exchange. Use it to pay your mortgage or your rent, to fund your entertainment and travel, to invest in our business, or to invest in stocks, bonds, and real estate. Had you invested that money, $1,000, in the stock market, when I ask people, what do you think that's worth? Oh, it's gotta be worth a million dollars, the stock market. When I ask people, what do you think that's worth?

Oh, it's gotta be worth a million dollars, two million dollars. To show you how little we understand the impact of compounding, a thousand dollars at between eight and 10%, which is what the market gives you on average, a hundred years later is worth 32 million dollars. It makes people's heads explode because the purpose of investing

is to let the market work for you, to let time compound your capital so when you need it, you have even more purchasing power. So that's a big one. That's one that kinda, that sort of a numeracy kinda makes me crazy. The other one, really simply, every month people lose their minds over non-farm payroll.

And I'm fond of saying, you know, most non-farm payroll reports are meaningless. It's only when you have a radical departure from the prior trend that matters. But if you understand how non-farm payroll is put together, key aspect of that number is each month, about 3.9 million people retire, go on sabbatical, go on maternity leave, educational leave,

just take a break or die. And during the same month, about 3.9 million people enter the labor force, graduate college, switch jobs. And the non-farm payroll report is just the net difference between those two. So it's 100 or 200,000 people out of four million people changing jobs, out of 165 million people in the workforce, out of 350 million people in the US,

wait, what do we care about 100,000 people switching jobs? It's a rounding error. So if you focus on the trend and not succumb to the recency effect, an overweight would just happen. And then the third number that I think is fascinating that blows people's mind comes from Henry Besenbinder out of Arizona State University, who was trying to determine if stocks or bonds had the same risk level.

Are we overestimating the riskiness of stocks? Are we underestimating challenges with bonds? And kind of stumbled accidentally into discovering that market returns are driven by less than 2% of all stocks. This one blows my mind. So of all the stocks that have ever existed, all of the returns in the stock market have come from such a small number of those stocks. It is absolutely an insane proposition to think that anyone is going to be good enough and identifying that tiny percentage in advance. Right. Not only identifying the one and a half, and I think it was 2% overseas, one and a half in the US,

but if you have a normal portfolio and you're spreading, pick a number, 10, 20, 30, 40 stocks into that portfolio, so they're two or 3%, it's not just that you have to pick those 25 or 50 stocks, but you have to only pick them and not have your portfolio fist-sted with the other 66,000. And not sell them.

Right. And not ever. That was another study that someone else did. And this is why there are so many footnotes. It's based on a lot of really credible academic research. It turns out that mutual fund managers are really good buyers of stocks. They look out at the world and they can identify companies that are, you know, it's not that hard to say,

show me the stock companies whose profits are rising that are priced this way. They're really good buyers, but it turns out they're terrible sellers. And I talk about in the book, the very clever way these college business school professors figured that out. They said instead of, they looked at like 2000 managers over 20 years and hundreds of thousands of transactions.

And they said, anytime a manager sells a stock, instead we want to run the simulation where we're not selling that stock, but randomly selling any other holding they have. And the outperformance was hundreds of basis points. Oh my God. Randomly selling a holding versus, no, no, we should sell this.

And the explanation was pretty simple. They're selling the winners? No, they're selling things pretty simple. They're selling the winners? No, they're selling things emotionally. Either they're selling the winners. Or they're selling big losers. They're selling winners that have gone up or they're selling things that have just come down a little bit. Conversely, once something drops a certain amount, they hold it till grim death rather

than admit the loss. So they sell the winners when there's still a ton of upside or they sell the winners when they've faltered 10, 15% and it's just normal volatility. So let's leave people with a couple of the absolute worst things you could do as an investor. And then of course we want them to get the book for themselves and learn a lot more.

But let's give people a couple of nuggets. So some of the big things are pretty obvious. Not having a financial plan, which will determine how much risk you take, what your allocation looks like. The idea that we just want more money for the sake of more money is a bad strategy. Think of the hedge. Right. So you asked somebody like, what are you doing with your money? I'm investing it. money for the sake of more money is a bad strategy. Think of the hedge fund. So you ask somebody like what are you doing with your money? I'm investing it.

Okay, why are you investing it? Why? So that it's more. More to do what? I don't know. That's not good. So how do you determine how much risk you want to take in order to achieve your goals? How much more you need? You know the guy who blew up that hedge fund a couple of years ago, it was all about more. I'm trying to forget the guy's name. Bill Wang. Wang, that's right.

And he just recently got, you know, lost an appeal. Now there's other indictments come along. And it's like his whole purpose was more for the sake of more. It turns out that, you out that money is a tool and you don't just keep buying hammers and lining the rows of your garage with hammers. You get the tools you need and you deploy them towards a purpose.

If your purpose is philanthropy, generational wealth transfer, retirement, maybe you have a couple of little ones in the house and you want to max out their 529 You are investing so you could pay for college you're investing towards a purpose and that purpose Not only puts a time horizon on it, but that determines how much risk you embrace. So so that's Mistake number one mistake number two is straight out of the Dunning-Kruger playbook, which is is straight out of the Dunning-Kruger playbook, which is imagining your skills are much higher

than they really are. It's not just that it's hard to pick stocks. It's hard to pick stocks and most people aren't good at it. It's not just that it's so difficult to market time for a variety of reasons that you and me and Ben and Michael and Nick have talked about the clusters of big down days and big up days together and how frequently if you miss a big down day, you also frequently miss a big up day.

But how challenging it is to do one of the other numbers in the book that blew my mind is that when people and by people, it's mostly middle-aged men, but when people panic out of the market, 31% of them never go back to equities. Stop and think about how devastating that is. The market's not for me. Right, and it's like, wait, so what are you gonna do when you retire in 30 years? Or it's the one that we do not.

It's rigged. You and I used to hear this, so for people that don't know, Barry and I started working together in 2010. And we spent the first two or three years talking to people who had reached out to us. These were successful, educated, intelligent, normal people. But a lot of them were just carrying this baggage of the market's rigged. And they would call us almost like a challenge. You can't convince me that I should ever be invested again. Now, of course, that's at Dow 1000, excuse me, Dow 7000, 8000, 9000.

That's at S&P 1000. Here we are at S&P 6000, Nasdaq 20,000, $9,000. It's at S&P $1,000. Here we are at S&P $6,000, Nasdaq $20,000, Dow $45,000. But we would have these like almost, they almost verged into like late night college dorm room sessions. Like the philosophy of like, why are we here? And you still like, we could not get through to everyone. Yes, you should trust the markets. Yes, you should start to invest again. I know 2008 was hard. So people have trouble with that.

Let me interrupt you one second before you follow up. You had the best line ever about this to people, which was, yes, of course it's rigged. It's always been rigged. Now that you know that, don't you think it's time to stop playing their game and start playing your own? We know it's rigged. So here's what you're going to do.

You're not going to play these games. You're going to own a broadly diversified portfolio. The core of it will be a low cost index and you'll let the market compound over you. You go into their home, it's called home court advantage for a reason. You go into their, it's called home court advantage for a reason, you go into their field, you play their game and their rules,

of course it's rigged, you're totally gonna lose. Don't play their game. And every now and then someone would like, oh, that makes sense. But it was an uphill battle. It's like when people, it's like some short sellers, they'll, a position goes against them, and they'll say, well, it's rigged.

You're right. Everyone else is on the other side of the boat working against you. The executives want the stock higher. The board wants it higher. The investors want it higher. America wants it higher. All the pension funds and mutual funds that own it want it higher. It is rigged.

