The Compound and Friends - Intangible Value

Episode Date: January 21, 2022

On this week's episode of The Compound & Friends, Michael Batnick, Kai Wu, and Downtown Josh Brown discuss: interest rates, the platform economy, Web3, intangible assets, the importance of company culture, and much more! Thanks to Fundrise for sponsoring this episode. Visit fundrise.com/compound to learn more about the future of real estate investing! 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/disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Yo, how many times are you going to do that? We just started. I just want to make sure everything was working correctly. Let the wild rumpus begin, Michael. So that was an ugly close. That's what the wild rumpus is. Where did the fangs go out? I'm checking.

I'm logging in. All of them read Amazon is the worst, down 3%. Ark puked into the close. My God. They're going to- Tomorrow's going to be ugly. I was going to say. Amazon is the worst down 3% ARK puked into the close my god they're gonna they're gonna tomorrow's gonna be ugly I was gonna say oof

this is gonna follow through so Peloton lost a quarter of its value today no big deal it was only down 80% going into today alright that's nice Kai we're gonna talk about that I wanna talk about this with your intangibles

it's now 24 alright ARK alright alright I'm combing the desert Ty, we're going to talk about that. I want to talk about this with your intangibles. It's not 24. All right. Arc. All right. All right. All right. I'm combing the desert.

The Q is gross. Apple. Man, this market, this is Apple. Testing, testing. Apple and Microsoft are the only reason we're not in a correction yet. Google too. Oh, Ben and I were talking about this yesterday. This, Oh,

Amazon. There she goes. Amazon was hanging on by a thread. You know, you know, Apple is almost twice the size of Amazon. Now that happened pretty quickly. You know why?

Since, since the summer of 2000, is it 18? No, no, no, no, no,

no, no, no, no, no, no, no, no,

no, no, no, no, no, no, no, no,

no, no, no, no, no, no, no, no,

no, no, no, no, no, no, no, no,

no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no. No, no, no. I'm sorry. Summer of 2020. Amazon's gone sideways. Yeah.

Amazon stopped rallying in July of 2020. This is July 2020. And Apple has since doubled. So Apple is twice as market cap of Amazon. That's nuts. Which one was a trillion first? I think Apple. But I'm not positive. I think so too.

I feel like that's just how the story had to be written, right? I think Apple and Microsoft were before Amazon, but I could be wrong. Either way, those are the stocks that have been holding this whole thing up. That's not true. We debunked that, Josh. We debunked it. I know, but still. I know, but still.

You have data. I have my gut instincts. No, you got to feel the market. Like that counts for something. So market cap, Apple's now 2.7, Amazon's 1.5. Hey, Duncan, do you know how to make coffee? Alex just made coffee. No, not for today.

I don't need any. But just generally speaking. Where are you going with this? I'm kind of a big coffee person. All right. So on Thursdays from now on, I need you to do the coffee. Okay. Because I don't know how, and Alex we learned today doesn't know how.

No, he does. He does. No, we learned today. No, he's strong. Nope. He had an off day. Can we get like an espresso maker maybe? No.

That'd be nice. We will work with the equipment that we provide. Why? This thing is not good? Should we get something different? No, I mean, you can just do a lot more. It's a lot more versatile. What else can you do?

All I want is black coffee. I could do a good Americano, but yeah, we can do that. Is Americano a fancy way of saying black coffee? Pretty much. Okay. Man, I can't get over this Peloton shit. If I knew how to do it, I 100% would do it. It's not about delegating coffee responsibilities to anybody. I just don't know how.

Negative lifetime total return for Peloton since going public. You are so obsessed with this stuff. I can't look away. I'm not on Twitter. Is Michael tweeting about Peloton daily? As we speak right now. His hot tweets right now about it. I did two today, which is two too many, but I couldn't help it.

Do you use your Peloton still? Used it last night, not to brag. Do you use it as much as you were using it like, let's say, too many, but I couldn't help it. Do you use your Peloton still? Used it last night, not to brag. Do you use it as much as you were using it like, let's say, a year ago? You were doing, like, you were on it all the time. I felt, oh, Netflix down 8% after hours. Awesome.

Yeah, I'm riding, bro. What happened to Netflix? Same store, Ozarks. We're down. They're cutting production of all future projects. Stop it. Like Peloton. Stop it. Netflix just hired McKinsey.

Down. Oh, man. What happened? Ozark missed? Is Netflix down $56? Stop. Dude, that doesn't fucking matter. What is it?

He talks about dollars, whether a stock is $100 or $1,000. He's like, oh, man, Ford's down $2. Well, no, I would be like, oh, Ford's down $2, no big deal. And then you would be like, that's 10%. So here's why. I was a stockbroker. Okay. So for my first 10 years of my career, the only thing that mattered were how many dollars

up or down stocks were. You can't help it. There were no $1,000 stocks. So when you said dollars, it was always relevant. Let's say most stocks were $50, $30. So if you said such and such stocks up $4, it was probably a big deal. And now we have stocks that trade at – Thousands. $1,200. Yeah, $400,000.

That found the inflation. Right. Mike gets so mad. I'm like, oh my god, Amazon's up $20. He's like, are you kidding me? I can't lose it. I can't help it. But still, doesn't $55 a share sound like a lot for Netflix?

I'm just saying. It sounds like a lot of points that it's going down. Okay. It's a $500 stock. I know. So it's 12%. I know. It's down a lot. By the way, here's another one. Netflix, you know, Netflix since really 2018 has been a crap stock. It doesn't feel that way. Has it been sideways? Since here. Oh, it just gave back all its gains back to late 2020, though.

Yeah, but I'm saying go back to 2018. So what is that, four years? It was 416. It's 449 after the close. Since the summer of 2018, Netflix has underperformed bigly. And that's pre-Squid Game. You a Squid Game guy? I never got into it.

No? No. Guys. We were temporarily obsessed. Yeah. It was a phase. It was a phase. I liked Squid Game.

Yeah, I did too. Do you want to wear the mask? Spiders are up. The S&P is up 60% since mid-2018. Netflix is up 20% before this earnings2018. Netflix is up 20% before this earnings report. So that's since 2018. Netflix is about to be up 10% compared to 60% for the S&P. Since when?

18? The middle of 2018. It's a long time. Does anybody think that? Massive, massive, massive. When did Disney Plus come out? 2019. I was just looking at this. Disney has sucked also. When did HBO Max come out? 20? Well, AT&T has sucked also. When did HBO Max come out? 20? But AT&T has sucked also. But Disney has had its own issues

aside from... I mean, Disney Plus kept it alive, basically. Imagine what Disney would have done without Disney Plus. $50. $50. I think it would be a $50 stock. No, it would be a $50 stock.

It went to $85. You don't think if they didn't have Disney Plus kicking ass, that could have gotten down to $50? I feel like it easily could have. So look at this. Since Netflix peaked in 2018, it peaked at $4.23. What's it at right now in the after hours?

That's what I want to know. $4.49. Don't get triggered. Down $55. No, that's today. Why isn't it showing me after hours? Hello? I'll go to Yahoo Finance.

Old school. It's down $59 or 11.75%. Okay, what's the price? $448. Shut up. Oh my God. That's where it was in 2018. Yeah, it's bad.

No, the question is how many subs have they added since 2018 that are now – 50 million. But I'm saying like that are now being counted as like who cares if it's back to that level. The average sub now is worth less to Wall Street than it was then obviously, but by how much? So literally three and a half years the stock is flat. Can I just point out that this is basically the show you talked about on What Are Your Thoughts where we watch Michael react to stock charts? I'm a guest. Netflix, one of the fang stocks, is flat since 2018.

So why don't you buy it? I don't want to buy it. Would you buy this stock? Would you want to be invested in Netflix? I don't own it. Not right now. Well, I get that it's going down. You want to buy it when it's going up.

Do I think the price will be higher in five years? I don't know. I don't think about it that way with individual stocks. I'm not trying to get married to Netflix. $225 billion market cap. Not anymore. Down 10%. $200 billion. See how the math I just did? $200 billion.

So it peaked the week before Thanksgiving. So, Kai, would you say that picking stocks is hard? Yes. That's my contribution to this conversation. All right, we ready to go? Let's do this. We are ready.

All right. I feel like this was way too much me in the cold open. You got excited about this. Very excited. We really love these after after hours reactions. Episode 30. Welcome to the Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our 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. Today's episode is brought to you by Fundrise. Fundrise makes high-end private market real estate investing effortless and accessible to everyone. Thanks to Fundrise. Fundrise makes high-end private market real estate investing effortless and accessible to everyone. Thanks to Fundrise, anyone can invest, accredited or not accredited, and you can manage your investments from your phone. Fundrise is the latest example of how technology can harness the power of large populations to

disrupt institutions. With more than 1 million users and over $7 billion worth of assets transacted on, Fundrise is already the largest direct-to-investor real estate investor platform, and they're giving individuals the potential upside of an asset class that was mainly reserved for institutions and high net worth individuals for decades. If you want to learn more, go to fundrise.com slash compound. Again, that's fundrise.com slash compound. All right, compounded friends. Is episode 30 already? Really?

It only seems like 22 or 23. It's 30. All right. Episode 30, for those of you guys who have been listening since the summer of 2021, when did we start, started may of 21 june june of 21 we appreciate you guys we had a breakout week in uh downloads this past weekend the weekend before was a great week and the momentum really seems to be building and just

want to say thank you so much and we are about to go on a run of amazing guests and great shows starting today michael introduce our special guest kai woo kai pause pause for stop get stop get out of here with that all right come on i'm excited i was introduced to your work by phil huber tweeted out one of your posts a few weeks ago, months ago. I read it and I said, where has this person been all my life? How is this the first time that I'm discovering your work? Because the quality of it blew me away. It's not like anything that I've seen.

So you're doing some really unique shit. So why don't you just give us a quick background? Who are you? Now you have to live up to that intro. You have to really dazzle everybody. Give us like a 15 second background. Well, I've been here the whole time just hiding in Brooklyn. So yeah, I started my career at GMO.

So I was in Jeremy Grantham's asset allocation team. Left in 2014. Did some crypto on the side and then— On timeout. So you guys all wear black robes with hoods on that asset allocation team. What is it like being on Jeremy Grantham's asset allocation team? Tell us about that. If I told you, I'd have to kill you.

