The Compound and Friends - The Next Trillion Dollar Stocks: What Are Your Thoughts? (with Josh and Michael)

Episode Date: January 21, 2020

In this edition of What Are Your Thoughts, Michael Batnick and Josh Brown discuss: * Gold vs Bitcoin, let the trolling begin! * Google joins the Trillion Dollar Club, who's next? * Can Bill Simmons sell The Ringer podcast network for $200 million? * Actively managed US stock mutual funds had a great year in 2019, but most still couldn't catch the S&P 500. So what? * Will direct indexing disrupt the ETF business? * Warren Buffett's preferred metric to gauge how expensive the stock market is. 1-click play or subscribe on your favorite podcast app   Subscribe to the mini podcast on iTunes or Spotify    Enable our Alexa skill here - "Alexa, play the Compound show!"   Talk to us about your portfolio or financial plan here:  http://ritholtzwealth.com/   Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer: https://thereformedbroker.com/terms-and-conditions/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

What's up, guys? It's Downtown Josh Brown. We're here for another edition of What Are Your Thoughts? I'm here with Michael Batnick, as always. Michael doesn't know what I'm going to ask him. I don't know what he's going to ask me. Stick around. Let's see what's happening. All right, I'm going first. Peter Schiff's tweet this week or weekend, so I can't stand the guy, but it was a great tweet because he simultaneously trolled two very different populations. I'm just going to real quick. Let me just throw it on screen. I just lost all the Bitcoin I have ever owned. My wallet got corrupted and somehow my password is no longer valid. So now not only is my Bitcoin intrinsically worthless, it has no market value

either. I knew owning Bitcoin is a bad idea. worthless, it has no market value either. I knew owning Bitcoin was a bad idea. I just never realized it was this bad. Let me tell you why I love this tweet. Because the responses, I was definitely here for the ratio. The responses were one of two things. Half the people are like trying to help him, like serious. They don't realize he's trolling.

They're like, oh, use your seed number or whatever. Whoa, whoa, whoa. I don't think he's trolling. Oh, he totally is. No way. All right, so you were in the first half. The other half were people like, okay, Boomer, I lost my AOL password. I guess that means the internet is worthless. Like, he got, like, both responses.

And, of course, my man, Pomp, was the top response. You forgot your password? So I almost feel like it was an epic troll. But then you and Ben seem to think, no, he's being dead serious. No, no, no. Ben thinks he's trolling. Ben thinks he's trolling.

He's not funny. I think it actually did happen, but it's such a small amount. He doesn't care. And it was just like a great troll of the Bitcoin crowd. Because there's like this gold versus Bitcoin thing happening. I don't know. So I believe that it happened.

So do I. Okay, so you agree with me. Yeah, but the tweet was like deliberately sent to antagonize people that think Bitcoin's a store of value. Yes. Anyway, not a fan, but big fan of the tweet. By the way, the way that this works is you ask me what my thoughts are. Well, you really thought that he was being serious. He wasn't asking for help, though.

Let's just move on. All right. I just wanted to talk about the tweet, I guess. Yeah, clearly. Okay. Trillion dollar companies. Apple, Microsoft, Google. Amazon's like a hair behind.

So the next in line are Facebook at $633 billion. Alibaba, $610. Berkshire's $560. Tencent is $493. Where's Amazon? It's like nine something. So it's going to be Amazon. I don't think anything else is close enough. Didn't ask the question yet. Okay. My question is this. Are we going to see these big four fall under a trillion first, or are we going to see these big four fall under a trillion first or are we going to see the next four catch up oh my god i think they'll fall under a trillion before you'll have eight like just the size of the economy i don't think you could have eight companies worth a trillion market cap to gdp even uh well so oh here's an interesting thing People say like Buffett's measure of when the market's too expensive because he like mentioned it once was market cap to GDP. First of all, it wasn't. It was market cap to GNP, gross national products, which is a statistic that I don't think anyone keeps anymore or people don't pay attention to it, but that is maybe from the 70s or early 80s before globalization.