One of the stories that I used to tell in response to it's rigged literally the Buttonwood tree on Wall Street. Like before there was a building, the original New York Stock Exchange was a bunch of son of a bitches in in in in knee high satin socks robbing each other. It's just it's the nature. They actually all that kept the sheep awake because it was literally a pasture. They they kicked out. They kicked out the people that wouldn't agree that they would

only deal in securities with each other. It started as a cabal. So right. All right. But that's a good point though. People that liquidate portfolios or swing to cash or whatever, they're very unlikely to ever look back at the market higher or lower and say, and now I'm going back. Right. Barry Redholtz, I'm so excited that your new book is finally here. You've been telling us it was coming.

You've been prophesying it. And I guess my only question is, when is the follow-up? Is that 15 years from now? I don't know. This is going to keep people tied it over. I partially blame Michael Batnick for the book because every time I'm telling a story that he heard before, I literally hear his eyes roll in his head. I'm like, you know what?

I'm going to put this down on paper so I don't have to watch him roll his eyes. Let me gather a few more stories and when I have enough to fill up another 300 or 400 pages, that'll be the next book. All right, guys, get How Not To Invest by Barry Ritholtz at bookstores near you, at Amazon, anywhere books are sold. And I promise, by the time you have gotten through the first or second chapter, you're going to start to say, why didn't I think of that? Or why didn't anyone ever tell me that? And those are the two reactions that I had. and I've been in the business for 25 years.

So thank you so much for joining us today and thanks so much to you guys for listening and for watching. What up gangsters, gangstarets? I'm checking the chat. We are, we're going. It's gonna be a big one, Michael. What do you think? It's gonna be huge. So huge.

Um, we have two first time live chatters that I can say. Michael Graham is here. First time live, long time watcher. Let's get after it tonight. You got it, dude. Also Chet Flanagan, long time listener, big time fan, first time wilding out in the chat. What's up, everyone? I love that name.

Chet Flanagan. That's a great name. That does, right? Mm hmm. All right. Jackie Sosa. Not to belabor the point about Chet, but it sounds like a fake name from Wedding Crashers. It could be.

We appreciate his availability. Either way. Sure do. Who did I just say? Jackie Sosa is here. Chris Hayes, MiniDev, Matt Wide or Weed? You never know with those EI names, right? Situation Room is in the house.

Andrew Bueller, Brian Grill is here. Joe Altamuro. All the gangsters are out. All right, guys, we have a packed show. Before we get into it, I want to tell you about tonight's sponsor, Betterment Advisor Solutions. Michael? Today's show is brought to you by our sponsors at Betterment Advisor Solutions.

Imagining a better future, that's the first step. Investing in that future with Betterment Advisor Solutions is the next step. Whether you're launching your own practice, looking to streamline client onboarding or just searching for efficient ways to scale your firm, Betterment Advisor Solutions is here to help. That's right, Josh, because they automate to make tax optimization simpler. They provide support to make administrative tests easier. At Betterment Advisor Solutions, they are building innovative technology for anyone who's ever said, I think I can do better, so grow your RIA your way with Betterment Advisor Solutions.

Learn more at betterment.com slash advisors, investing involves risk, performance not guaranteed. Josh, let's get to the show. We crushed, dude, we crushed that one. I think so. So, I was gonna, yeah, I I guess let's do it this way. We have a couple of big IPOs coming and we've talked about Klarna on the show before

and that's one of these gigantic buy now pay later companies. A firm is currently public, PayPal is in that business. One of the other large ones after pay has been acquired by Block. So I guess technically that's public. And then the last big one still out there is Klarna, which is I think from Denmark, right? No, no, no.

Wait. I think I have it right. Is it? Okay, okay. It's definitely Scandinavian. It's definitely Nordic. Is that the same thing? So what's cool about Klarna,

what's cool about Klarna is they were one of the first large startups to come out and say, AI is real and here's what we're doing with it and here's how many hires it stopped us from having to make and here's how much money we're saving. So I wouldn't go so far as to say it's an AI play, but people that are super interested in AI are going to be paying attention to that.

But tonight, we're going to talk about another AI-related IPO, and that is CoreWeave. And this one looks like, unless we get a surprise like SpaceX or Starlink IPO, it looks like this is going to be the biggest one of the year. I want to set the stage first about what we're talking about and then we'll get into some of the details. But CoreWeave is basically a company that has built out, I think they have 24 massive data centers around the world and they are like infrastructure as a service. So effectively they're competing with some of the hyperscalers who have their own data centers but then they're also kind of going after parts of the market that maybe would

be doing something very specific at a core weave data center. But like they accumulated a quarter million GPUs. They raised tons of money, which we're going to talk about in a minute, and they are open for business. It's really not that old a company. They started in 2017 as a very different kind of company and then pivoted. They did $1.9 billion in revenue last year, Michael, with about a $900 million loss. So I guess they make it up in volume.

Negative 6 billion in free cash flow, not great. And 77% of last year's revenue came from the top two customers. Most of that is coming from Microsoft. Microsoft is 62% of CoreWeave's revenue last year. So there's a whole bunch of stuff on this that's a little bit red flaggy, but just on the surface, what do you think about CoreWeave being kind of like a heat check on investor appetite for the AI theme?

I'm so glad you went there because I was gonna say the financials are, I'm like less concerned about that. There's been plenty of successful companies that were burning hemorrhaging cash early in their careers. The thing that would worry, the thing that worries me is their guidance last year was way ahead of what they actually delivered by like two times as much. So interesting thing with this company is they're going to be

the fastest growing company on the top line to IPO in a couple of years. Also, the most heavily indebted company. I think it's like five times EBITDA or something like that. But as far as you nailed it, the market's reaction to this IPO, I think is going to be very important. The growth is real. They had a 770% revenue growth from 2023 into 2024. That's astonishing. But unlikely to be repeated. So I don't know what the forward-looking expectation is for growth. I doubt the company has gone crazy with hyper-specific forecasts. So they brought it down and then there's people that are speculators. It's like, listen, this might just be for show.

They might be lowering expectations so they can beat them. All right. Let me show you some shit. Number one, this is not what you want to see right before an IPO. This is the Financial Times shortly after the company dropped its S1 filing. So the S1 is what a company files with the SEC stating their intention of going public and raising money and laying out like 100 pages worth of risk factors. Very common.

And they'll throw every potential risk under the sun into this S1, not to scare people, but to cover their own asses. It doesn't mean that they actually think all the things that they list could go wrong. They're just acknowledging that it's possible. So, you know, but there are a lot of risk factors, even for something that's prone to have

a lot of risk factors, there are a lot in this particular S1 that I think we have to get into. So what bothers you the most? Well here's what that FT article says. Put that back up. Microsoft drops some core we've services ahead of $35 billion IPO. AI data center provider dealt below by biggest client as it readies for blockbuster listing. So I told you Microsoft was 62% of their revenue

last year. Here's a little bit of detail. Chart off, Microsoft has walked away from some of its commitments with cloud computing provider CoreWeave in a significant blow to a company seeking to launch a blockbuster $35 billion IPO next month. CoreWeave provides Microsoft with computing capacity from data centers, which the tech giant uses to scale up powerful AI models, such as Chatch GPT. The partnership is worth billions to CoreWeave. However, Microsoft has withdrawn from some of its agreements over delivery issues and missed deadlines according to people with knowledge of the matter. That's not great. They're still working with CoreWeave, but just the fact that that's dropping

a month before the IPO is really not great. So- What is it going public? Like any minute. Okay, so- Like they're gonna price this in the next week or two is the last thing I heard. Could be very wrong.

