The Compound and Friends - The Science of Hitting

Episode Date: August 12, 2022

On episode 57 of The Compound and Friends, Alex Morris joins Michael Batnick and Downtown Josh Brown to discuss earnings, the jobs recovery, Netflix and the streaming wars, the bull case for Meta, the worst investing advice ever, and much more! This episode is brought to you by our friends at Masterworks. Visit https://masterworks.com/compound to skip the 10,000 person waitlist. See disclaimer at mw-art.co/x. Sign up for our newsletter and enter to win a free subscription of Alex's Substack here: https://www.thecompoundnews.com/compound-substack-giveaway/ Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com 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/ Inclusion of advertisements by podcast sponsors does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers: https://abnormalreturns.us5.list-manage.com/track/click?u=f8843b0fc6f0ed7d35e67dcf5&id=33b07916d1&e=4e0f612ef0. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

We got the area somewhere. We got dinner somewhere. You have time for drinks after or is that too tight? I might be able to. No pressure. I might be able to go for one. We're going right over here. Okay.

So like five minutes to work. Wheel tapper. Ooh. Wheel tapper. Remember that place? Yeah. We always used to see Einhorn over there. Really?

I think. I saw him one time wearing like a very like pimp looking fur coat. Wait, am I supposed to be like this? What's hap- are we crossed? No, give me my f***ing headphones. You did that. I was like, why am I not- I just put the ones on that you had on.

I just put the ones- Oh, and they're f***ing all hot now and shit. My ears are very steamy. My guy, why is your head so hot? A lot of activity going on. Hello, hello. Oh, that's better. John, throw me those Altoids.

They used to call me hot ears in middle school. Go ahead. Do your thing. Do your thing. Thank you. So we're going to give away, if you're cool with you, a one-year subscription to you. Yeah. We'll let you know who the winner is.

Cool. Did you listen to Matt Bellany? Do you listen to his podcast? Yeah, a decent amount. He was on with Tom Rogers the other day talking about cable and... He's like, everybody's losing. The streaming wars, there's no winners. In cable, there's no winners. That sounds distorted.

Like everybody's losing. Yo. You know what? It's enough. Kill that thing. F*** that. Never going to happen. Yeah, it's very messy right now for sure. Yeah, but Disney got a really good response from their streaming numbers. Yeah. I don't know how many tens of billions of market capital added back.

But how many percentage of Disney customers are actually paying? I mean, the India subs are 58 million now out of the, what was it, 160? But isn't a lot of it subsidized by like get a AT&T subscription or not really? Not a ton. I'm planning my first Disney trip as a grown person. Which one? Orlando? Orlando. I can't wait.

I used to go to Disney as a kid all the time. Oh, this is the first time you've taken the boys. Yeah, I think I might cry. I think the nostalgia might just bring me to my knees. And so we're planning it now, and it's going to be like at least $10,000. Oh, yeah. It's so expensive. It's crazy.

Not to brag. Well, no, definitely not to brag. Well, what? I'm the only person going to Disney? No. It's packed. There's a lot of people. Where are you staying?

Can I help you with this trip? No. I have two pieces of advice that I want to help you with. No, we have a handler. We're staying at- You have a tour guide? We're staying at the Swan or dolphin Oh nice. Yeah, you're spending You're spending. Yeah, you have the tour guide the Fastpass person. Oh, what Robins doing it?

I assume she I don't know you have to have this Yeah, you cannot spend all this money do this trip and then wait in lines Cannot do it. Yeah have to trust me on this. You got to get everything. You have to get the people with the fast passes that run back and forth. They get on the line for you while you're on one ride. They get on the next line.

So when you're done with that ride, you meet them there. Do people look at you funny? I mean, yeah, it's disgusting, but I'm just going to be honest with you. I did this trip in 2014. I'm going to wear a fake mustache and sunglasses so nobody knows it's disgusting, but I'm just going to be honest with you. I did this trip in 2014. I'm going to wear a fake mustache and sunglasses so nobody knows it's me. No, everyone's doing it. It's gross, but everyone's doing it.