If you want to play that game and look at market cap to GDP, I feel like you have to do global GDP. If you're talking about Apple, how much of Apple sales are outside the United States? What is the relevance of US GDP if the biggest market cap names are global businesses? Follow-up question. Will Apple get to $2 trillion in market cap, like ever? I don't mean like in 50 years. I mean like within the next 10. Well, they're doing everything they can not to, right? Because-

They're buying back shares so quickly, but it doesn't matter. They're returning hundreds of billions of dollars to shareholders. Will they or won't they? I think it's easier to ask the question like, will it be a $500 stock? Because how does the stock do materially better from here? Well, they can continue to eradicate the share count and buy back shares. And so the price can go up without the market cap going up. But last year, obviously, the market cap went up substantially.

I don't know. I'll put that in my too hard pile. I wanted to ask you about The Ringer. I know you're a massive Bill Simmons fan. How many different Ringer podcasts do you listen to? I listen to Simmons and The Big Picture and The Rewatchables. Okay. You don't listen to any like the football guy, like the specialists?

I used to listen to Tate and Lombardi, but they're not there anymore. Okay. I used to listen to Tate and Lombardi, but they're not there anymore. Okay. So word on the street is that The Ringer is for sale. Spotify is interested. They had talks last year with AT&T, and ESPN potentially could be interested. And the price talk is between $100 million and $200 million.

So I did some back-of-the-envelope math, and I wanted to get your thoughts on this. Okay. I did some back of the envelope math and I wanted to get your thoughts on this. Okay. According to my calculations, your podcast with Ben animal spirits is worth in the neighborhood of 25 million based on the multiple to revenue. I'll take it. My question. You have anything else?

Well, what are your, what are your thoughts on having a very undervalued media property? We're so undervalued. Wait, do you think, so they're doing 15 million. Oh, this is what I wanted to really ask you.

Everyone's like racing to make a podcast, but most of them aren't doing it for ad revenue, right? Because there are 30 ringer podcasts and they're doing $15 million a year. Yeah, I would guess that 80% of it is his. So like no one, if you get that big and you're still barely making money like we're doing revenue why would anyone else starting a podcast think like they're about

to make a fortune like no one i don't think anyone really thinks that there's like five people making money in podcasts right yeah and the ringer is one of those five um all right so you got to keep your day job yes all right god uh okay je Jeffrey Patek did his study on active managers. And U.S. large cap active managers did 25% last year on average. That's great. S&P did 31. So they lagged by quite a bit. But I wrote yesterday that the whole active passive debate is a huge distraction to what

really matters. Like, in other words, if somebody is a well-behaved investor, meaning like they're not jumping in and out of different mutual funds, they're not timing the market. Like they say that like we like the strategy and we're going to stick with it. They're going to be fine.

Assuming like the market does well. Like that's not what's going to bring somebody down. I have always said this. Actually, when's the last time you think I've done a blog post on the active passive debate? I think it's three years. I think we, like it was a a dead horse already and then we just kept beating it and feeding it poison and ripping its hair out

but the other thing that never comes up like some active managers do outperform well if the average did 25 last year does that mean half did better i forget what what the number... No, no, no. It was... Was it the median? I think the number was 30% to 40%. I forget what it was. 30% or 40% of U.S. large cap managers did better than... No, did better than the index. Did better than the 31% of the S&P. Right. So in other words, could you have predicted those 30% or 40% of managers?

No, you couldn't have. Could you have predicted those 30 or 40 percent of that? No, you couldn't have. But there's a good chance that if you were allocating to active large cap U.S. stock funds, there's like a one in three chance that your manager did outperform. Yeah, I don't know. I guess I understand why people spend so much time on this topic, us included. And I also understand now why, all right, we all get it. There's nothing really left to say about this.

You either want to have somebody in charge of the stock, so you want to have an index. And if you haven't made that choice yet, I don't know what to tell you. Inside ETFs next week. So is the ETF on the verge of being disruption vis-a-vis direct indexing? And when we go to these events, each one of them could be like kind of the last hurrah? Or is that overstated? I don't think so. You don't think so?

Not even. I absolutely don't think so. You don't think so? Not even. I absolutely don't think so. Do you think that there will always be a separate use case for direct indexing and for ETFs and that there'll be a big enough opportunity for both to still be a thing? Yeah. Okay. Because... I mean, ETFs disrupt the mutual funds and there's still how many trillions of dollars? So... It's such a glacial displacement. Like they'll be actively managing mutual funds for another 20 years, right? So but can ETFs continue? If wealth managers who are clearly driving the flows, if wealth managers in large amounts start to incorporate more direct indexing into their practice because the technology has gotten better, the costs have come down, they're more, you know, it used to be just parametric.