Okay. Besides the secret parts, what are like the parts that maybe people would be interested to hear? You know, I'll show you the handshake afterwards. Because we have a lot of fans of GMO's research listening. No, no. It was awesome. You know, it was a great time.

I'd learned so much. Jeremy was a great mentor. And, you know, the group is super cerebral, super intellectual. Right. And, you know, very transparent, very willing to educate and teach their clients and their analysts, by the way, the ways of the world. It was great- What did you come in there to do? You came in to be an analyst? Yeah. I came straight out of college. I graduated in 2009. You and I both went to Harvard.

Yeah. Michael went to Harvard. Yeah, Michael went to the gift shop, but you matriculated. We have the same hoodie. Yeah. So I graduated in 2009, ended up doing some internships on Wall Street, and that got me interested in finance and investing. I, as a result, did my senior thesis in economics with Ken Rogoff on financial crises. And that kind of was a natural entry point into GMO since a lot of the work they do is around spotting bubbles. Rogoff was a Harvard professor? That's right, yeah.

So he wrote a really interesting book with Carmen Reinhart where they looked at the history of hundreds of years of financial crises, pulled together all this data, and then the idea was, can we spot ex ante these crises due to buildups, imbalances in asset prices, credit, external accounts, et cetera. So that was the whole idea there. And when I landed at GMO, I ended up working for this guy named Edward Chancellor. So Ed wrote a book called Devil Take the Hindmost. Oh, yeah, yeah, yeah.

Wait, can we go back to Rogoff and what was the other professor that he worked with's name? Oh, Carmen Reinhart. Yeah. Reinhart and Rogoff. Yes, right. Now, there was a huge controversy about like they missed an Excel thing and it invalidated a lot of their research. Do you want to apologize for that?

Was that you? That was definitely my fault, so I take full responsibility. Well, you were like the intern, so did you f*** the excel up or not is i think we want to start there well first of all i was not involved with that project okay sure sure you were a project where were you then okay go on i was probably in high school okay um all right but i did remember i did remember something about that only because i think barry interviewed did Barry interview Professor Robo? It was like 2013 maybe. But wait, Edward Chancellor. I love that.

The Devil Takes the Hindmost is one of my favorite financial history books ever. Yeah. Ed's the man. Yeah. I didn't realize that he was still like – I thought that – What's that book about? Investing history? It's The Devil Takes the Hindmost?

Yeah. It's a history of all the biggest bubbles. It's awesome. OK. In my mind, that book sort of is like a cousin of Peter the biggest bubbles it's awesome okay in my mind that book sort of is like a cousin of uh of peter bernstein's book um uh oh my god what's peter bernstein's book about risk you're not talking about against the gods yeah to me it's like a sister book to that yep against the gods great yeah so what do you have to do with edward chancellor so ed worked

at gmo oh he was buddies with jeremy grantham they're you know both british and he actually ended up kind of being an unofficial advisor for me on my thesis. And so he pulled me into GMO. And for the first few years there, I worked with him exclusively on these types of problems. There's nothing scarier than a bear with a British accent. Between Montier. I'd take 5% off my portfolio anytime somebody with a bear with a British accent that's got like that. So convincing.

No, but also that it has that pedigree, like from GMO or from Harvard or whatever. Like Icon getting bearish with his Queen's accent doesn't really scare me. Yeah. Right? It's like, yeah, whatever. Icon came on TV in 2015. He says, these ETFs. I don't know.

Like that was his thesis. I don't know like that was his thesis I don't know about all this doesn't sound good and uh no he called them a powder keg I remember that he called junk bonds

a powder keg yeah he went a little bit further he did an infomercial against ETFs uh danger ahead oh boy and I think he called out

Larry Fink I remember that and Larry Fink was a systemic risk and I think that's when BlackRock had I don't know 2 $2 trillion under management. Now it's about $10.

But probably, I don't know if we should worry. So Kyle, you left GMO because you wanted to – well, why did you leave GMO? Whatever. You left GMO. Where did you go? So I went, started a crypto little trading strategy on the side. But then the big thing I did is I went – I actually, I guess in hindsight, made a mistake of shutting that down to go back into traditional finance. At the time, I thought, you know, the market was pretty small. It was, the strategy was making money, but it was unlikely to

necessarily grow. What year was this? This was 2014. Super early. April 2014. So you came up with a crypto investing strategy. That's right. So the idea was, you know, at the time, you know, there weren't that many coins you could trade. There were maybe seven or so. But there were a bunch of exchanges that had cropped up. You know, Coinbase is one of the survivors, but there are a bunch that, you know, didn't make it out. Yeah, Mt. Gox. Mt. Gox. Yeah, exactly. And there was an opportunity to arbitrage across exchanges. So that was one strategy we did. We did triangle trades. So like in FX, the common Kiwi, Aussie, and dollar, right, looking for, you know,

mispairings there. So we were able to do that as well. Wildly inefficient market. Wildly inefficient. Some exchanges you're trading against the exchange. Some you're trading with counterparties. Like just it was complete wild west. It was completely inefficient, but it was still very small.

So while the Sharpe ratio was very high, the amount of money you could take out on any given day was capped. So my thought was, look, one of two things can happen. Either the market will grow but become efficient or it will stay small and inefficient but never get to the point where one can truly build a business off of it. Off of those minor inefficiencies. Yeah, obviously I was wrong because it grew big and stayed inefficient. But that's a story for another day. I would argue it's gotten maybe even more inefficient. Yeah, as a lot of retail,

a lot of money has kind of blown into space. There's 8,600 coins now. Right. So there's not 8,600 people that actually know what they're doing. Right, yeah, exactly. Let's just put it that way. And I'm definitely not one of them either.

All right, so I want to talk about Sparkline Capital and then get into all the great stuff we're going to do today. Okay. So that's your, so you went back to traditional finance. It was a hedge fund, more success. You're super smart, but you realize like my work's not been done that I really wanted to do. So now you're back into crypto. You moved out of Boston. You're in Brooklyn, crushing it right now, like on the content side, which we'll talk about. But like, now you're set up to do what you've always wanted to do. And these markets have gotten bigger, more liquid, and there's much more interest in, is that really what you were waiting for, for like, oh, now there's a potential business

here there's a lot of people that want to invest in this yeah so if you step back really what i consider my core competency is actually ai i know this is kind of a same kind of breaks the breaks breaks the narrative here but um you know actually sparkline was set up to be an equity fund an equity shop um so yeah i actually did some macro in between. So after I wound down the crypto fund, I started a hedge fund in Boston called Kaleidoscope Capital with one other guy from my team. We traded options like vol arbitrage and futures.

And I left, sold my business, sold my stake and started Sparkline. The idea here is our mission is to kind of help our clients and help investors navigate the wave of technological change that's railing markets. And for us, in addition to managing money, our idea is let's share ideas back to the community. And so as a result, we do publish this monthly or so newsletter where we kind of use AI and machine learning in order to, you know, try to help understand what I call the intangible economy. Right.

So that seems to be like the new generation of people who are launching strategies, funds, whatever you want to call them. They seem to be much more willing to want to have a two-sided conversation in social media with the public. I don't know how much of that is because that's like really their only way to get known versus they genuinely are deriving insights they wouldn't otherwise get because they're willing to talk to experts from all over the world in a public forum. And Kathy talks a lot about that with, with arc. And I,

I think it kind of was dual purpose. It got her name out there a little bit more because she was like out there herself. But then also I feel like they probably did produce interesting investment insights just because they were sharing their research and getting feedback. Yeah, it's like the tech idea

of the minimum viable product, right? You want to ship quick so that you can get feedback from the market. Is this idea good or not? And I think by putting stuff onto the internet and subjecting yourself to the- Yeah, everyone's really nice about it. Yeah, exactly. To get trolled, be willing to put yourself to get trolled.

You don't have trolls yet. Your first 10 billion, they're going to come. They're not going to be trolled. Okay. They're going to come. You should be okay. I welcome that. Yeah, yeah. You should be okay until then. All right. So Sparkline is, so you're based out of New York. And what's the main thing that your investors know you for? I'd say intangible assets. Okay.

Right, so my whole idea here is, look, I started as a value investor, but the world has changed so much, right? Since Ben Graham wrote security analysis in the 30s, the biggest companies today are not railroads, they're not steel mills, not textile companies. They are Google, Facebook, Amazon, as we talked about, companies whose value does not reside in their physical assets,

but in their intangibles. Can we pause here for a second? Because I think this is super important. And to me, this is what GMO has gotten wrong is their approach about like mean reversion and profit margins, missing this part of what you're talking about, the intangibles and the way,

like the structural forces in the market. So I'm kind of curious why they haven't incorporated, not just they specifically, but just people like that haven't incorporated this into their analysis. You talk about intangibles like brand equity, human capital, intellectual property, network effects, and you quantify all of that. Why aren't other old school value investors up on this? Yep. So I think it has to do with dogma. It has to do with this kind of tradition, religion, kind of your strict constructionalists. People say, look, Ben Graham said that price to book is value, and therefore that's what we're going to use. I think as maybe R&D, which is currently considered an expense that's taken out of revenue,

should be capitalized in order to create an asset on a balance sheet in the same way that, say, CapEx, like physical CapEx is. And I think people go both ways on this and there's some debate, but I think this kind of underscores this whole idea that accounting is,

by nature, very conservative and hasn't really attempted to adapt their ideas to some of the changes. So Jeremy Grantham, and a lot of the other people who have not incorporated this are really smart, though, isn't it possible that they looked at this and they said, you know what, we do understand that, for example, Domino's pizza has a lot of brand value, which is why maybe it should sell above the S&P 500. And we can't quantify like, how much people love the brand. And then all of a sudden, the founder of Domino's Pizza is unveiled as a neo-Nazi or something. And then all that brand

value disappears overnight. And then what are you left with? The value of the pizza ovens, whatever real estate they might have and then all the debt and whatever. So maybe like these very smart people, they're fully aware of these intangibles, but then they've gone the next step and they've said, but I don't care.

I don't want to invest based on that because I think intangible is another way of saying ephemeral. Is that possible? No, I think that's totally true. I shouldn't have said dominoes. I should have said Papa John's, which literally happened. No, it didn't.

He's not a neo-Nazi. I forget what he did wrong. It was not good. Maybe it was something sexual. I think it was something racist. Racist, sexual, whatever. Yeah. But the point stands.