It is what it is. It's like Lori Loughlin posing her kids as crew rowers to get them into USC. Same principle. um no but you know what if you're spending all this money to take the trip no i do it you don't have to convince me i'm in you got to do it right i'm in you don't need it for epcot you could like do that straight up for the magic kingdom like don't play games go out there on a mission and you really have to know like what you're doing first. Like, right to Space Mountain.

Just literally right to Space Mountain. And then, like... I feel like I remember Space Mountain. There's nothing special about it. Oh, they changed the branding of the log flume. Do they still have Thunder Mountain? Yes, they still have Thunder Mountain. They just changed Splash Mountain, I think, because it was racist in some way. Big time racist.

I don't know what movie it was, but it was racist. There was a movie Disney did in the 60s called Song of the South. There you go. And it was like a lot of slave stuff. It's really – it did not age well. So they branded the ride based on the characters from that movie. Princess and the Frog, I think, right? Well, now they changed it.

But I'm saying the original branding of Splash Mountain was utilizing characters from the Song of the South and the whole movie's unacceptable. So now they have Hollywood Studios. Is that a new thing? Because when my wife said, do you want to go to Hollywood Studios?

I was like, you mean Universal Studios? They've had it for a while now, but I don't know if Hollywood Studios anymore if they changed the name. Epcot's my favorite. I can't wait. Epcot is... I cannot wait.

Epcot is just so Epcot's the best so awesome the last time I went there they had like the innovation something or the other yeah they have all that still there Epcot's two parks in one

half of it is corporate sponsored futuristic themed or science themed rides like there's the dinosaur one I think it used to be Exxon

I don't know if they're still sponsoring it but like it's like educational. And then the other half of the park is country pavilions. So I did this trip with Sprinkles when we were like 21, and we did that half of Epcot. We had a drink in every country. And like Mexico was last, and it was tequila shots. And this is after like sake in Japan, beer in Germany. Like we literally – I think we should have been thrown out of the park.

Anyway, we didn't do that with the kids. Yeah, people get crazy. People get fired up. Okay. With the white, I like it. All right. Here we go. Oh, wow.

We're going. We're going to podcast now. We're going. This is so exciting. It's been a while yes I still have I still have static

I still have static what do you think that's about do I have something open that shouldn't be open Alex you don't short stocks do you

no ever I shorted I shorted one stock in my life it was Salesforce like seven eight years ago

okay it went down like five percent and I covered, thank God. It's probably a 5%. I shorted Amazon in 2011. There you go. You still short or no? You cover. You're still short.

Full disclosure, I'm still short. No, no, no. And I'm sweaty. Yeah. One experience was enough for me. Honestly, the AC has got to go on, Duncan. I know you hate it. I have no choice.

Duncan, put your foot down. Just say no. That's not what we do here. It's not livable. He's so upset. This is a lot more work now. No. You know what we need?

There needs to be somebody with a fan on your neck. No. It's bad. All right, so do you want to do that? Do we have time? Or is that like... You really need the f***ing buttons nonsense? No. Duncan's going to put them in for me.

I can put them in. All right, we got AC on. When you do CNBC, where do you have to go to to do CNBC from here I do it from here oh really and then sometimes I go to New Jersey that's cool

they're in Englewood Cliffs they're right over the GW huh so I've been going like once a week I love going live yeah that's cool

you can do it from here dude TV's hard with when you're just staring at a camera lens and you're not getting like feedback from the people that you're on with

you can't see their face and they can't see yours is there a delay from when you're just staring at a camera lens and you're not getting feedback from the people that you're on with and you can't see their face and they can't see yours. Is there a delay from when you talk? Slightly, but it's just hard. It's not as good. Yeah, I bet. What episode is this? Friends, episode 57. 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. Hi, I'm Josh Brown. Did you know...