I would say that this is gonna go nuts. And the reason why I say that is because this is as pure play as you're going to get in the public center on data centers. And it's been a minute. So if you're not playing Nvidia, if you're looking for something else, micron, AMD, Intel, like all the others. I mean, there's a few others that are pure plays, but this is like the one. So I think that this is gonna be heavily, heavily oversubscribed and I think it's gonna trade well

out the gate, but that could be very wrong. We'll see. You know, it could price at 40 billion. And then if it does, and then again, it's a 40 billion on 2 billion in revenue last year. And what we should really do though is get into the balance sheet because for me, $40 billion on $2 billion in revenue last year. What we should really do though is get into the balance sheet because for me, this is another sort of deal breaker for at least buying it on the IPO.

Blackstone put out a press release last summer. All of this debt that this company is, again, $10.6 billion in debt currently. All this debt is being financed by somebody. The somebody in question is all these private equity firms that have launched these infrastructure funds. And they're gonna keep funding it. Okay, probably. This is what was said when they raised the money last summer.

Core we've announced that has signed a, this is Blackstone Press release, has signed a definitive agreement for a $7.5 billion debt financing led by funds managed by Blackstone. Strategic participation from Magnetar, which I think is also in on the equity, and Kotu, which I'm sure also owns equity. Carlyle is in the deal, CDPQ, Digital Bridge Credit. JT Marlin. BlackRock is in the deal, Great Elm Capital, all these things. I don't know about. Today's announcement builds on CoreWeave's exponential momentum and growth evidenced

by over 12 billion raised from equity and debt investors in the last 12 months. So a lot of these PE firms have raised massive funds and they're like infrastructure funds specifically for tech and cloud and data. And yeah, CoreWeave is like the target investment for many of them. And so if you want to know like who the hell gave this startup that's been in business since 2017 and originally started as a crypto miner, who the hell gave these guys all this money as debt capital, that's where it's coming from. I feel like they've got an infinite runway. I know that sounds absurd and hyperbolic and I don't literally mean infinite, but like

they're going to have no problem getting funding from anyone. Okay, next red flag. The founders already cashed out This is from and I another thing. I really don't like to say this is from the s1 from early March I think this is Bloomberg one surprise from the filings that the company's three co-founders Have already sold off much of their class a holdings between the 2024 tender offer and the one held in 2023. So this was a revelation from the S1.

Whatever happens at this IPO, the co-founders have already cashed out nearly 488 million worth of shares, specifically across both tender offers. Co-founder, CEO, and chairman Michael Intrader sold 160 million worth of shares. Another guy sold 177 million worth of shares and a third person sold 151 million. So now between the three of them, they own less than 3% of the Class A shares, but they maintain control of the company through the class B shares, which carry 10 votes per share. So in other words, these three guys have less than 3% of the equity, but they control 80%

of the vote. Do you love that? No, but wait. So they're down to 3%. They took out, as you mentioned, $488 million. But was that like 15 down to three or was it like five down to three? Like I need the numbers.

I mean, they sold hundreds. They sold 500 million worth of stock. So that's just good risk management. No, but the point is like I need to know what the percentage was. Did they sell? If they sold 90% of their stock, yeah, probably not great. You don't want to see that. I don't.

But if they sold a third, I'm not mad. You don't want to see that. I don't. But if they sold, if they sold a third, I'm not mad. It's a good point. I don't know how much of their stock they sold. I don't know how many shares they had. Did they have 600 billion and they sold 500? That's not great. That's not great. Did they have a combined? I mean, again, the valuation today, I think, is higher than it would have been when they first sold shares in 2023. But people sell shares on the way up. That's not controversial.

Founders of tech companies need liquidity too. So I don't specifically have a problem with it, but the 3% number, no matter where it started from, you must agree with me, is not amazing. Okay. So their stakes are now worth around $35 billion. Their stakes are now worth a billion dollars still. So maybe they took half off. I don't know.

I know it's a lot. Another red flag. It's not a huge amount of stock, but this thing has been available on Robinhood. Private shares in the secondary market on Robinhood. I think this would be the case for every single company going forward. Yeah. Go ahead on a limb and say those probably aren't the most sophisticated buyers, but I doubt they bought a lot of it.

This is Nasdaq CRWV. The origin story is this started as a company called Atlantic Crypto. They got their start by offering infrastructure for mining for Ethereum. So there was a moment in 17 where like mining crypto was a really great business. from mining for Ethereum. So there was a moment in 17 where mining crypto was a really great business and these guys were an infrastructure provider to people that wanted to mine crypto. I won't hold that against them. After digital currency prices fell, the company bought up additional GPUs, changed their name to CoreWeave and then told everyone they're focused on AI and

they pulled it off. Did you mention Nvidia yet? Nvidia owns 6% but as we just saw with serve robotics that means nothing. They could blow it out right after the IPO. I would not be a buyer of this or any other stock thinking that Nvidia is going to be a co-investor forever because it's just not what they're doing. All right, so you sound- It's not Berkshire Hathaway.

You sound neutral to negative. I think I'm negative, period, to be honest. Not at any price. Look, this could melt up on the first day. I fully agree with you. This could be super oversubscribedcribed price ahead of the expectations. And it's, look, it's a real company with incredible backers, including Nvidia and Blackstone and very sophisticated people who understand how much debt they have and are like clearly okay with that because they're providing the debt. So I'm not, I'm not saying like, oh, it's a bomb.

I'm just saying, I don't know if this is for me. The $10.6 billion in debt that they're currently carrying cost them $944 million to service last year. That $944 million goes to Blackstone. Like that's a great deal for them. Like they were able to invest billions of dollars into a company that's going to spit out interest rate payments to the tune of a billion dollars a year. That's awesome.

For as long as it can keep going. They're going to raise something like, I think it's four and a half built. What did I say? It looks like seven, seven up to four is what I read. Okay. Um, one other thing in the S one is that they made it pretty clear that it's not enough money. So basically they have commitments from like Tokyo and London to buy all this AI infrastructure capacity from them

in the future. In order to build for that, they're going to have to raise more money, which means there could be even more debt here. And again, negative $6 billion in cash flow. So if they're going to have to build more, I think they're going to have to tap the debt markets or maybe even a secondary share sale. So if they're going to have to build more, they're going to have to, I think they're going to have to tap the debt markets or maybe even a secondary share sale. So I just look, I'm not here to like say

this is great or terrible. I'm just saying like, if you're considering investing in CoreWeave, I feel like everything we just said is stuff that people should know. Yeah. Okay, eToro, this one could come tomorrow, come the next day, it's on the runway, as they say. Also, Nasdaq, ticker E-T-O-R. They're filing an F1, not an S1 because it's a foreign company.

They're based in Israel. Lead underwriter Goldman Sachs, Jefferies, UBS, and Citigroup, also on the cover. In addition to raising capital, there's a bunch of selling shareholders here too. Raising $400 million at a $4.5 billion valuation. Basically this entire business is fueled by crypto trading. If not for the fact that Robinhood stock price just tripled, I don't think this would be coming public. Agreed. But by the way, they tried to SPAC this in 2021, right as the whole SPAC thing fell apart.

They were looking for a $10.4 billion valuation. I don't know which SPAC had the guts to do that, but it didn't end up going through. So now they're coming out four years later at a significantly lower valuation. You have to understand this company was founded in 2007. Howard Linsen was telling me about these guys in 2010 when they were sponsoring StockTwits. Like they have shareholders that just have to get out at this point. So Robinhood tripled, Bitcoin went nuts. Their revenue growth exploded last year because of all the trading in Bitcoin before the IPOs, before the ETFs enduring.