Like, isn't that a valid comeback to that? Yeah. So, you know, I'm friends with Michael Mauboussin. Yeah. And he's talked about this kind of idea that the salvage value of intangibles might be lower. Sure, you can sell off your patent portfolio if your business goes under,

but even then, it'll probably be a fire sale. It's difficult to... The secondary market for these assets is not as established as for physical assets. So I think there's certainly some more risk on the downside in the event of a situation as you describe. I think the big thing for me is- Or IP.

Like, think about what was the intangible value of BlackBerry's IP in 2006, 15 days before Apple announced the iPhone? I'm sure it was much higher than it was two years later. Yeah. Technological obsolescence. Although that could be also the case with factories. You could build a factory that's up in a certain way and you invest $100 billion in building this fab or whatever

and then that becomes obsolete. But point taken. I think the big thing on the accounting world, the reason why they don't do this, and one of the problems is the link between the amount of money you put in and what you get out is kind of unchained and unhinged in the sense of intangibles. So you could be running a startup out of your mom's garage and you put in a million dollars of venture money and invent the next Google search.

And I could be sitting here and I put a billion dollars in an R&D project that's worth zero. Same with brand. Some campaigns go viral off no money and others end up backfiring like some kind of Peloton ad. Or you have hires. I could hire two employees. One could become the next Mark Zuckerberg and the next could be the next Jeff Skilling. How do you assign a dollar value to that in advance? You can't do it based off historic costs.

I think that's where the industry runs into a dead end. Everyone's saying, let's take accounting data and transform it in a way where we can now incorporate intangibles into our framework. But the problem is just by definition, accounting is based off historic cost. And when the link between historic cost and the actual value of the invested capital- Right, then there's smoke coming out of their ears. They can't make the two things meet. Right. Okay. So going to what Mike was saying, the way I've come up with valuing these intangible assets is by looking at the outcome, the output of the R&D directly. So I look directly at patent data. I look directly at LinkedIn and job posting to say, who is this company actually hired?

What IP has this company actually created as opposed to saying how much money have they spent on HR? How do you quantitatively value the people that were hired at a company? Are you writing software to be able to take the sum total of these people's experience and where they came from and assign a value to that? Or do I not? Am I misunderstanding? Yeah, that's a large component of what we do. So the nice thing about the world we live in today is pretty much all information is

digital. So you can actually look on LinkedIn, let's say, and say, hey, so-and-so used to be a stockbroker and went to so-and-so this college. Oh, my intangibles are zero. Don't even use me as – let's use you. You went to Harvard. What does that do for your intangible value to a company in a quantitative way? I would assume it puts the number higher. Yeah.

I mean, I don't want to speak. I don't want to like. Like how valuable are you right now? I guess what we're asking. No, but you know what I'm asking you. Yeah. No, no. Look.

And then we'll do Duncan. But let's do you first. See, the way I think about this is like sports, right? You want to build a team of the best players in all positions. And so ideally you do some kind of money ball, right, where you're looking at these guys. You make them do like the NFL combine. You say, how good is this guy at his position? The problem is in business you can't do that.

Maybe you can make someone take a coding test. But for all intents and purposes, the way to assess people is not so obvious. So what I do instead is I look at signaling value. so obvious. So what I do instead is I look at signaling value. So like the value that you find in somebody having passed certain like hurdles with regards to like their hiring and educational, you know, gatekeepers,

et cetera. So look, I'm not saying that Harvard people are better by any means. That's not like the point. I will stipulate it though. Yeah. I know a lot of Harvard people and I, so I can speak from experience.

Okay. That being said, it's better than Yale. Definitely. Definitely better than Yale, definitely. Definitely better than Yale, yes. It's a hard school to get into. And even harder is – I talk about this in my paper. Google, they are 25 times harder to get into than Harvard.

25 times. Yeah. That's crazy. And so just being hired into Google, even as like a junior role, where you end up afterwards, says a lot about that company's ability to attract talent. They can post people from these cushy jobs at Google, but they get back massages every day. Don't you feel like people are just doing this anyway and that all you're doing is putting a structure around something that people have been doing forever, which is like using where somebody worked or where they went to school as like a filtering or a sorting. But like they're not doing it quantitatively the way that you are.

But like in our business, you know when you're meeting somebody that used to work at SAC because within five minutes, they're going to talk about Stevie. They're going to tell you, yeah. Like they're telling you a story about – What is our collection? Yeah. No, no. It's like intimate. Like, yeah, one day're telling you a story about. What is our collection? Yeah, no, no. It's like intimate.

Like, yeah, one day Stevie and I had lunch and we were, you know, like that's, so it's like, oh, you worked at SAC. You want me to know that. The reason you want me to know that is because you know that now I'm going to treat you like you are the God that you are. That's like a thing that goes on.

Same with, I went to, same with, I played lacrosse at Duke. I worked at Goldman. there's like certain things so you're saying like you can actually assign a value to these things not that it's foolproof but you can get some sense of like a company's hiring yeah which will not show up in the accounting and by the way just to be clear like the gradation between your you know top five schools and your top and your top 50 schools is actually not that big. Keep in mind, there's thousands of institutions. And so I'm talking about the top 5% to 10%, which is still hundreds of institutions.

If you go to the U.S. News and World Report, you can actually look at the top end schools and look at the performance of companies that hire disproportionately from each of these tiers and you know there is certain certainly some gradation but it's all you know once you kind of drop past the top say 50 or so okay so that's a one component of like all of these things that you're looking at yeah okay and it's like a very non-traditional approach to try to assign values to these things, numerical values to these things. Okay. What made you get inspired to do that? The overall struggles of value investing. If you look at, you know, the Russell 1000 value index.

Every value investor, by the way. The Intelligent Investor was written in 1949. Yeah. World looks a little different today. That's all I'm saying. Yeah. The world looks a little bit different today. And if you just step back and think first principles, what are the things that are different today? Well, the things that create profits.

Platforms. Network effects, platforms, brand, human capital. I think Warren Buffett, who's a value investor, said it himself. He said, we now live in an asset-light economy where the top companies that produce earnings are no longer like your GE or your GM where they require physical capital. They are your Googles and your Facebooks. And so first principles, you say, these are the assets that allow us to produce growth and produce value and future cash flows.

How do we actually assess how much human capital company X has? So one of thousands of things you can do is you can look at the educational background of people. Do they have PhDs? Do they have masters? Are they STEM? Do they have training in AI? What colleges did they attend? What companies did they work for prior to working for Company X? Then you can look at the cultural things. I look at Glassdoor to find which companies have strong cultures. The idea being that you can assemble a dream team of the five best players, but if they don't pass the ball, you're not going to accomplish anything. And so companies with good cultures tend to be able to motivate, align, retain their employees better.

And at the extreme, you can think about we live in this knowledge economy now where the entire game is effectively HR. The only value in most of the organizations that we work in is our ability to attract and retain talent that's the entire game this is amazing i'm looking at your etf so you have an etf by the way uh we're like not allowed to say the ticker or something no i can't he can't uh no i think if we say it then i can say it fine it's the intangible factors but don't tell me what i can do it's an intangible thing there's like a regulatory thing where he will literally dematerialize into the ether if something happens. The virus will come down from the ceiling.

Can I say what the name of the ETF is? I don't know. Can he? I can say whatever I want. Kai can say it. Is someone going to cut the power to the building? The client can Google it themselves. They'll find it.

All right, fine. All right. Kai Wu has an ETF. No, no, no, I can say it. It's the intangible value ETF, okay? Now we're all getting pinched. Stop. All right. Kai Wu has an ETF. I can say it. It's the intangible value ETF. Okay. Now we're all getting pinched. Stop. So I'm looking at your site and you got this balance sheet decomposition thing.

This is one of the prettiest things I've ever seen. So you're holding these, you break them down into intellectual property, human capital, network effects, brand equity, tangible. This is gorgeous. What am I looking at? Yep. So you're looking at marketing, Michael. No, this is- So let me just take up one more thing and then I'll give you back the mic.

So you've got in this- Just read his whole website. Stop. In this intangible factor exposure, you've got PhDs divided by price of the companies in your ETF versus the S&P. You've got patents, you've got R&D, SMN, what's SMN? Is that marketing? Sales and marketing. Sales and marketing. You've got all of that compared to the S&P. So what you're doing on intellectual property, all of this sort of intangible stuff is so much different than what we're seeing with normal value ETFs. What are you doing differently?

So think about what a normal value ETF does. They look at metrics like earnings yield. Book to market. Book to market. Dividend yield. So the question there is how much book value, how much trailing 12-month earnings do I get per dollar invested? All I'm saying is, you know, maybe book value doesn't mean as much these days. And what might matter more is human capital. And so as one proxy, you know, obviously not all PhDs are created equal, is how many PhDs do I obtain per dollar invested? How many patents do I obtain per dollar invested as a measure of IP?

And so you can kind of see where I'm going with this, which is the idea being as an investor in a company, what I'm trying to do is obtain the most intangible value per dollar invested. And then you look at that versus a traditional value approach. And first of all, you're going to end up with a wildly different portfolio depending on how you're waiting like you're finding winners based on this the stocks that you think uh proscriptively will be winners are going to look very different than what a traditional value firm would find or not always yeah the the sector competition is quite different so the problem with traditional value so price to book is it's heavily biased towards old economy asset heavy companies yeah they. Yeah, they're not going to own biotech, like we already know. But you might end up owning a lot of biotech. Exactly. If you're not going to give a biotech company credit for its IP, then you're not going to own it, obviously.

So can we maybe make a weird pivot? We've been speaking a lot about your stuff. I'd be curious to know what you think about the current monetary landscape, given your macro background. We've got a weird situation, right, where the Fed's going to be tightening, the market is tightening ahead of that. If you were doing macro right now, what the hell would you even be like? Did 2020, 2021 break everybody, everybody's macro models? So, yeah, I'm a recovering macro guy, I guess. You know, I did used to run a global macro hedge fund. And even then, I would stay away from making this bet. The timing rate cycle is super hard. It's kind of like the widowmaker trade.

You think about it, interest rates basically went up until 1982 and then went down for the past 50 years or so. And so you have hedge fund managers who are just losing their shirts for 20 years just consistently betting on rates going up. And it just hasn't happened. So, you know, with that in mind, I mean, yes. The big takeaway this week is that the price of money is tightening. That's right, yeah.