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I don't know. That's not what's important. What's important is that Masterworks enables you to add a new asset class to your portfolio. You can own fractional shares of well-known art by well-known artists, and it's a pretty cool way to diversify. Go to masterworks.com slash compound to learn more and see the important disclaimer at masterworks.io slash disclaimer. Oh my God. We're almost getting to nice territory.

All right, Duncan, that's it. Thank you. Well done. Maybe a little round of applause. Yo, shout out to my compound day ones. If you've been listening to the show, we are now on, what did we say, 56?

Seven. 57. 50, that's a lot of shows. What do you think? Start packing it in? Have we said everything that we want to say? No? Keep going.

We'll do another. All right, we'll do one more. We'll do one more. Last one. Alex Morris is here. Alex is the founder and author of The Science of Hitting, which is an investment research-based newsletter. Previous to The Science of Hitting, Alex spent 10 years as a buy-side analyst and was a contributing author for Guru Focus. You have an MBA from the University of Florida. Yes?

Factual. All right. And you're a CFA charterholder. Yes. When did you get your CFA? Oh gosh. Six years ago, I think. And you're a level three, right? Yeah. Not to brag. Level four. Nice. So a level four CFA can levitate. I don't know. You still have to pay the annual fee or no? No. I'm grandfathered in. All right. Better than levitating. First thing I wanted to ask you, I'm sure you've explained this elsewhere, where does the name The Science of Hitting come from? Sure. So Warren Buffett's referenced a couple times throughout his career this Ted Williams book, Science of Hitting, where Ted Williams broke down the strike zone into different cells and basically said, pitch in the sweet spot, I can bat 400. Bottom, outside corner,

I can only bat 230. So I'm either a Hall of Famer or maybe not even on a major league team. And he said, difference between investing in baseball is there's no called strikes. I can just stand here all day and wait for that fat pitch. Right. Ted's going to have to swing at some point. And Warren Buffett can go two years without buying anything. Yes.

And then this year, he went crazy. This year, he's buying everything he can. He just went over 20, I think, right? I think so. Over 20 what? Billion? No, percent of Oxy. Yeah, Occidental Petroleum keeps buying.

And he's been buying Japanese stuff in recent years. And he seems to be enjoying himself again. I have a theory about why he sold the airline stocks. You want to hear it? Yes, I do. I think it is a good theory. I do. Most of my theories are ridiculous.

This one, I'm 99% sure I'm right. So one of the big criticisms of Warren Buffett in recent years is he doesn't practice what he preaches. And he's not greedy when others are fearful. And at the bottom of the COVID panic, he blew out tops. He had the biggest stake in five airlines. and he blew them all out at once. And it's very easy to look at that and be like, oh, Buffett got scared or whatever. But actually, I think what happened was he was acutely aware of the negotiations that were going on between Congress and the airlines to keep them in business. And there was no way they could have shoveled

tens of billions of dollars at these companies if the world's richest man was the largest shareholder. Like the optics of bailing Buffett out were like a non-starter. So he's actually a hero. So he's actually a hero and never once, to my knowledge, took any credit for that. But if he hadn't sold, I really don't think those airlines were bailoutable.

They might have all had to have gone through Chapter 11. How do you grade this theory? I think it could be legit. I mean the other thing to remember, I think about Airbnb where Brian Chesky says, CEO, says their business went from full speed to down 80 percent in six weeks. From full speed to down 80% in six weeks. The airlines were told by the government, you are out of business for the foreseeable future. It wasn't like they voluntarily were like, let's stop flying. That was it.

It was done. So something had to have happened. But it would have been very difficult optically to give them money with Buffett being the biggest shareholder. For sure. I mean he didn't have the money to replace what they gave them. And again, the severity of the slowdown. I think booking holdings, their cancellations were larger than their gross bookings in April of 2021. So they had negative – or 2020, sorry.