And now it's like, this is the time. Um, they're referring to themselves as a startup, which is funny. Uh, I don't think it could be 18 year old startup. I think it's just a private company at this point. There are some differences in numbers. So Bloomberg is saying, eToro had 12.6 billion in total reported revenue up from 3.89 billion the prior year.

And crypto assets made up 12.1 billion of that or 96%. The cost of revenue from crypto assets was 11.8 billion. But then there were some like, net revenue numbers. That sounds absurd. The cost to service that was 11. That was like, the margins are nothing. But I don't know if,

because then I'm also seeing, they reported a net profit of 192 million, which was an increase of 15 million in 2023 and a loss of 21 million in 2022. But then Sean and I found these numbers that are very different, where it was like just a few hundred million and maybe that 12 billion number is like the total amount of volume in crypto. But either way, almost all of the revenue is crypto related. So it almost looks more like Coinbase than Robinhood, would be my comment. And yeah, revenue grew a lot last year because Bitcoin rallied like crazy. So if you want to bet on Bitcoin,

one way of doing that is just buying Bitcoin. I know that's old fashioned, but I don't know. Any thoughts on this one? It's international Robinhood. That's how you think about it, international Robinhood? Maybe I think it's international Coinbase. 3.5 million funded accounts across 75 countries. That's tiny. Yeah.

Three million accounts. All right, room for growth. I guess. All right, well listen, for better or for worse, it's nice that companies are coming public. Absolutely. And I want to see them both go up, to be honest with you. Same.

Like, it would be pretty disappointing to see these things flop out of the gates. So nobody who's interested in capital markets being healthy wants to see two bad deals dumped on the public. So I am rooting for both companies, but just want people to understand what the potential risks are here. Okay. All right. Let's talk about the state of the stock market. Shall we? So we're leaning heavily on the man Warren Pies at 314 Research. Warren tweeted before we were officially in correction territory, he said, if the current pullback is going to devolve into a correction, it should happen

relatively quickly. Why? Warren says historically, 76% of all corrections play out within a 60-day window. I thought that was an interesting stat and I bet you that if you were to look at like, I don't know, the 10% corrections of the last decade, it happened probably even quicker than a 60-day window. So then, next chart please, he says, all right, we did it. The SAP is now down 10%. In the tweet below, we showed that 5% pullbacks devolved into 10% corrections rather quickly, as I just mentioned.

Conversely, and this is the interesting part, moves from 10% to 15% are more protracted. The majority take longer than 60 days to play out. So chart off, please. The reason why I think this is just great I mean, it's just great data, but it's also intuitive because what we get is the market digesting news really quickly, right? You get the whoosh, we had the whoosh, and typically you get some sort of stabilization

outside of like a COVID crash. You usually get some stabilization around 10%, which we just got. And then, you know, who knows where we go from here? Maybe we go higher, maybe we retrace 50%, maybe we roll over again, maybe we go lower, But this is, this is a chef's kiss data. I like this. And my personal opinion is that we're not done. And the bounce last week was much needed because it was really like a straight line lower, like one of the more intense corrections that I've seen in my career.

But I don't think we're done. And I think smart people that are in this reprieve right now, if they were really feeling the pain or they were heavily on margin or they looked at their portfolio and said, what is all this garbage? Like this type of bounce, which we're going to talk about the dip in a minute, and the buying of the dip was really well-timed. And then like, all right, use it. And if that ends up being wrong and we race back to all-time highs, all right, so you have a less junkie portfolio and less margin debt. That's not the worst thing.

I do want to go back in the chat and address Chris Kubica. Can Josh and Michael disclose whether they are in on either IPO? They just said they hoped went well. No, neither. No financial interest whatsoever in either. And if we had one, you would hear it from us. I just wanted to make sure we got to that. Okay. Show me the next one. So this is also from Warren, it's great stuff. Keep it simple. Warren is showing two paths. One, both after a 10% correction.

One, when there is a recession, which is a purple line, and of course, in which case, they usually don't get a bounce. Or there's no recession and it ends up in hindsight being a buying opportunity. And if that's the case, then oh boy, you're going to wish you have bought. Dude, this is so binary. Look at this. This is so stark. So, so a 10% correction where a, where a recession happens does not, does not recover. Correct. Bounces a little bit, but does, does not even get back. It looks,

I'm just eyeballing and this is on average, of course. Looks like it doesn't even get back a third. We've already gotten back a third. I'll tell you something. Not that I get to make the rules of where the market goes. I would be very happy if we got that 10-second correction and then went sideways. If only for nothing else, chart off, please. I'll take the sideways.

Other than to just digest, right? A market that goes up 20% a year, year after year, is unstable. That sets you up for really nasty crashes. It just does. You can't go up 20% forever. We did that in 23. We did that in 24. People got super bowled up at the end of December last year.

If we go sideways and we set ourselves up for a springboard in 2026, wonderful, I'll take it all day. I was looking at my 401k over the weekends. Just, I was like actually looking to see like how my international holdings were doing. Like the, these are fidelity mutual funds that own international stocks. And like the diversification is really working this year. These are Fidelity mutual funds that own international stocks.

The diversification is really working this year, so much so that I don't even think I'm up slightly since the beginning of the year. That's number one, but also number two. I'm putting $900 every two weeks or whatever into the 401k. I'm not consciously thinking about it. That's just automatic until I've hit my level. But I'm happy to do that in a flat tape that doesn't bounce back. It doesn't affect me at all.

I want it. I don't want to buy, why do I need to buy all time highs for every time I buy stock? So that's just like, I'm trying to, I'm just trying to give people both sides of this. If you're under the age of 70, there's like no need to cheer for a V-shaped recovery. It doesn't really do anything for you.

But even if you're over the age of 70, you're never gonna make another dollar worth of contribution to your account. Again, you don't want something going straight up because that is unsustainable. You don't want that. It makes the fall harder. Yeah, no, it sucks.

Cause then you're anchored to that high price. It's just no good. It's no bueno. All right. So what works best in a recovery? This is some great data from our friend, Adam Parker at Trivariate Research. He says he's showing the average performance following the worst 20 SAP 500 drawdowns since 1999. And not surprisingly, you've got junk number one and this is just low quality crap. And then, oh, actually, that's interesting. He has something that's actually labeled low quality.

So similar but different, I guess. And then also not surprisingly, small cap and micro number two and three. I wouldn't have guessed this, would you? Oh, yeah, yeah, yeah. Yes, you would have. What would you have guessed? I guess what are we measuring here? Average performance.

Okay. So we're not saying how well they hold up through the downturn. We're saying what's the bottom. Well, you also got to figure that these are the things. And then what do they do? They get hit the hardest too. Yeah. Well, that's the thing with this.

I guess that's what I feel like is missing. And shout to Adam Parker. He's doing really great stuff on this, on buybacks. We got to have him back on soon. Put that back up. So one of the things that I remember from like the literal big, big bounces off of bottoms, and I've seen a couple of them in real life. I remember, I remember biotechs, like in 2003, just being like, you couldn't buy these things fast enough. Like these were stocks that had gone from 20 to 3 back to 20 and it would be really hard to time those purchases. But I just remember, I guess, I don't

know if those would be considered small cap or junk, probably a little bit of both, but like that was the play for probably a good 90 days. Yeah. So then conversely, you've got mega cap bounce in the least because it probably fell, not probably, they do fall the least. Mega and large, small fall less than small and micro, duh. Let's talk about how individual investors are. I was going to say this time might be different.