At every level. Like the yield curve is not even steepening. It's like – It's flattening. It's flattening. But like when you look at one year, two year, five year, the stuff that really matters for borrowing – It's going up a lot fast. It's going up a lot.

Yeah. So when you look at that from somebody that has a macro background, what are we to make of like this environment? Like what would you say are the things that you look at it and maybe see differently than others? Yeah. So I think if you, if you talk to all the great macro investors, like Ray Dalio, for instance, they talk about this idea that instead of forming a view first, you should start with expectations, figuring out what is the market baking in? What are the market expectations? And then ask the question, where is what they're saying just totally wrong? Where is it like just totally off base? And that's how you form your variant perception.

So if you think about the 10-year bonds, I think- And you might not have one. You may not have one. And that's kind of where I am, to be honest. The 10-year yield's at 1.8%. We all know the 10-year bond is just an average of the 10 one-year forward rates. The current rate's zero.

So back of the envelope, without even looking at the full yield curve, rates are set to normalize to mid threes in 10 years. Yeah. Doesn't seem too crazy for me. I don't think that I, you know, have a crystal ball and can predict otherwise. Right. The big question is, you know, will rates, I mean, obviously we're starting to,

you know, barring some more variance or, you know, some kind of, you know, massive, you know, terrorist event or whatever. We're starting to kind of enter a new hiking cycle, a standard business cycle going back up. And the question is, are we going to be kind of undulating around a level that's similar to where we have the past 20 years? Or is there a chance that this is the beginning of a 30-year trend back towards 1970s style?

We only got to a 2.5% Fed funds rate in 2018. And at the end of that year, the market was like, LOL. I dare you. I dare you to try to get this overnight rate higher. I don't mean to sound so confident or cocky, but I just feel like the demand for money,

the amount of money pouring into bonds at 2% is just going to be... At 0%, it was huge. Yeah, it's just going to be a ridiculous tidal wave. It already is. I just can't foresee, just based on supply and demand dynamics, interest rates rising that much more.

And obviously the market could prove me very wrong very quickly. That's just my opinion. I agree with you. I think the only way it does is if we have runaway inflation. In the context of your ideas though, like where might the impact be felt? And the reason I

ask is, I think a lot of what's gone on in the last five years has been predicated on very low rates, more recently zero. But this is my perspective. Tell me what you think. Investors are now starting to ask tougher questions of companies who are pitching themselves as, don't worry, we're going to build network effects because we're first, we're early, everyone's going to be here, it's going to be worth X. That argument loses some of its saliency when there's an actual interest rate attached to money that you've raised from investors or a competing risk-free rate that's not zero. And that's one example. There or a competing risk-free rate that's not zero. So, and that's one example. There's a lot of others. The EVs are probably a really great example to bring up also.

It's like, okay, I get it. The thing that you're building is beautiful, right? It's like, it looks like a Tesla. It's better. It's faster. It charges fast. I totally understand that. How the fuck are you going to make 50,000 of these a year?

You would not, unless we take some of the money at least and start building facilities. And then once you start doing that, then it's like, oh, wait a minute. I'm going to pay 5% a year on this money. I'm going to give it to you. You won't have an ROI on it for six years. And all that time, Ford and GM are going to be producing competing vehicles. And that's why you see these things all getting, I think, getting cut in half in the last couple of weeks. Remember Enphase Energy? We were talking about the stack. Well, let me finish my thought. Lucid and Rivian have amazing patents and IP and PhDs coming out the ass.

That might not matter if money starts to cost more, at least in the short term. What do you think about that? So first of all, yes, they do have IP and yes, they do have talent, but they are super expensive. I mean these are billion, multi-billion dollar companies. So you can't completely throw out the valuation paradigms of the old school. Exactly.

That's why we're not looking at buying all the companies with the most patents or the most PhDs. We're looking at buying the companies with the most patents, PhDs, divided by price.

Right. Right. Okay. And in this case, that's what kind of rules and modes. Same with Moderna. Moderna has great IP, but, you know,

they're just, they went up like 10,000%. So, Did that stock just go from 500 to 200? 500 to 167. What the hell is going on? Dude, this market is savage. In Moderna's case, it might be

because everybody has COVID. Their market's saturated. Rivian went from 180 to 64. Moderna's vaccine against COVID in this environment with a million cases a day is like if Boeing was making planes that crashed once an hour. I mean, I'm just – no offense to Moderna. I'm sure they saved a ton of lives, and this would be a lot worse. But it's kind of hard to be bullish on vaccines right now.

But that's the question going back to what you were saying, which is, is this already priced in? So Moderna is already down, I don't know, 60-whatever percent. Maybe, just like the bonds have already priced in the interest rate hikes at 3.5% in the next 10 years, perhaps the stock market has taken a cue from the bond market and is also pricing that in. And that's why we've seen so many of these SaaS stocks and these ARK, Peloton, whatever, underperform so much. Michael asked me a question this morning in the car. We don't live together. I picked him up. Corporal.

But he asked me... What? We were talking about, like, will the market ever get to a place where they're not excited about blank as a service or subscription fees? And... Well, let me set this out And is that what you asked?

So I was talking about, this is timely for Kai, because Matt Levine just wrote this. Did you read his piece yesterday on Web3 network effects? I did, yes. So Matt Levine spoke about how in network effects businesses, these things can be self-fulfilling and a fake business can turn into a real one. And here's what I want to get your take on.

And this basically describes what we've been experiencing in the last decade in terms of Silicon Valley subsidizing the consumer. Exactly. He said, the Web2 version of this trade is central to the story of the last decade in the US tech industry. We sometimes called it the MoviePass economy. Do you remember MoviePass? Yes. That was hilarious. What was it, $10 a year you go to unlimited movies? Whatever, that went belly up real quick. But they had network effects. He said, this is the idea that venture capitalists would subsidize consumers' lifestyles because they valued customer growth above everything else, including profitability. Is that changing when the cost of money is more than zero? Like the idea that venture,

that Silicon Valley was going to subsidize all of this forever, is that a fool's errand or is that really permanent? Like, I feel like that's like the biggest question in the market right now, or one of the big questions. I think that's a very fair point. If you think about the dynamics of these businesses, the idea of network effects is, you know, as you get additional users, the value grows in a non-linear way. And therefore, the whole entire game is to get to scale. Once you get to scale, you own the market. It's really difficult for competing networks to unseat you.

And so it's almost like, you know, investing all this money up front for this pot of gold at the end and now the question just becomes how much money best example of that's like facebook instagram like once everybody's there uber then it's worth more to the user we work all their friends are there right no one wants to go into a social network with just one other guy yeah exactly no one wants to wait 30 minutes for an uber it's like robin's – well, not today, but they were growing super quickly, still losing a billion dollars, but whatever, being subsidized. Right. Well, no, that's not – he's talking about – because he's talking about network effects. I don't know that Robinhood's quite the same thing.

Robinhood's more like can I find somebody else to pay for this in a nontraditional way? This is more like – Is Robinhood not a platform? Robinhood has more like can I find somebody else to pay for this in a nontraditional way? This is more like – Is Robinhood not a platform? Robinhood has platform like economics. I mean they're not as strong as an exchange itself, right? Like NYSE or CME would be higher up my list. You don't care how many other users. If you're on Robinhood, you don't care if there's a billion other users or five other users.

It doesn't affect your experience as much as instagram snap exactly that's where the network effects really matter really strong but what's so interesting and this is an outlier but like twitter is like the ultimate platform network effect type company and stock sucks yes that's true well not all not all platforms are good at wringing profits out of their users but they still have the network so yeah so they have the network effect from the standpoint of they own the microblogging, whatever you call it, like market. They are one of the only people in that space.

Now the question is, is that a market worth owning? How do you actually monetize that? And that's, you know, almost a separate issue. So how do you value network? So we're going to talk about the platform economy, and you've written so much about this, and we're going to link to a lot of the stuff that you've written. But like, how do you value network effects in looking at stocks? What's the metrics that you're using?

Besides just obviously size or number of users or whatever. Right, size is the biggest thing. Growth rate, looking at your market share. So I think I, in my paper, talked about the food delivery market with DoorDash, Uber Eats. And it's super interesting.

There were initially five to seven different folks competing. And by the end, kind of DoorDash became like the clear winner. Yeah, you had mergers and – Right, a lot of acquisitions. And it's also very localized. It's pretty interesting. Like if you look at the map of the U.S., like Seamless was still like holding on pretty strong in New York, probably not anymore.

But like pretty much everywhere else, DoorDash had kind of taken over. So there's kind of these localized network effects as well. But yeah, so... Dating apps, this is very important, obviously. I mean, yeah, that's exactly right. So all these network effect businesses... Uber. If you think about it, it's an age-old model, right?

So the spice markets, right, of the ancient Middle East, or shopping mall malls are even a form of platform, and they have network effects. But the reason why Facebook is in its league of its own and has managed to become a trillion-dollar company is because the internet has allowed the number of people involved in the network to go from 1,000 to 3 billion. When that happens, the value to the network is exponentially increased. That's why you see so many platforms are technology or information communication technology companies. I'm invested in Simon Properties. When you said shopping malls just now, I was thinking if they have a lot of empty stores, people will stop going.

If people stop going, they will have many more empty stores subsequently. That's right. Which is probably why they started acquiring the retailers that were going bankrupt and standing them up. Just so they could maintain some sort of – Well, truly, they own Brooks Brothers now because you don't want to have empty Brooks Brothers like in every A mall in the country. What are you filling that with?

The best analogy for platforms is as a government, right? If you're a platform, like if you're Facebook, you're kind of like a mini, you're a Zuckerberg, you're a mini king and you have this little empire where you have all these users

and your goal is to, you know, create a flourishing ecosystem where people are super happy, like posting, creating content and then you kind of like tax the citizens.

Don't be happy. Super happy. You take their money. No, you take their happiness. Yeah, you take their happiness. You suck and drive and then you take the money. You turn it into money. That's the point, which is in the same way

the government, when they saw the banks were failing in 08, they had to bail them out because they realized these are part of our citizenry. These are people that we need to keep our little world functioning. You said, this is from your piece in December 2020, writing about platforms.