So they had negative revenues for that month. Negative revenues. I mean so many – This is a company that did $100 billion of business the year before. Do you think that – It was a crazy slowdown. I mean, I mean, so many companies that a hundred billion dollars of business the year before. Do you think that it was a crazy slowdown? Do you think that so many of the things from that time, which admittedly is like two years ago, but we've like forgotten so many incredible things that took place just because so many incredible once in a lifetime things happened all at once. Yeah. And there will be a bigger appreciation for what went on like five years from now.

Yeah. I went back and looked. I wrote an article at some point in March 2020, and the article started, market was down 6% today. It's down 30% in the past six weeks or whatever it was. And I just completely forgot in my mind like how severe and crazy that was so quickly. When did you start your sub stack?

I started it in April 2021. So I wrote that other article still on Guru Focus. All right. Before we get too far into the show, I want to mention that Alex is generous enough that we're going to raffle off for listeners who hit our link. We'll put links in the show notes, a one-year subscription to the Science of Hitting, which I subscribe to. And for those unaware, it is a site that does deep dives onto mostly blue chip companies that you know. Facebook, Meta, Airbnb, the cable companies, Disney, all that sort of stuff. And it is phenomenal. I read everything that you write.

So this will be a way for an audience to participate. So how does that work, Mike? How does that work? How do we award that to someone? Well, you will hit a link that we put out, and we will randomly generate, like a raffle generator. Where are we putting this link out? My show notes, your show notes, the blogs, YouTube, everywhere.

Okay, so you'll see it in the show notes. You can't miss it. You'll have a shot at it. If you're listening to this for the first time, like on Friday, Saturday, Sunday, you'll have a shot at it. We need your email. It'll be easy to find. Give us your email, and one lucky person is –

what if we already have people's email? Does it matter? Starts over? Yes? They can submit again. Yeah. All right. So we're going to give away a year of Alex's site,

and Alex's site is great, and we're happy to do that for you guys. And if you don't win the year, you should still subscribe anyway because it's – how often are you writing? Every Monday and every other Thursday. So you keep to that discipline. Yeah. Same kind of post on Monday and Thursday or –

It just depends. So during earnings season, I'm updating ideas that I've written up previously or names that I own. I should have also said I disclose everything that I own, percentage weightings and all the names. So anytime I make any changes in the portfolio, I tell people what I'm doing and why. So those can be periodic posts. And then I do some deep dives on new companies. Like I've done Nike recently, Chipotle, a handful of others. Dude, there are so many great Substack writers that I keep up with on a weekly basis.

There is so much content coming out. Yeah. Like good, like very high quality content. For sure. For sure, for sure. I feel like a lot of them were seeking alpha and then said, why don't I just get myself paid to do the same thing that I'm already doing? Yeah.

Do you find a lot of that? Yeah, I mean, it'll be interesting to see the staying power for a lot of these ideas as Mike and I were talking before we hopped on. It's hard to do, especially if you don't have, it's not a full-time job, which for me, it's a full-time job. But if you don't have the time to consistently put out content, it's just hard to keep people's attention, partly because there's so much good competition.

Yeah. I mean, right. It's not like newsletter 1.0 where there was no barrier to entry. For sure. The barrier to entry now is if you don't get above a certain level of subs, it's not a business for you. Yeah. I mean, that's partly why I went with complete transparency on what I own and position weighting. So I was like, I got to find some way to try to take this up a notch and differentiate it, which I've found has

been pretty helpful in terms of just establishing trust with readers more than anything else. All right. Well, you're doing it. You're doing the thing. I'm a fan. All right. Let's start with maybe some Andy Kessler did a post in the Wall Street Journal. I think it was an opinion piece. And the title was a bit provocative. The headline was like, rest in peace, big bull market. I don't want to talk about that. The part that he wrote about that I thought was very interesting and noteworthy is what will kick off the next bull market. And he said, the next bull will be fueled by earnings growth from whatever drives productivity next. Forget last cycle's winners, find new ones. Next generation machine intelligence, geothermal energy, gene therapy. So anyway, I won't read the whole quote, but I thought that