Like if this market bottoms with Nvidia in a 35% drawdown, junk stocks are not going to be able to outdo that on the way back up. In video is not in a 35%. It did. It was 25%. But I'm saying if it gets worse. Oh, right. All right.

So they bought the dip. Individual investors from the FT have pumped almost $70 billion into US stocks this year. Net inflows, $67 billion. That's down only slightly from the $71 billion in the final quarter of 2024. This is from Vandetraak. Here's a quote from the chief market strategist, Steve Sosnick, at Interactive Brokers. Dip buying has been an essentially foolproof strategy for four of the past five years. Doing something that works remarkably well for so long means you're conditioned to stick with it. And this is what I was saying.

I think it's going to take a lot more than one 10% correction for that mentality to break. And I don't know if it happens if we go sideways or if we roll over, but that muscle is so ingrained in investors today. I think it takes like a year for everyone to fully give up on buying the dip. Flat markets with a lot of chop for a year might really change a lot of people's minds and how they're investing. And I think anything short of that, the first going to like the first time it rallies, they're going to be like, oh yeah, that's right. That's what I'm supposed to do.

But what you're saying here, so individuals have pumped 70 billion into US stocks this year. That's not really a dip buy. What do you mean? Because that's parallel with what they've been doing. Yeah, but I'm saying they didn't dissuade them. They didn't shy away, but they weren't like buying the dip, like buying two of everything.

Fair, but they didn't sell either. They just keep coming in with money. So Goldman Sachs data shows that retail investors have been net sellers of US stocks in just seven sessions this year, despite the S&P having fallen on 25 days. Pretty good, but this is the interesting thing. In contrast, big investors tracked by Bank

of America made the biggest ever cut to their US equity allocations in March. So there is a severe disconnect from retail and the mega wealth. Don't say, okay, I thought you were going to say the smart money. I wouldn't do that. I would not do that. We know better. Well, we're going to find out who is right. That's interesting. So the professional asset allocators are raising cash, getting out of US stocks or buying Europe or whatever they're doing. And the regular investors, they've barely been net sellers at all, no matter how bad it's gotten. And they continue to plug away the way they always have. I don't like it. Jerry Gould is saying this is more DCA than that's the point I'm trying to make.

Sure it is. But also like, I don't think that people bailed in 2022, did they? Um, I don't think 401k allocations changed, but I do think, uh, retail got wiped out. So here's what happened. They stopped buying the trading volumes fell off the cliff. They stopped buying the trucks, Leopard ETFs, which I do think retail got wiped out. So here's what happened. They stopped buying the- Trading volumes fell off the cliff. They stopped buying the 2x lever ETFs, which I know we're going to talk about later.

Yes. This is from your Denny. The stock market sell-off is one of the factors. He makes a list of all the factors contributing to the huge drop in consumer confidence. And obviously, there's more going on in the stock market. But this is one of the factors that he lists. I think my takeaway here is this can be quickly reversed if the dip buyers push it back to where it was. But let me read what Ed said. Some of the decline in consumer confidence is undoubtedly attributable to the rapid drop in stock prices. Indeed, the percentage of respondents expecting lower

stock prices in 12 months jumped from 21% in November of last year to 44% in March. That's the sort of jump that has occurred in the past at the start of bear markets and recessions. On the other hand, with economists, there's three hands. On the other hand, from a contrarian perspective, high levels of bearish sentiment have often signaled stock market bottoms. But those bottoms have often coincided with implementation of the Fed put, which isn't likely to happen anytime soon since Fed officials have stated they are in no rush to lower interest rates given the current resilience of the economy and the potential inflationary impact of tariffs. Right, chart off.

The Fed's in no rush until one of these data center bonds blows up and then we'll see how patient they feel like being. Wait, chart back on. This chart is so fascinating. If you're listening and not watching, you're showing the percentage, and this is from the conference board. This is like real. The consumer confidence survey, people that are expecting stock prices lower in 12 months. And this skyrocketed. Only like 22% of the respondents were expecting stocks to be lower in the next 12 months. It shot up to 45% in

a matter of months. Yeah. So this is- He says that almost always happens right before a bear market. Okay, so either people are going to have seemed very prescient that, wow, they were right, or it's gonna look like the biggest head fake

we've seen in a long, long time. Hey, important to note on sentiment, when we were 2% from all time highs, the crowd got crazy bearish before a 10% sell off in the S&P. So the crowd's not always wrong and the sentiment surveys aren't always great contrarian opportunities. And the crowd, you know, it's a little bit, it's like a little bit of like a tautology, but like what the crowd does is the crowd sentiment. So when they all get bearish and sell, they like make themselves right because it's them selling.

So, you know, Bank of America asked this morning, what if US exceptionalism hasn't peaked? They say they are not counting US equities out yet. And I'm not gonna read the whole thing, but a couple of things they said. They're thinking we're gonna see an even larger AI bubble in the coming years. So they are super bullish on what AI is gonna do and therefore what people are gonna be willing

to pay for these stocks. I think there will be that. So if they're right, then CoreWeave will be a hot stock. Drawdowns and rotations, even larger than what we have seen, are not abnormal in bubbles. So I guess in their framework, this has been a wild market destined to get even more wild, but these types of big drawdowns and rotations are common within bubbly. They say the rebound from the March 13th lows has been in line with historical norms and dip buying strength remains near the strongest in 100 years. So they keep all this data on people with Merrill Lynch accounts and they break it down institutions, hedge funds, corporates,

which is like buyback activity and retail. And they're saying like the dip buyers are as strong as they've ever been in this tape. And then they also say the Powell and Trump puts, you know, the ones that don't exist remain quote available, even if perhaps struck lower than some thought. So like everyone's like ready to pivot away from large cap US. They're basically saying not so fast this bubble hasn't fully bubbled yet. And I don't know. I feel like that's probably a take that looks smart today.

But if this rally fails that's going fails, that's going to look really out of touch. That's why this is so hard. But it depends. When you say the rally fails, if we undercut the new lows and we go down 15%, does that really invalidate this? If the mag seven stocks, if the US exceptionalism trade fails, sort of feel like it does. I don't know.

I'm lukewarm on that though. I can go either way. Cyber stocks look good though. So I want to talk about this. Do you know why 23andMe just filed for bankruptcy? I don't. F***ing data hack. Literally, it's a public company out of business

because of a data breach. This is from the information. Martin Pierce wrote this. If you want a detailed look at how hacking is hurting companies, check out 23andMe's bankruptcy filing. The DNA testing firm was hacked in late 2023, I remember this, with the hacker getting access to personal information for about 7 million customers, according to a court filing today by the company's chief restructuring officer.

In the wake of the hack, more than 40 class action lawsuits were filed. 35,000 people asserted or threatened arbitration claims. The Federal Trade Commission began an investigation. Then the Attorneys General from 42 states and the District of Columbia began an investigation. Internationally, 12 foreign regulators, including a joint Canada-UK investigation, looked into the issue. A $30 million payout resolved some of the lawsuits while the company on Friday settled other claims but pending litigation and claims continues to complicate 23andMe's life. The lesson, lock down your servers.

So now it's in bankruptcy. Someone else, it'll go into like receivership and like maybe the people that are owed money will somehow take control of the company. But if you gave them your personal information, and they literally have your DNA on file, like you wanna get that shit out of there because God knows who's gonna end up inheriting this thing once it works its way through the bankruptcy courts.