Platform, I think it's like your stab at like a very simple definition that everybody could immediately grasp. Platform companies externalize the means of production. They do not own homes or employ drivers. Instead, they profit from orchestrating networks of external consumers and producers. So Buffett talking about asset light. That's – to me, that's another way of saying also asset light. Airbnb comes to mind immediately. Yep.

Yeah. They're a classic platform company. Right. Now, if you're traditionally looking at stocks and you're saying like – just picking Facebook as an example, they make tons of money, by the way. But in their earlier format, you would say like, I don't understand. Why is this company going public worth $40 billion out of the gates? They've only done a few hundred million in revenue. Can they monetize mobile? Remember that?

Yeah. But somebody looking at the things that you're looking at would say, oh, it's only a matter of time because take a look at what the network affects, you know, what's happening here. And then a value investor would buy Facebook in like 2074 when everybody left the platform. Right. Yes. Because it's much cheaper now.

That's right. Okay. You said that the number, this is the end of 2020. So I don't know if it's different or the same. The platformization of the stock market is not just about splashy IPOs and tech giants. The number of platforms in the top 500 US stocks has steadily grown from 40 to 100. What does that mean? So the trick here is that there's no kind of standard definition of

what is a platform, right? We can sit here and debate whether, you know, Robinhood should be a platform or not. And, you know, reasonable people will come to different conclusions. Does everybody say they're a platform now, though? though yes everyone says they're a platform because it sounds good it makes your valuations go up that's right and that's that's part of the problem but where's the 40 to 100 so you're saying there's 100 companies in the fortune 500 so so i had to create my own definition like there was no accepted standard so what i did was i used machine learning and i said let's use as a definition of platforms these two articles from these professors about platform competition. I went through the articles.

They're from the mid-2000s, so before Facebook became Facebook, and redacted all the company names and then said, all right, now I'm going to compare using machine learning these articles to all the 10K business descriptions going back through time for all companies.

And so what you find is a company like Uber, when they describe themselves, they say straight up, we are a technology platform. We connect drivers and riders on a two-sided marketplace. Well, it's obviously a platform that scores highly. A traditional business would score lowly. And so what you end up with is in real time, so point in time, as each 10K comes out,

you can see which company is scoring high on platform and which are scoring low, and you kind of just create a threshold and define a basket of companies that are sufficiently platform. And that's how I get to the number 100, where what I'm saying is, if you look at the evolution of the stock market over time,

the number has grown from 20 to 40 to 80 to 100, which is where we sit today. But what's really interesting is, those 100 companies include the five tech giants, which are 25% of the market cap of the S&P. The most important platforms. So 40% of the market cap of the S&P are currently platforms. Like Amazon is a platform simultaneously.

It is a platform that other people have built their platforms on. That's right. Because it's AWS. Just thinking about this, I know we spoke about this at the top of the show, but comparing this S&P to the S&P of the 1950s is such a joke. Yeah. Right. And I know there's some big principles that will never change. Like, obviously there is a limit to this sort of stuff, right? Like companies trading at, you know, if the Cape was 60, I mean, you know, I'd be a little bit nervous, but like, it is just a fundamentally different economy today than it was back then. And I think you

have to treat it differently. So I think a very important thing to note is that the, just looking at industry composition, right? The economy of 10, 20 years ago was a bunch of banks, a bunch of, you know, Exxon. And so yes, of course the P's and the price of books, you know, look more expensive today because the market's mainly software. But is that to say that you should compare apples to oranges? Like, should you compare the P ratio of today to 10 years ago, which is effectively what Schiller P is doing, by the way. Right, exactly. And also, profit margins fundamentally changed. Growth rates of the giant companies fundamentally changed.

We've like, Amazon, well, Google especially, like the top line growth is still, it's hilarious at the size and the growth rate. Right. And it's because- We've never seen that before. It's because of intangible assets. Right. Intangible, I think there's a quote from Carl Shapiro and Hal Varian, where they talk about

how, you know, the industrial companies, the GMs of the world, which used to be equivalently dominant in their time, could never have grown to the size of Google and Microsoft today because their core asset is physical, whereas we now live in this digital world. Right. They couldn't have simultaneously had customers in 200 countries around the world as quickly as Facebook was able to. I feel like what you just said is the key insight to what we've been living through for the past decade. And it sounds so obvious. What? How big a company can get now versus.

Yeah. There were limits. There were limits to growth. The limits were in atoms. Right. Now they're in bits. Who said that? Was that.

I did not just make that up. No, no, no. Somebody famous said that. 100%. Oh, I think Josh said that. Oh, I think it was Betty. I think it was Betty White. So I want to make sure that up. No, no, no. Somebody famous said that. A hundred percent. Oh. I think Josh said that. Oh, I think it was Betty. I think it was Betty White. So I want to make sure that we get to web three.

Okay. Because like, first of all, I could talk to you for hours. I feel like. Yeah. I feel like we, we like dance around these topics, but you've actually like done a lot of like rigorous work. And I was slack over the weekend. I wouldn't stop sending them your charts.

I was like, and one more thing. I just want more things. Are we going to, are we going to do some of these Web3 charts? Yeah, let's get to it. So wait, do you mind if we get to it? Yeah, yeah, yeah. That's cool. Yeah?

Okay. You sure? Like a lot of people are going to see this. Okay. Okay, cool. So let me set this up. This is you. Web3 is attracting a flood of investor interest, but is shrouded in hype and speculation.

We believe a value investing approach can help. We adapt our intangible value lens to value crypto. So this is that intangible stuff you've been talking about with the stock market. You have now turned your attention with that lens like Sauron in Lord of the Rings. The eye has moved across the landscape over to Web3. Yeah, this post was so good. We also build Web3 industry classifications using ML, AI, machine learning and money laundering.

All right. Finally, we create crypto stock portfolios by tracking investment IP. And this is the bomb dropping moment. It's called the coup de grace. But basically, let's talk about what's similar to looking at stocks when you're looking at coins and tokens and what's very different. Yeah. So I think the overarching framework is the same, that there are four pillars of intangibles plus tangible value in stocks.

In crypto, you really have those four and then tangible is basically not important. There's no intrinsic value because there's no financial. What's the right word? value in stocks. In crypto, you really have those four and then tangible is basically not important. There's no intrinsic value because there's no financial, there's no, what's the right way? There's no cash flows to model. Right. So you can't really do a DCF on a token because they don't have, they're more commodities where their value is driven by supply and demand. Staking doesn't change that? Staking could change that, but staking is kind of an artificial thing because it's a derivative. Yeah. The yield you earn on staking has. It. But staking is kind of an artificial thing because it's – It's a derivative. Yeah. The yield you earn on staking has –

It's from lending it. It's not – the coin is not generating the yield. That's right. Yeah. It's not like if you own an Ethereum, you get like a dividend for doing that. OK. So what's our four pillars again? Remind everybody.

So it's IP, intellectual property. Yeah. Brand equity. OK. Human capital network effects. I'm going to stop you right there. The coins themselves don't own any of those things. The communities do.

That's right. So you're analyzing the communities that are involved in the coins. That's right. So the value of a token is derived from the intersection of supply and demand. Supply is generally either fixed in some cases. Like Bitcoin, 21 million.

Or it's pretty well controlled. It's not like the US dollar, right? Okay. Am I glassing through while he's talking? No, go ahead. Are we doing any charts? Yeah, we got it. So what that means is that the value of a token is going to be driven primarily by the demand side of the equation, which in turn is driven by demand for the network.

If you want to use the Ethereum network, you need to pay gas fees. You need to pay Ether. And so the question then is how do you derive how do you kind of decompose the value of a project and it's the same kind of four pillar framework here network effects are extremely important in crypto like certain meme tokens like they're mainly brand obviously and then you're kind of more infrastructure plays like your file coins tend to be more driven by ip and human capital are network effects more important in layer one versus layer two or it's not work that way?

I would say yes. So layer one is very much like an OS. It's like iPhone and iOS and Android. So if you don't use those, you got nothing. Right. The point of Ethereum is to serve as a foundation for your L2s and for all the apps and NFTs and things that are being built on top of this ecosystem. There aren't that many layer ones necessarily that you need to pay attention to right now.

As far as I know, there's four. Well, three that'll be built. Solana, Ethereum, and Avalanche. And I put Bitcoin. Bitcoin, you're not building on top of that. Are those the big three? Yeah, that's right. I mean, Binance as well.

That's a layer one. Okay. So let's talk about what you did. So you applied your factors, the intangible factors, and you created a portfolio using the top 15% based on like an equal weighted scoring of these? So I did the exact same methodology I did in stocks where I said, let's take the Russell 1000 and rank all the companies on their price to x x being their intangible value and you know by the top say 10 to 20 i did that exact same thing but to tokens and what did you find and i found that the strategy worked very well how well um very well all right i'll say it it outperformed this is a back test of course the back test outperformed even even gross or net of transaction

costs it outperformed by 40 a year year. We're going to flash on screen how you can send us money. So, okay. So what, yeah, exactly. What this showed was some of the things, so in below, what do we call this? Are these network effects or what is this exactly?

Yeah, so these are the actual underlying metrics. So, you know, I mentioned before, like patents are a proxy for IP. Glassdoor reviews are a proxy for culture, which is human capital. So what I'm doing here is I'm saying, let's look at... So one of the really cool things,

just to step back for a second, in Web3 is it's being built in the open. Everything is open source. And what that means is for the vast majority of Web3 projects, you can actually go to their GitHub page and you can download their entire development history. So every single commit that's going into their repo

is available to you as a public investor. And by the way, you can see how many... Commit is a developer who says, I'm working on projects now for Ethereum. A commit is a change to the source code. Either addition, deletion, merge, or fork, things like that. So you can look at the activity through time. You can look at...

Why are you also writing about individual developers? How many of of them are saying I am now doing Solana only? Exactly. So the human capital side is you can also look at who is committing – who is actually working on this thing. So Project X has five contributors. Then it has 10. Then it has 20. Then it has 80. That's obviously very bullish.

They're able to attract a lot of talent to help build this project. That's a great signal. You saw that in Solana, not you personally, but if you were doing this at the time, maybe you were, you could have foreseen Solana. Maybe Solana is a one-off, but you could have seen the activity coming. Can you walk us through that example of what you spotted going on in your metrics in Solana before the price went crazy? That's right. So Solana is the fifth biggest token now. It's, what is it? 70? 70 billion or something like that.