Now there's more ways to do it. Could we have seen the peak of flows into ETFs? Nah, I don't think so. You don't? I mean, there's obviously a ton of room for direct indexing to even have got like a 1% share, it'd be an enormous number. So inside ETFs is next week. I'm going to be paying attention to see if anyone's talking that way and to see if they have any direct index.

I guess like iShares and Vanguard don't need to be worried about it. Can I tell you something funny? I'm interviewing Howard Linzen. Shout out to Howard. And I'm interviewing him about being a financial advisor. And I think Linzen's been a financial advisor for like 15 minutes. Howard launched an RIA with our friend, Charlie Bilello. So I said to the organizers, I'm like,

do you want Howard to interview me? I don't really understand what's going on here. But I guess we'll get his take on wealth management now that he's joined the RIA bubble. We'll see what his thoughts are. Okay, I wanted to ask you about Andrew Yang's freedom dividend. Not necessarily what you think about it politically, but he had a long interview with the Washington Post.

And I'm curious to hear your thoughts on his thesis. So the reason why he's doing it is because he thinks so many workers are going to be, so many workers are going to be displaced by technology. And here's what he said. What many people cite is they say, hey, the United States of America has been through this before with the Industrial Revolution. What they don't seem to remember is that the Industrial Revolution at the turn of the 20th

century included mass riots that killed dozens of Americans, caused the equivalent of billions of dollars worth of damage, led to the origination of labor unions that fought for workers' rights, Labor Day as a national holiday, and the implementation of universal high school in 1911, in part to try to educate a population that was struggling with the transition. And then he goes on to say, this fourth industrial revolution will affect two to three times that number of workers on an annual basis than that one did. So even if you were to use history as your template, you'd expect there to be massive problems during this time. Transitions are tough. I don't think universal basic income or the freedom dividend that, first of all, I like Andrew Yang and I love his ideas. And I hope whoever gets the nomination

for the party, it's not going to be him, will either have him involved or listen to him. But so what do you think about his general thesis? Well, it's a historical. So he's going to say this time is different. A hundred years ago, there were like blacksmiths in America. Like there were literally people who woke up, spent nine hours that day shooing horses. Like I understand that the transition for them to find something new to do was probably tough.

It would be tough for me to figure out what to do after this if I were forced to. So like I don't ever minimize the suffering and struggle that comes along with technological displacement. But I don't think that you can change the fact that people are at their best when they're working. And so rather than giving people money to do watercolor and dance classes, like I feel like we should be focused more on retraining. Is it realistic to train 10 million people to change their career from one year to the next? Probably not. So it's going to be a long period of time. I don't think everyone should be a coder. And I don't think that you could change the fact that this does happen. And it's hard.

Like it's, I don't need to get paper over it with a check. Now, the one thing that I think is smart about his proposal for the freedom dividend, it's not means tested. Everybody gets it. And if so, if you're going to do something like that, it's essential that everyone gets the check, not just the people who need it. Why? So there's no stigma? Yeah, because then it's essential that everyone gets the check, not just the people who need it. Why, so there's no stigma? Yeah, because then it's welfare. And then it's, well, then it's us versus them. I didn't get it.

Why am I paying for them? Completely. Like, why am I paying for this asshole to do nothing? It would make the divide even worse. It would make it worse. So now, but the other side of that is, like, Michael Bloomberg is going to get a freedom dividend, which is fucking crazy. Like, he's the—

Well, yeah, but they're also going to be the ones paying for it. So now the answer to that is maybe, like, the people that really don't need the money give it back. I don't know. It's so sloppy. I don't think it's realistic. Maybe things will get bad enough that we'll have to do that someday. I just don't—I don't know. It's so sloppy. I don't think it's realistic. Maybe things will get bad enough that we'll have to do that someday. I just don't see it. Most of the people I know in the workforce are doing jobs that didn't exist 20 years ago. Most of what we're doing and spending our time

doing to build the firm, these are methods and tactics and strategies that weren't possible even 10 years ago. So I just feel like the transition will suck. No one's rooting for riots. But the answer is not, here's $2,000 a month. Like, I just don't see what problem that solves. So anyway, that's my take. You got anything else? Okay, guys, what do you think of these topics?

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