So wait, a $30 million payout wiped them out or did customers? That's just one thing they settled. the bankruptcy courts. So a $30 million payout wiped them out or did customers... That's just one thing they settled. Michael, again, 40 class action lawsuits were filed. Maybe they settled one of them. 35,000 people asserted or threatened in arbitration. They're being investigated by every country and excuse me, every state attorney general

plus in foreign countries. So that's game over. You can't survive that. You must reorganize. So this next table that we're going to share on the largest US cybersecurity stocks. Oh, let me just, so let me make my point. This is the one line item that no company in the world is cutting. I don't give a shit how bad the recession gets. This is out of business risk. Yeah.

And so these stocks are rightly trading at a premium to the market because they are- And defensively. Because they are secular growers. It's not to say that they can't fall 40% like every other stock, but the market's not dumb. So I throw this table up. The forward PE on Palo Alto Networks is 51%. The company is expected to grow 40%. That seems kind of wild. But okay, CrowdStrike, for example, 84 times forward PE, but expected to grow 32% next year. And I'm guessing 25% that you have to that

and so on into the future. So yeah, high growth, high multiples, duh. Yeah, these are double digit growers, very hard to knock these companies off their growth path. And double digit showers. That's right. The risk that these companies have is losing business to each other. The pie is not gonna shrink.

That's the way I would phrase it. So in any given quarter, one of these companies, and it happens every time, disappoints Wall Street. I've seen it with Zscaler, I've seen it with Palo Alto, I've seen Fortinet get hammered, and the one I own, CrowdStrike, could happen to them. But that's a game of analysts, sell-side analyst expectations for each company. But in the bigger picture, this sector, these stocks, they're acting defensive because they kind of are.

Let's put this chart up. This is the year to date returns for the five largest publicly traded cybersecurity stocks. And not a lot of areas of software look like this. No. These are among the very best technology stocks so far this year. And not a lot of areas of software look like this. These are among the very best technology stocks so far this year. Look way better than the semi-stops,

I'll tell you that shit. The next one I'm showing you is the Cyber ETF. All right, so CIBR is the first trust NASDAQ cybersecurity product. You can see while it fell off in February, it's gained a lot back and it's still up year to date. The next one is just the software sector ETF does not look as good. And then the bottom one is the XLK, which looks much worse than both.

So that's kind of like the, that's kind of the hierarchy here. Yeah, good stuff. CrowdStrike got upgraded today by BTIJ. So this is what they're saying. We are upgrading Crowd from a neutral to a buy rating for two primary reasons. First, with the July 19th, 24 IT outage, remember that? Now, eight months in the rear view mirror, we think CrowdStrike has much better visibility on forecasts. As we run through ARR recapture scenarios, we see potential for growth to reaccelerate in

second half 26 and anywhere from two and a half to eight percent upside the street forecasts. There's a whole lot of other stuff, but they basically, they went out in the field and from two and a half to eight percent upside the street forecasts. They there's a whole lot of other stuff, but they basically they went out in the field and talked to companies and they say our field work leads us to believe crowd is best positioned of any vendor to win the security information and event management or SIEM market a $6 billion opportunity. Crowd is a top two or three vendor in the $7 billion cloud security space. Our checks show rapid momentum

in the $2.5 billion vulnerability management market. So Crowd is playing from a position of strength in all these key areas of cyber. They slapped a $431 price target on it, increased their ARR estimate, and price targets now 18 times calendar year 26 enterprise value to sales. So I mean, these stocks just in a sea of red tech, they really stand out. And I think that'll continue to be the case throughout the year.

All right. Let's talk about the potential recession. So last year we spoke with Rick Reader and others about how the dynamic nature, specifically like software, how you could just turn things on and turn things off that were less prone to booms and busts. Do you think that that theory is going to be put to the test? Yeah, I think it has to be put to the test? Yeah, I think it has to be. And that's why I mentioned CoreWeave as a vibe check.

Do people really believe that this spending is going to hold up if the rest of the market all of a sudden is coping with a recession? Definitely not. It's hard for me to believe that any publicly traded company would be so irresponsible as Like, definitely not. to live through that? You talk about robots? What are you crazy? Like I just I've seen too many of these cycles. So I don't think that this is going to be a secular growth story if the cyclical growth story completely falls apart. Now, I don't think the cyclical growth story is going to completely fall apart. I'm not in that camp yet. I recognize all the challenges. I read all the same articles as everyone else. I just don't see the consumer

Behaving the way people think the consumers about to behave. Okay, so let's talk about that I think I want to hold up just there's also we talk about like the economy There are so many economy everybody has their own economy. It's mostly people talking past each other So I so I pulled a few quotes from the transcript, which is a great resource Let's start with the godfather of AI, Jensen Wang. He said, the second thing that I said that nobody's got right, none of these forecasts has this concept of AI factories. Are you guys following me? It's not a multipurpose data center. It's a single function AI factory. Do you guys understand? Listen, he said, nobody knows how to go do that.

And these multiple hundred billion dollar capex projects that are coming online, it's not part of somebody's data forecast, data center forecast. So he's saying that people are, analysts are still underestimating the amount to spend, the amount of revenue and infrastructure that's going to be built in. He could be right on the dollar amounts and very wrong on the timing. Let me just run through these and then we could comment. So, Ali's bargain outlet, COO said, I don't know. He said, higher income consumers, we define as over $100,000 household income.

We continue to see that trade down and retention of those customers. We're seeing, we continue to see strong low middle income cohort at the $40,000 to $65,000 household income we continue to see that trade down and retention of those customers We're seeing we continue to see strong low middle income cohort at the 40 to 65 thousand dollar range and our low income Court has been stable the CEO of Darden says as we come out of the third quarter into the fourth and we give you our expectations for Q4 People even if they say they're feeling less optimistic We haven't seen a huge correlation between that and dining out.

Changes in consumer sentiment haven't necessarily translated to material changes in consumer spending. Then finally, the CEO of Bodycoat, which I admit, I don't know what that company does, he said, turning to outlook, obviously, the market environment is mixed and the soft demand we saw, most notably in automotive and industrial, has continued into this year. In aerospace and defense, the underlying demand remains very positive, but there are some temporary headwinds from supply chain challenges. The point is, you speak to 100 different CEOs and they're all talking not past each other,

but there's different economies within the economy. Yes, I agree. And I also, um, all right, two things. As soon as you said Ali's Bargain Outlet, I started thinking of Buck's Super Cool Stereo Store from Boogie Nights. And I come on down to Buck's Super Cool Stereo World. That's good. All right. Uh, and I'm very salt of the earth, so I'm surprised. I don to Bucks super cool stereo world.

I'm very salt of the earth, so I'm surprised I don't know what that is. Chat is telling me Ollies has been a good stock. You are onion powder of the earth. I have not been to an Ali's bargain outlet. But supposedly the stock's doing okay. All right, I apologize guys, I just don't know what that is. I agree with you. What economy? Right. Because I promise you, I promise you,

now they're all interrelated and everyone's spending is everyone's income. So we don't really have 50 different economies. But like I promise you. Your spending is not Ali's income. That's right. Well, not yet because I haven't found one to shop at. But I promise you, the guys pulling the trigger at Blackstone about whether or not they're

going to fund the next $5 billion worth of data center build out are not the same customer that Darden restaurants is talking about feeling less optimistic. Like it's just, it's two different, it's not even two different worlds. It's literally two different planets. Now those things ultimately converge if things get good enough or bad enough, but we could have a multi-speed economy with two different realities for different groups of people for a really long time.