Not to brag, I have several Solana. You have a bunch of Solana. Yeah. 70 billion Solana. No, like several individual Solana. Yeah, not that many. It was trading at a $10 million market cap a year and a half ago.

I mean, that's just kind of crazy. 10 million. It went from a $10 million market cap to a $70 billion market cap in a year and a half. That's just insane. that's just kind of crazy. It went from a $10 million market cap to a $70 billion market cap in a year and a half. That's just insane. But what's kind of interesting is if you actually go back to that date and you can look at, you know, how many followers on Twitter it had back then, 90th percentile, I think, how many, like how active their GitHub repository was, 99th percentile. And this is against all projects, not just small projects, their size. We're talking about compared to the entire world of crypto.

So you're seeing like these percentiles, you're seeing like everybody is tweeting about this or everybody's starting to work on these projects. That's right. And the price is still a $10 million total market cap. So you have to know there's an explosion in price coming if this many people on GitHub are doing this many things to code using Solana. Right. You know, what happened, as you know, is that there ended up being huge congestion on the

Ethereum network. And so people were looking for alternatives. Solana had a strong founding team. You know, Anatoly is very, very good in his team. And they built like a lightning fast network, you know, that was super cheap. And it attracted, you know, developing developers who wanted to build on their ecosystem. It attracted potential users who wanted to transact using the Solana platform as opposed to Ethereum. Before you knew it, it was a $70 billion company.

The Ethereum people couldn't kill this, strangle this in the cradle. in the, like, strangled us in the cradle. They couldn't say to themselves, we have to do something immediately with the protocols or whatever to stop all of our top minds from getting too excited about this other thing. So, I mean, I think crypto guys are less of a, it's less of a zero-sum game there.

If you listen to Vitalik speak, he actually speaks kindly of Solana and some of the other competing um l1s give it time um give it time yeah um so you ever watch like a mafia movie and they're like somebody will kill someone over who has the right to mow the lawn on this block we're talking about like 70 billion in solana how much is in how much is in eth 200 it was about 500 at one point maybe the numbers we're talking about, like entire countries have gone to war

over significantly less money. Yeah. So I actually find it amazing that there's not like, I don't want to say actual bloodshed, but like there's not more fighting. There's a lot of infighting though. Is there just so much opportunity

that nobody's stepping on each other yet? That would be, I mean, my charitable view would be, look, the entire crypto ecosystem is one and a half trillion market cap, which is like the size of Apple. So from their standpoint, they're saying, look, this is truly Web 3. If we can truly displace the existing media, financial, internet-like complexes with this new framework, like the – we're talking about 10 to 100x where we are now and so like let's not like fight each other right why would we be getting into skirmishes now at this early stage so kai you so you so this the strategy that you put together again it's a back test but this this is this is real data not a back test you look at this versus the market

the github contributors divided by price four times the market and the market being the, so Josh referenced via your post, there's 8,600 coins out there. How many have a $50 million market cap? 400? I think it was like 600 or something. Okay, a lot. The Twitter followers divided by price, triple the market. Daily active users divided by price, six times the market. I mean, this is like intuitive stuff once you break it down the way that you did. Right. times the market. I mean, this is like intuitive stuff once you break it down the way that you did. Right. You did something else that is super, super interesting. You looked at what if you want exposure to the blockchain or crypto, Web3, whatever we're calling it, via publicly traded

companies. And so you looked at blockchain patent holders and this blew my mind. John, do we have this? So John, this is Exhibit 39. By far, by far, the biggest number of patent holders in blockchain is IBM and then Alibaba and Bank of America. So let's talk about this. Yep. So first of all, IBM just has a lot of patents in general. Can we pick stocks based on blockchain patents?

You could. So one of the things I did do was put together a portfolio. I didn't even see this. A portfolio of public equities with quote unquote crypto exposure. And that can come in the form of patents. It can come in the form of hires. Hires, yeah. Right.

So one thing I looked at was, you know, a lot of jobs that are looking for solidity developers, for example. So Coinbase was number one. Coinbase was obviously number one because they are a crypto native company. Like Silvergate, Signature, the banks that do the crypto were ranked quite highly. And then you have all these guys in traditional tech and finance. So first of all, this is a little bit misleading because I did not scale by size. And so IBM, they just are a patent machine. They love patents.

They have the most patents of any company in the world. Wait, what size is this in? The companies themselves? This is the number of patents. This is the number of patents that these companies hold. Oh, what's the order though? We're ranking by the number of blockchain patents. Just number of blockchain patents.

Yeah, right. Got it. So if you adjust as a percentage of their total patents, it's no longer as impressive. Okay, fair enough. But it is still quite interesting that you do see significant investment by legacy banks and tech companies in the space. But how about this? I'm looking at, so you had another chart, crypto employers, crypto jobs divided by the total jobs. So Coinbase, obviously, DigiNexo, it's all crypto. But then like this is a price to me.

Cisco is – I'm just eyeballing it. Like 15 percent. IBM is not far behind. You've got General Dynamics and Franklin Resources. What do they consider a crypto employee though? Yeah, so there's two ways of looking at it. So one way I look at is a job description with a crypto reference in it. So,

Hey, you know, we're hiring somebody to work on our blockchain team, right? So they may be a sales guy, but they are working on blockchain. So that's a kind of your, like your more like lenient definition.

And then you have one, the more strict one is jobs where blockchain or crypto or something like that is in the title itself. Okay. So like chief, Like chief blockchain officer. Senior blockchain lead. So I know you're like scraping the data, but did you dig into any of this? Like General Dynamics and Franklin Resources, what are they doing in blockchain?

That's a good question. General Dynamics doing things in blockchain is terrifying to me. They make missiles. Maybe supply chain management stuff would be my guess. I don't know. What about financial services and blockchain? Like Vanguard, I forget, they made a splash a couple of years ago that they're doing something with their trading. I can't remember exactly what they're doing.

Well, that's at the heart of what Professor Galloway was saying is name one company using a distributed ledger for anything other than coming up with new ways for people to gamble on crypto. Like you heard a lot of blockchain announcements in 2017, 2018. Because that was like the thing to do. But like who's actually doing anything with this stuff other than crypto companies? I don't know the answer. I'm asking rhetorically. Yeah. But when I see your, like I know Walmart talks about NFTs or whatever.

What are they actually doing there? When I see your – like I know Walmart talks about NFTs or whatever. What are they actually doing there? Or is it still too early to like actually grade companies on – all right, you have the patent. What are you doing with the patent? Yeah, I think it's still too early. If you think about like the kind of S-curve, right, the early adopters, the mass market, these are largely mass market companies, companies who have like thriving real-world businesses who are now dabbling in Web3 stuff. Dabbling is a good way to put it. It doesn't cost them anything to put out a press release and say something crypto-related.

Right. It probably helps them. It probably makes people think that they're a cooler company. So here's the thing. If you're not in crypto, it's very difficult to penetrate. If you want to learn about it, if you're just a layman, it requires a significant amount of time to educate yourself. Where do you start?

It's very confusing. It's very overwhelming. And so as a result of that, the only thing that people have exposure to are the promoters, the JPEGs selling for millions of dollars. And it just all sounds like bullshit. All of it, right? If you're on the outside looking in.

But you show a chart of network growth. And if you can separate the promoters, the nonsense from the people that are going to work from the user base. So you see daily active users up 30% a year since 2014. Daily transactions up 37% a year. What are they calling the user? Somebody that has exchanged one coin for another

or somebody that has bought something with crypto? These are your wallets. So, okay. So active addresses. Addresses that have made a transaction in the past day or month. That's the number that you're saying is growing 30 percent year over year. So the normal people, even people that know about this, are not seeing the growth, are not seeing the builders, right? So I'm not saying that people that are poo-pooing blockchain are wrong.

All we see are reasons for it to gamble. With all due respect, though, what they're also not seeing is a usable product. Not yet. I agree. I mean you have to admit, there's nothing you could do with crypto other than buy crypto or sell it. Yeah, I mean, the use cases are still very limited.

So one thing I looked at was- Well, you could buy NFTs. But it's like another form of crypto, I'm saying. Like there's nothing that the regular person who is not on the internet 18 hours a day can tangibly see crypto. Here's what you could do with crypto. You could buy the naming rights to an NBA stadium.

Like literally Lambo. That's what they see. They don't see like a product or a service that affects their life. And I get it yet. But with the internet, again, with all due respect, if you heard about the internet for the first time in America in 1996, and then a year later, your uncle bought a book from Amazon,

it wasn't as f***ing bullshitty as the 13 years so far of Bitcoin's existence. Well, and the other thing is the people that are saying Bitcoin's existence. He's watching us fight. The people that are so f*** fucking loud and obnoxious. Well, if you're going to make those grandiose claims, then where's the beef, right? So I understand the detractor saying, listen, asshole, all you do is say Bitcoin,

blockchain fixes this, Bitcoin fixes this. Where's the beef? Show me the beef. So I get the pushback. Why does my life still suck and blockchain hasn't fixed it yet? So I get both sides. Not to play both sides, but you get it.

Could I ask you about traditional Wall Street? Because on your chart, it did show a lot of banks on there who are making a lot of investments in not just blockchain, but tech overall. And the banks are obviously very sensitive to every single day waking up and reading articles about how they're about to be disintermediated or whatever. This is from Julie Verhage at FinTech Today. Shout out to Julie. When JP Morgan reported

earnings last week, you might've seen a lot of people look twice at one number in particular, 12 billion. That's the amount the company plans to spend on technology this year. I don't have a number for how much everyone trying to disrupt JP Morgan is going to be spending, but I'm betting $12 billion is more. And in the press release, they basically say that 6 billion of that is just maintenance. So that's just to maintain their tech stack.

So the question is, how really will decentralized, whether they're DAOs or projects, whatever you want to call them, how will they really disintermediate a company that's willing to invest $12 billion in a year on tech, $6 billion of which is just to keep the servers on? Like what's your take on how threatened

these financial companies really are given the rate at which they're investing? Yeah, look, everyone loves a David and Goliath story. Everyone likes to cheer for the underdog taking down the Goliath. But yeah, these companies are not standing still. J.P. Morgan. Goldman Sachs employs like 10,000 software engineers.

One quarter of their workforce. Lloyd Blankfein got up there in 2017 when he was CEO and said, we are a tech company. And he wasn't lying. That's the crazy thing. Goldman has more engineers than Coinbase. of their workforce. Lloyd Blankfein got up there in 2017 when he was CEO and said, we are a tech company. And he wasn't lying. That's the crazy thing. Goldman has more engineers than Coinbase,

Robinhood. So these companies are not just taking the standing still. They are pretty smart. They have some disadvantages, as you point out. They have to spend $6 billion just to kind of stand still from a tech standpoint,

which is a huge liability. It's crazy. But where's the other $6 billion going? That's the question. And I think, you know, going back to the thing we first talked about. What do you think they're doing? Like, what do you think they think is the next thing? Where is it going?

I don't know. I don't have an eye into their thoughts. I think in general, I'd say the way to look at this would be to look at tracking patent activity and tracking, you know and tracking human capital investment. So an article came out on the FT pretty recently where they looked at Zuckerberg and they said, look, meta platforms, they claim that they will invest $10 billion

per year for the next N years into the metaverse. But what exactly are they doing? And the FT actually went in there and went through all the patents that have been granted recently, obviously this is all with with a lag and found things like product placement in the metaverse or like a digital store to buy goods in the metaverse. I mean, all kind of obvious, but you can actually start to see where these guys' heads are from their patent activity. And then the other thing you can look at, again, is the hiring patterns. So JP Morgan actually,

I was looking at this for this other project, is actually hiring blockchain people. They have this Onyx group, I guess. I don't really know this one, a payment network. So they have a few dozen job applications there, but obviously that's not the main thrust of what they're trying to do. But maybe if you really wanted to dig in, you could look at where they're trying to attract talent

and for what divisions and with what skill sets. That's interesting. I'm sure hedge funds like forever have been going through patents to try to understand like where things are going. It's funny when you picture like how obvious this is for Facebook. If they think that people are going to spend a lot of time in the virtual world and their whole business model is putting ads in front of them, then obviously you want to have a way to do that when they're walking around with a helmet on. Kai, can we talk quickly? This is getting away from us, but how do you measure company culture and how quickly does that shift before it's reflected in price? For example,

how would you pick up, and maybe this is a separate conversation, but the intangibles, I know intangibles are the same thing, like Peloton, for example. How would you have picked up on employee morale, for example, or user morale? How does that rear its ugly head? Yeah. So not talking about Peloton specifically. For the culture stuff, I mean, here's the thing. Culture is not one-dimensional.

I think there's been basically no good academic studies on linking culture to future stock performance. There's like one or two. Did you just look at insider selling? Peloton Insiders sold 500 million worth of stock last year. Granted, a lot of that was in an automatic selling plan. Right, they got automated. But still, this is as the stock is going down the entire year. So let's talk about Peloton, I think.

I mean, this is a topic worthy of itself. I mean, what's happened there? They're down, you said, 90%? Isn't that a marker of corporate culture? You have a stock price that's in decline. However statistically you want to gauge it, you want to use a moving average or whatever, and their selling is relentless. Isn't that better than Glassdoor? Is insider selling indicative of anything?

Maybe off schedule insider selling. Yeah, exactly. Off schedule, you have to remove all the kind of automated selling. It is a signal, but it's just been so picked over by quants at this point. It's in the market. There's not much value in general. But I mean, it certainly says something. I mean, remember when Elon Musk sold like a bunch of Tesla stock?

Yeah. Well, we haven't spoken about individual investors as part of the market. Are they messing with your signals, with your factors at all? Not just yours in particular, but like have insiders, not insiders, have individuals that are now such a big part of the market distorted traditional factors at all? If you're looking at network effects, they might be more helpful. I think they've been very helpful because remember, like if you think like 10 years ago, you know, how would you get a handle on brand, right?

You kind of like, you know, look at some surveys and things. Nowadays, it's all Twitter. It's all social media, Reddit, Facebook. And, you know, this is the opinion of thousands and millions of individual consumers who are going online, chatting about a brand, and then thereby shaping and influencing brand perception. The same is true, as you mentioned, on network effects. The same is true on Glassdoor. We don't go up to the CEO and ask him if his company has a good culture because obviously he's going to say yes. Enron had the word integrity in its office lobby the day it went bankrupt.

Everybody has a great culture. Everyone has a great culture. But you go to Glassdoor, and from there, you can look at thousands of employee reviews where you can see, with too much wisdom in the crowds, what values do the rank-and-file employees live day by day? So I think the rise of digital data, the rise of individual actors has been helpful for the seven answers.

Have you spent any time in Glassdoor though? Have you looked at it away from the data, just read the reviews themselves? I have, yeah. Okay. Not to pick on – I'm sure this is working in your model, but just like thinking out loud, you might see a lot of hype for a brand somewhere like Twitter where nobody actually buys the thing. Yep. might see a lot of hype for a brand somewhere like twitter where nobody actually buys the thing yep influencers repeatedly are having these cheerful uh moments on instagram where it's like i thought you guys were my friends why didn't you buy my diet tea like this was my big thing and you

didn't do it or my workout videos or whatever glass door is almost all disgruntled employees yeah nobody there's a positive review nobody's, I love working at this company so much, I can't wait to review it for other people to come work here. So like, you have to factor that in. So I've actually seen the opposite. And again, keep in mind the study I saw was a Glassdoor-sponsored study. I can't believe that came out positively.

That's weird. They looked at Yelp reviews, okay? All right, all right. They looked at Yelp reviews, and they found my bimodal distribution. It's either fives or ones. Same with Amazon. Fives or ones. Oh, all right.

So nobody's like a three. Like, yeah, it was just okay working here. But here's the thing with Glassdoor. So in order to leave a review, you know this, is you have to have work there. In order to see other people's reviews, you have to put a review in. It's like a give to get model. So I think that is a somewhat regulating mechanism. And it is the case, according to this Glassdoor sponsored study, that the distribution is a lot more normal as opposed to bimodal.

So to take it with. I don't know. I mean, that's that's just what I've seen. Yeah. Yelp is like I love that. I hated it. Yeah, exactly. Either you're complaining about your food being cold or it's the best thing in the world.

Because who has time to be like, just okay? Right. You can't really be doing that. Okay. That's interesting. Michael wanted to ask you about Theranos and Holmes. No, you did. Did I?

Excuse me. I thought it was you. I think it was you. Oh. But I'm curious too. So this is a private company. There's not as much information. So if you were a private investor and theranos was like sending you their

pitch deck you would look at that shit and be like oh my god i have to get in what could you have looked at considering that they're not public they're not doing the same amount of filings as and it's not a crypto thing where there's all these open databases right so so first of all i mean private companies patent all the time um Private companies have Glassdoor pages as well. Okay. There's stuff out there. Yeah, there's no 10-Ks, 10-Qs. There's no, like, earnings calls that are kind of required. I mean, obviously, there's still media occurrences where perhaps you might have been able to detect some deception, you know, if you were paying attention. So there's still data available here. So, I mean, I would just look at that, I guess. Yeah, it's not a complete black hole. It's just you don't have as many data sources.

We're going to talk about the war for talent. We talked about the great resignation and just companies repeatedly saying, I can't get people to do the stuff that I need them to do. And usually the answer is we'll pay them more. But is it really that black and white? Or is there something just about the types of companies people want to work for now? Yeah, so it's pretty interesting. I think the common narrative is that it's mainly blue-collar workers who are dropping out. But it turns out it's also white-collar workers equally. And it's

not even like everyone wants to work for Amazon and no one wants to work for... You just founded something. Yeah, yeah. Right? Like you're kind of part of wants to work for – You just founded something. Yeah, yeah. You're kind of part of the great resignation, aren't you? I guess so, yeah. You saw Apple was offering $180,000, like a special bonus to their engineers to retain talent, something like that. That was a month ago. That's insane.

I don't know if it was a bonus or something. But it's everyone. It's affecting everyone. If Apple is not immune to this, nobody is. Right. Their company has a sterling reputation. They're a huge company, and they're having trouble keeping their talent. Where's everyone going?

Well, they're starting their own companies. That's what's going on. They're going to crypto. They're going to AngelList.com, and they're raising money, and they're starting their own thing. So how do you look at stocks through that prism of their ability to hire or retain talent? Like why is that important? I think it means that this idea of superstar talent, right? The idea of like finding the next Barry Bonds or Tom Brady or whatever is becoming increasingly important because fewer workers are required to do the job of many workers, right?

Technology gives us so much more leverage. That's coming into play. Culture is becoming increasingly important. I saw a study the other day someone sent me where they talk about many of the factors that would have predicted a lot of the resignation. Lo and behold, culture is a very important tool that companies have to retain their top employees. What do you mean? So, you know, they look at similar stuff with Glassdoor data to say, you know, companies' job satisfaction measured not just by the star ratings, but also just by the text. Also, like the extent to which companies are, you know, being talked about in the context

of like their own happy hours and like doing kind of things like flexible work hours, hybrid remote work, all these types of things that are kind of perks for employees, they have actually helped retain talent as well. Could you measure employee turnover? Does every company disclose that or no? They do not, not in 10Ks. Yeah.

So that can be measured in other ways, right? So for example, you can look at, you can go- Don't even give these ESG people any ideas. But that would be- That would be the next mandatory disclosure. That would be super meaningful if you could see that. I mean, to your point, the only human capital disclosure

on the 10K is like number of employees, headcount. So then you can kind of do the math in your head. Which is kind of crazy that that's the only thing because like-

Hiring versus firing might be interested. You're telling me that the CEO and the janitor are equally valuable. You have no idea, like net, you know net additions,

but you don't know gross, you don't know total number of metrics. Oh, what about, what about- Part-time workers. What about C-suite comp compared to the average employee? Does that have any predictive power?

I, not that I have seen. You're welcome. I just gave you an alpha. Yeah. No, but did you look at it? I have not looked at it. I'm sure that's been looked at though. Yeah, I just, I feel like how much,

how much is Tim Cook being paid versus the average employee? Probably Apple shareholders are fine with that. Yeah. I don't know that it's automatically a negative if it's high or automatically great if it's low. I think the biggest factor driving CEO comp is just the size of the company, right? Which is why, by the way, empire building exists. Because I'm running a great company, but I'm like, I can get paid 2X if I double my company.