You know, I want to remind people of 2022 was a rich person recession. Stocks crashed, bonds crashed, you couldn't sell a home. But for lower income people, they were getting raises. Now, they weren't enjoying those raises because the price of eggs was up and the cost of credit card financing was higher. I understand that. But that was a two-speed recession in favor of lower income wage earners. These people were in a really good position with their employers, hence the insane jump

in quit rate and all the raises that had to be given out number one and number two were crippling the stock market and forcing the Fed to jack up rates. So I'm not suggesting lower income people enjoyed 2022. I'm just going to tell you rich people felt that one way worse. Didn't necessarily result in layoffs, but did result in some pretty nasty portfolio and real estate situations. So now imagine a wealthy family

where their wealth is derived from, I don't know, commercial office space. Like, that was not fun for them. That was way better for a, let's call it a bottom decile or bottom two decile household. So we have two speed economies and three speed and four speed and K-shaped. We have all that stuff. So I definitely agree with your premise, like which economy and who are you talking to?

So, because everyone's going to feel things a little bit differently. And that's why it's important to listen to what CEOs say about what's happening with their business, but not to then go out and extrapolate that across every business because the people building data centers are not the people eating an olive garden. Most importantly, Bank of America, Bank of America, who serves, probably, I don't know if they serve more US citizens than like any other business, probably besides Walmart. Moynihan was on CNBC and he said, he's like,

I know what the soft data is saying, but people are still spending. So it's not to say that people won't change their behavior, they're just not doing it yet. And some people are. Sure, always. Some people aren't. Always, right.

And we learned recently like half of consumer spending is now being done by 25% of the population or something. It's the definition of multi-speed. Robinhood is being looked at by the top securities regulator in the state of Massachusetts. Just to give people context, the Massachusetts state securities regulators have this like longstanding reputation as being the toughest cop on the beat.

They pride themselves in being like the most pro or what they consider to be the most pro consumer state securities regulator there is. So it's not surprising this is coming from Massachusetts. They're investigating Robinhood's decision to launch a prediction markets hub that allows users to bet on the outcomes of a range of events, including March Madness, college basketball tournaments. So basically, Robinhood found a loophole where they don't have to be a casino.

They could just give people binary outcome bets, prediction markets, bets on these sporting events. So you're not like betting the game like you would on MGM or Caesar's app, but you're betting the game. You're using a prediction market on Robinhood. And I think they just launched it. So Massachusetts Secretary of State Bill Galvin in an interview with Reuters said he was concerned that Robinhood was quote, linking a gambling event on a popular sports event that's especially

popular to young people to a brokerage account. This is just another gimmick from a company that's very good at gimmicks. So lower investors away from sound investing. And this is the Robin Hood thing. It's like, we'll let you do whatever you want. Yeah, I'm not a lawyer. They're not going to lose this case. Are they like people could bet on whether Apple's not a case. It's an investigation. The state can find them and they can appeal it.

I mean, look, so my I've gotten very cynical. I used I'm pro regulation, but I'm also pro like who gives a shit. Yeah, these are people that cannot be helped. You could step in and stop Robinhood from placing a prediction market trade using brokerage money. They will take the money out of the brokerage and do the goddamn trade somewhere else. Everybody knows it. So maybe that sounds like overly cynical. I don't really know what to say, but like I told you on a show two or three weeks ago, I think it's just a matter of time before That sounds overly cynical. I don't really know what to say. I told you on a show two or three weeks ago, I think it's just a matter of time before all of the brokerages are in sports betting and fantasy.

Because that's where the customers are going. This is what the Gen Z's want to do. I don't want them to do this. I don't encourage this. But I also don't care. It literally doesn't matter to me. So maybe it's great. Massachusetts can stop them from doing it, but they'll do it in Rhode Island. I feel the same way I felt about cannabis. I don't smoke weed. I don't eat edibles. Well, I'm just like, who gives a shit? You're not going to stop anybody from doing anything they want to do in 2025. I definitely don't care.

So yeah, I think they'll investigate. They'll slap a fine on them because they're totally doing it. And Robin Hood will pay the fine and they'll do it anyway. So, I mean, what's the point? And in the Trump era, like, this is just what it is. So I think everybody needs to loosen up and just let these things Play out and let the people who need to learn a lesson learn their lesson. I Don't know. I feel bad that that's where I've arrived at this. You think it's cuz I'm 48 years old. I Think it's 38. I think at 38. I would be like Railing against this and now I'm like, do it. Do more of it.

I hope you lose everything. What am I going to do? I'm not the world police. Leveraged ETFs. So here's my question. What is the cause and what is the effect? Are the stocks that are the subject of leveraged ETFs down more

because the leverage ETFs are forced to sell or Are the leverage ETFs down because people are selling the stocks? Both. It's not a riddle. Like it's it's chicken or egg and I don't know the answer. Why can't it be chicken, egg, egg and egg? I mean, it totally can, but one starts it. Here, let me read it. Wall Street Journal. Investors who loaded up on funds that doubled down on their favorite stocks were rewarded record highs. Now they are facing the downside. Who could have seen that coming? Now, they are facing the downside. Who could have seen that coming? MicroStrategy has one of the big ones that's like a really big or was a really big product.

The fund that offers investors twice the exposure to MicroStrategy is down 83% since November. Congratulations. Another one which does the same thing with Tesla is down 80%. They're citing all these people who are in the Reddit forums complaining about how much money they lost. I don't know. Did anyone buying these really think that they were meant to be held for more than a few days? So there is obviously still, unfortunately, a percentage of the population, the investing

class that doesn't know how these things work. The company's direction and the like cannot be more vocal that these are trading vehicles and not investing vehicles. If you impute the amount of money that's coming in, the volume, the turnover, I think Jeffrey Patak might have done this. The turnover is extraordinarily high. In other words, people are not overstaying their welcome in general. I don't know if it not overstaying their welcome in general, right? I don't know if it's like four days or whatever it is, but for people that don't understand how these things work, no better way to learn than to get in some-

How is it possible that they don't understand how these work? To your point, the companies that offer these products are screaming from the rooftop. These are not over the long term going to give you two times the return of the underlying. These are for short term trading. They say it over and over again.

Everybody knows this. How can anyone not know this? People learn. I learned this lesson early on. I was trading F-A-Z in 2010 and I was like, hey, wait a minute. That's 15 years ago. All right. 15 years ago. I was 25. People learn. Here's a public service. And here's from the article. Over a period longer than one day, returns begin to differ substantially. The NASDAQ 100 index has risen 20% since the end of 2021, the fund that offers leveraged daily exposure

is down more than 25%. What else do you need to know? How many people need to tell you this? Here's what I actually think is going on. I think everybody knows, but they put it on the trade and then it goes against them and they wait to get back to even. Yeah, that's probably right. And then it goes on for so long that it's not even worth selling anymore.

That's what I actually, I think everybody knows and they think that they are going to be the person who gets all their money back when recovers and maybe sometimes that happens. You can't stop most of the time. It doesn't. People like to gamble. Now I also think that again with it with obvious exceptions, I think like people are putting 150% of their portfolio in these in these products.

Okay. The biggest Micro Strategy Fund, MSTU has posted almost 500 million of inflows year to date, including 312 million over the past month. So not only did quote unquote investors put half a billion dollars into this thing since the start of the year, they're accelerating their purchases on the way down. Smart. It is? I'm kidding.

But. Wait, wait, hold on. No, no, no, you hold on, sir. In the last five days, if you just time this right. But here's the thing. No, literally, it's up 43% in the last five days. I understand. So that's what people are chasing.

43% in five days. Where else are you gonna get those type of returns, Mr. Brown? Nowhere. Who needs those type of returns? The hell is wrong with you? So, but over the last month, it's down what? Oh, all right, it's up over the last month.