So I'm going to acquire a bunch of small companies so I can get paid 2x. So we have so much more that we wanted to do with you, so we're going to have to have you back for sure. But we're going to go into favorites. Okay. Just in the interest of time. Did you have fun so far today? What do you think? Had a blast. Alright, so we're going to do the actual recording

in a few minutes. This is the warm-up. You guys have everything plugged in yet? Yes? Alright. We're ready. Let's do favorites. Kai, you go first. What did you bring us this week, which we all be watching, reading, listening to, whatever? Yeah, so my favorite read this

past week was a blog post by Moxie Marlinspike, CEO of Signal. Now, that's a fake name, right? I wasn't sure if it was a Netflix character. Is that a name from Harry Potter? Yeah. Okay.

Or maybe an exotic fish. Moxie Marlin Spike. Sure. But so, look, this guy, he's just some kind of cryptographer, so he knows what he's doing. And he wrote an article called My First Impressions of Web3. Bullish or bearish? Bearish. Bearish.

I'm kidding. And there aren't that many good skeptical articles. I mean, there aren't many articles in general because either people are ultra bulls or ultra bears. So it's not that interesting. But he wasn't like Galloway, like, pissing on it. He was just saying, like, there's not as much here as everybody seems to think. In fact, Galloway, I think he— Galloway used him to piss Galloway.

Galloway used him and then took his argument and then, like, 10x amplified it. And then linked to it, didn't use his name, so it sounded like it was Scott's. Galloway, yeah, that's what happened. I do that shit, too. I can't even talk shit. All right, go ahead. No, this article is super interesting because he actually went out and built an NFT. He actually built this thing.

He said the only way to find out if this is the real deal is do it myself. And so he builds this NFT. He, quote, did the work. He did the work, yeah. He builds this NFT on OpenSea. Okay. And it has this weird characteristic where like how you view it changes what it looks like. And for whatever reason, OpenSea believed it violated the terms of service and took it down.

What? Yeah. Oh, I'm sorry. I'm sorry. I'm sorry. I thought you were talking about this article. I was like, wait, how did they do that? I'm sorry.

Yeah. I asked you a question. Can we just like keep it on this for a second? Not to be like a boomer. It doesn't matter. Who the f*** would buy this? He did this as a joke. He was doing this to make money he was doing this john am i over my limit how many more do i have left this is a f**king joke it's like team fouls he did this joke he did

i understand he did this joke but honestly this doesn't look very much different from things that people are doing that's not a joke sorry Sorry. How much did he sell this for? Go up. I think he says like – $8 trillion. Yeah. There's like actual money on this. I can't remember.

$10,000 to $40,000? Who knows? He actually sold this. Somebody put $40,000 into this guy's joke. I hope – did he give the money back? $38,000. Did he give the money back? Yeah.

I don't know. OK. Who was the buyer? Andreessen Horowitz? OK. Continue. We can – don't know okay who was the buyer andreessen horowitz okay continue we can don't get scared mike's terrified well i can't i can't say a16z you can't you know i'm terrified i'm just kidding all right so what was the so what was the conclusion of of the blog we're all going to read it so the point being that open c they remove this nft from their

marketplace and then he goes to his Ethereum wallet to look at his NFT, and it's gone. Because the wallet itself hooks into the OpenSea API to get the image. Oh, I hate when that happens. I hate when that happens. And so basically his point is, look, Web3 is more centralized than we think.

There are a couple of companies like Alchemy and Furra who control a significant part of the value chain. And that without them, you can't really do anything. Wait, who did that? Who removed the NFT? OpenSea. It violated the terms of service. That's like a dude in a headset.

That's not – the blockchain didn't remove the thing that violated the terms of services. Well, that's the interesting thing. So yes, when you buy the NFT, all you're buying is a link. So in the blockchain, there's a link to a pointing to the NFT itself. And so what OpenSea did was – I mean they obviously can't remove that, right? But they can remove – That's immutable. Yeah, exactly, by definition.

But they can remove whatever is being hosted and shown on OpenSea's own servers. Oh, wow. So it still exists on the blockchain technically. Yeah. But you just can't view it because OpenSea is a centralized private company that does what it wants to do. And so his point is that,

look, you guys are talking about decentralization. That's your whole thing. And there are a few companies that, within each vertical, run the entire show. Packy hated that argument. We're going to have Packy in here a couple weeks, but like so we don't have to have that now. But I do think that these articles are

informing people like me who are not living, eating, sleeping, breathing NFTs or Web3 stuff. But just like the debate is really interesting. Do you agree? Yeah, no, look, to be clear, my mom's an artist and I, you know, I'm totally, you know, excited about the vision of NFTs and empowering artists and the creator economy.

Obviously, there are some things that need to be worked out. And, you know, Vitalik said himself in response to this article, Vitalik says, look, I get that we're not where we want to be now. But, you know, we hope at some point to achieve this dream of decentralization. By the way, if your mom could sell a piece of art and it's an NFT and every time it gets resold as the artist, she retains some rights to the royalties or however that works and it's centralized, who cares? That's right. Right? Can it be both? That's very much – it totally can.

That's very much the question, which is there are going to be inherent trade-offs for decentralization, right? Decentralized things are just slower. You could argue that the blockchain is just a slow database and that Ethereum is just a slow computer, right? And the question is, what hill are you willing to die on? How much do you care about decentralization? Is it important to you? How much do you care about Mark Zuckerberg not... And everybody's at a different

part of that section. Well, Solana says Solana users don't care, right? That's how it got so big. That's exactly right. They're saying, look, we're owned by VCs. We're a small company. We just centralize everything. And guess what? And we're 50 times faster.

Yeah, we're like 100x faster than Ethereum. And so the question is, as average consumers, how much are we willing to sacrifice to not be Zuckerberg's pawn? Most people, most normal people don't give two shits about centralization or not. Right. I think the hardcore users do. If you like the centralization of Solana, you'll love the concentration of power over Avalanche, which I think is like 60% owned by the people that created it. Right. Or you could just use like Visa.

Yeah. Duncan looks like Sylvester Stallone in Over the Top. I haven't seen that. So he turns the hat around when he's about to arm wrestle. Dude, it's a movie. It's an arm wrestling movie with Sly Stallone and his son.

You can't arm wrestle with a hat. Do you know why his hat's backwards? Because he looks through the lenses with his eye and the brim gets in the way. Duncan was filming me today for a half hour. Duncan, how worried about centralization are you? Not very. Not too much.

You guys are making me feel bad with that 38K figure. My NFT I created still hasn't sold. That guy was such a badass. That's your NFT, Celestis Stallone? No, I created an NFT a while back. That guy's the final boss. Who bought your NFT? No one.

That's what I'm saying. No one. Everyone's just making jokes and selling them for $40,000 grand i created one for real and it's got like five views what it i you never showed it to me i get that thing bought right now well no i'm not i know is it centralized i'm not going to share yeah uh kai what does glass door say about duncan's nft all right let me do mine real quick. This is Sunday night on HBO. Sunday night on HBO is now awesome again. The Righteous Gemstones.

Oh, is that good? My wife just asked me about it. Literally makes me laugh out loud. Do you ever see it? No. You like Danny McBride? Do you know who that is? Who's that?

If I show you a picture of him. He's pounding down. You'll know the picture of him. So the shirtless guy at the top. Okay. He's a good looking guy, yeah. Yeah, he's extremely good looking. That's definitely not a real picture of him.

John Goodman. John Goodman steals the show. But like, honestly, I think it's like one of the funniest things on TV. What's the basic premise? They're a family of televangelists. They're like a billionaire family in the deep south, basically like scamming everybody. And then internally, they all hate each other and they're all it's like succession like john goodman is like obviously not going to live

forever it's comedy and they all want to take over this uh hustle comedy it's a drama it is not a drama dude it's hilarious i can't wait danny mcbride i'm in you'll you'll laugh so hard you'll cry um euphoria which I have a teenage daughter. I don't know why I do this to myself. I think I'm out. It's a tough watch, but I love it. The first episode was tough. I'll tell you why I can't stop watching it.

All of the soundtrack, all the music is 90s hip hop inexplicably. These girls are in high school now on the show, and they're all very much into, for some reason, Jay-Z and Biggie. So that kind of like keeps me. They're very good actresses. Actors, I should say. Dude, this show is... Season two just started.

The first episode is one of the craziest things that I've ever seen on TV. That was a tough watch. I don't even want to go any further. Anything else? What do you got? I'm reading Sebastian Malibu. He has a new book.

He wrote the best book ever on the history of hedge funds called More Money Than God. It's right behind you. Oh, there it is. Yeah, that book's amazing. He wrote another one about venture called The Power Law, Venture Capital, The Making of the New Future. And I'm reading it. I think it's out soon or out now.

I learned that – oh, January 25th, 2022. Perfect time. It's coming out this week. I learned that Don Valentine got Atari on the map. Atari was like this fledgling company and he introduced them to Sears who blew them up. I was gonna say, how do you get a video game on the map before there's video games?

Like you can't buy ads on Twitch. Like how do you even do that? In 1980. It was 1970. 70 something. Trade shows. He got them into Sears. This book comes out this coming week. 70 something. Trade shows. He got them into series. This book comes out this coming week.

Yeah, it's good. Should I read it or should I listen to all the podcasts from people who have read it? It's long. I'll give you the TLDR. I read more money than God, but I don't like probably three years ago. I'll give you the TLDR when I'm done. All right. Awesome.

Hey, so you had a good time today. You're going to come back. We have like three more things we didn't get to with you. Okay. And by the time you get back we'll have even more Everybody round of applause Round of applause for Kai's first appearance on the show Appreciate it That's a real in studio audience

You guys I don't know if you know that John great job today with the charts We appreciate you Duncan you killed it Backwards hat Hey guys if you want to watch the video from today's show, go ahead and check out youtube.com slash the compound RWM for the latest in financial blogger fashion. Make sure you go to our web store.

It's idontshop.com. I repeat, idont shop.com. We have a lot of good stuff in there. We appreciate you guys listening. We'll be back next week. Have an awesome weekend. Have a great week. We'll see you then. All right. Take us out.

Was that good? Was that fun? Yeah, it was awesome. You killed it, bro. Thanks. You let us know a lot of stuff.

That was so good. We kind of jumped around. it was fun it was so fun