Over the last three months, down 33%. Yeah, you have to nail this thing. So I think you're right. People that are still in this, it's just trap money. They know. Begging to be made whole. And congratulations to the people launching these things because it doesn't matter how horrible the performance is,

they just collect fees, because people trap themselves in them and they don't sell. Or if the theme gets hot, they plow into it. Now, I don't know what the fees are, 50 basis points, 80 basis, whatever it is, you're probably not collecting a full year's worth. You're probably not getting 80 basis points because the money doesn't stay for the year, but it's not supposed to.

It's not supposed to. So I feel like these are a great business for the issuers. They're a terrible investment for people that think they're going to get their money back. And for traders, maybe there's value here. I just don't know anyone. I've never come across somebody who like this is how they made their fortune. Yeah. Have you?

No, of course not. But it's for traders. And I guess if you're going to gamble, it's not worse than like far out of the money call options. It's just a different way to lose money. So, all right. I don't know. Congrats, I guess to somebody who is probably great for the contra traders, the creation trades when there's $500 million comes into this thing. Yeah. Change who's on the other side.

Citadel laughing this, they're laughing their asses off. Yeah. And with good reason. Let's put this up. Here's the granite shares Nvidia. So like just for people to understand what we're saying. Okay. Okay, the 2x long Nvidia ETF NVDL is negative 30% since January.

The two times short Nvidia ETF is negative 6%. Boom, perfectly hatched. So nobody wins except the people trading against this stuff and the very lucky few who are timing their buys and sells perfectly. Perfectly hedged. One more, MicroStrategy. I actually have two more. All right, same concept.

So this is the T-Rex two times long MicroStrategy daily ETF. It is negative 0.9% on the year and the 2X inverse, which bets against it is negative 61%. So just winning all around last one, Tesla. This is, this one's really interesting. Actually, the 2X Tesla short is 52%. Yeah. But look at that run. It was up 160%. Yeah. Okay. Josh, where else are you going to get those type of returns? And then the 2X long is down 60%. Yeah. All right. Yeah, we know. They know.

I guess they know. They know. All right. Now we're up to the part of the show where we do make the case and a mystery chart and we'll get out of here. All right. So why should I buy NVDL? Quick update. I made the case and a mystery chart and we'll get out of here. All right. So why should I buy NVDL?

A quick update. I made the case on March 4th for KNSL. This one's working. So this was that very niche insurance company. Chart up. You gave me a deep dive on this one. Yeah. Well, I went crazy on this one. So I wanted to give people an update. Yes, it's rallied a lot. I'm still long. I intend to make this a long-term holding in my portfolio. It's small cap.

It's not always going to do what it just did. Nobody should be under that impression. But these insurance stocks have been a beacon in the, have been like a, not a beacon, a haven in the have been like a not a beacon a a haven in the storm Berkshire Hathaway made an all-time record high recently as well but anyway this is Kin Sal which is in a very interesting corner of the property and casualty insurance market. They do custom insurance plans for companies that don't fit the molds of what a

large carrier would be interested in doing. They claim to be better underwriters of risk, and they claim to be using a lot of AI to be able to do these types of custom tailored products. They sort of have a dominance in their niche. So I'm very attracted to long-term investments like these where it's a really unique thing. Congrats on the gains. That's the story here. All right. I want to show you Rocket.

So just let's get this out of the way. We don't endorse stocks here. We don't give financial advice. And Rocket Companies is the owner of Rocket Money, which is a long-time sponsor of the compound and friends. But I'm bringing this up today because there was some good news on the housing front today. Some good data. The home builders looked pretty good for the first time in a while.

And one of the things that I think is obvious is that mortgage companies are going to be like a coiled spring if we get into an environment where mortgage rates really do drop throughout the course of the rest of the year. So assuming the Fed has the cover to come down another 75 or 100 basis points this year, I think companies that are in the mortgage business are gonna do really well. Rocket companies is one of those businesses. They went public in 2020, market cap is 31 billion. Last week they announced a deal to buy Redfin,

which Michael and I, you and I talked about. Redfin is basically a lead generator for mortgage and real estate brokers. So it's home price listings and content around housing. It's like Zillow. Rockets buying them for $12.50 a share, which was a huge premium over its Friday close, but a huge discount to where Redfin was trading in 2021. Redfin shares ripped 70%. Rockets fell 14%. That's expected. Rockets as the combined company

will achieve 200 million in run rate synergies by 2027. So I just want to show you, so forget about Redfin. This is Rocket versus the 30-year mortgage rate since the company came public in August of 2020. You can see this very clear inverse relationship. So the red line is Rocket's share price crumbling as inflation gets bad in 2021 and then falling further as the interest rate hikes start. And now what you can see is we had this little dip in mortgage rates, the 30-year mortgage rate

earlier this year. Look how much rocket went up when that happened. So from my perspective, there are a lot of companies that could work if and when mortgage rates really fall and stay down. This is one of the more obvious ones. The next chart I'll show you is just one year performance of Rocket. This stock is effectively very close to its lows. It had a little bit of a rip when rates started to come down, but I think there's still a

lot of potential if mortgages get more affordable. What do you think? Yeah. No, I agree with the premise. To me, the stock, just the stock, it's in no man's land. But if you're- No, totally. There's no catalyst unless and until lower mortgage rates unfreeze the real estate market,

and now you've got this arbitrage situation because they're buying a company. So it's in no man's land, but I think this will be one of the first to react if we get more rate cuts. Totally agree with you. Okay. Good segue, hint, hint, to my mystery chart. All right. There's three leaders in the space space and I'm showing you charts back

to 2004 with the context that the current sell-off is pretty severe. Next chart please, showing the drawdowns. So yeah, down between 34 and 38%, pretty nasty. And if I showed you these charts, you would have said, oh, f**k. Like what's happening in the overall economy that these names are down so much. You would not think that the S&P is 7% off its highs or whatever it is. These are down so much worse than the overall market. It's actually astounding. It's KB Homes, Tall Brothers, and Pulte.

Yeah, basically. I only pulled. You know what? All right. It's KB Homes, Toll Brothers, and Palti. It's yeah, basically, I only pulled, you know what, why didn't I pull Palti and Toll? It's KB Lenar and D.R. Horton. Okay, close enough. But same thing. I think these are the three big ones. So, but if you saw- That's pretty good though, right? Very good.

If you just saw these in a vacuum, you'd say like, uh-oh. So this goes to my point about the bifurcated economy, which economy are we talking about? The housing market is frozen and the stocks are getting crushed. Not great. It's so funny that our Make the Case and your mystery charts kind of rhymed. Yeah. Listen, those names are going higher too. Again, if the Fed cuts rates and mortgage rates fall,

those names are going higher. I almost think regardless of the economy. I'd much rather be a buyer than a seller of those stocks. Yeah, so I don't buy falling knives, but if I did, I would buy one of those falling knives for sure. So, all right, hey, this is a great show. Guys, I know we went a little bit longer than usual. Thanks for sticking with us.

I wanna thank everybody who tuned in for the live chat. You know, we appreciate you guys so much. Also want to mention that tomorrow is Wednesday, which means an all new Animal Spirits with Michael and Ben. Thursday, I will be appearing with Ben and Duncan on Ask the Compound. And we do that show live on YouTube and then the replay on the podcast feed.

So check me out on Ask the Compound. And then of course, at the end of this week, we are back with an all new, The Compound in France. Thanks so much, we'll talk to you soon. Whether you're just getting started as an investor or you're managing a multi-million dollar portfolio, Ridholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit ridholtzwealth.com.

Don't forget to check us out at youtube.com slash the compound RWM. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.