was interesting in light of the fact that right now, today, literally- Wait, don't leave off this last part. What is it? So he names all these next generation technologies and then he says, something completely out of left field that starts out expensive is dismissed by skeptics and then gets relentlessly cheaper over decades, creating wealth for society. So that's a pattern that we've seen 10 times. Sounds like he's talking about crypto punks. I was going to say, it's got to be NFTs.

But so today, Apple became the single largest component of any S&P 500 company going back to 1980. John, can we throw this chart up? So this chart for the listeners are the FANG stocks. Apple, Microsoft, Google, Amazon, and Facebook divided by S&P 500. Oh, that's interesting. So we're showing relative strength of these companies. And the only one,

and there's really not even anything close that has had all-time highs relative to the rest of the market, is King Apple. It's unbelievable. Yeah. I mean, for a big company, for a company this size to still be doing what it's doing and executing at this level,

I think a lot of this story is just about lock-in and nobody having come along and come up with a better ecosystem. So everything I own is Apple. I mean they've continued to build out the install base and then they've done, to your point, on lock-in, they've done a fantastic job on services. And they just keep hitting that over and over and over again. And if you listen to companies like Match Group, which owns Tinder, and other apps talk about this, they think regulation is coming on App Store, and we'll see what that means if it happens. I'm still not totally convinced that.

They're talking their book when they say it's going to come. Because every one of these companies, what they all have in common is they're kicking up a third of the money they make on their app to Apple. Yeah. It's like, that's just how it is. Yeah.

And there's been small tweaks, but nothing really that meaningful. Well, didn't they beat Epic Games in court? Yeah. They did, right? And the drumbeat around that time was as loud as it's. It's nothing really that meaningful. Well, didn't they beat Epic Games in court? Yeah. They did, right? And the drumbeat around that time was as loud as it's not like that now. If they would have lost to Fortnite in court – so basically Epic Games makes Fortnite, which has a huge player ecosystem, my son and others spending money to buy goods and costumes and whatever it's called, skins, on the game. And I think Epic was trying to come up with a workaround where people could pay them directly

and not have that revenue go through iOS and hit Apple. And Apple either kicked them off or threatened to kick them off and it ended up in court. It violated the rules. And Apple won. Yeah. So, I mean, for me, that feels like a precedent that would be tough for somebody else to challenge on different grounds. Yeah. I mean, Match recently, that's a name I know better, they recently sued Google for some of the policies that are supposed to be changing here at the end of 22, I believe, or at some point in 23.

Right. I believe, or at some point in 23. And I thought very interestingly, Google turned around and countersued them. And they wrote a blog piece where they came at them very directly, which I guess you can read it in two different ways. It's either kind of a defensive way of them doing that or them being comfortable in the position to basically say, we're going to do what we want to do. It's our app store. It's our rules. I think it's probably more the latter. But I was surprised to see them publicly put out something kind of fairly aggressive in terms of their commentary. The thing with this that makes it so tough from an antitrust perspective is that it's hard to prove that the consumer is being harmed. Yeah. Like if I'm buying things, if I'm spending money on the Match app or on Tinder or I'm spending money on Fortnite or wherever else, I really don't give a shit yeah what what apple's

take rate is how does that affect me unless some company comes along and can make the case that the product or service would be cheaper if it weren't for and i'm sure that can be done i don't think that anyone has been able to do it yet no again i think the drumbeat around this was as loud as it could be during the epic trial and you were seeing politicians talk about it then, but it's completely faded away. At least in the US. I think in Europe, it's a little bit different. But in the US, it's basically a non-issue. As somebody who has the majority of their exposure to stocks and index funds, it's something that I think about is how big can these companies get?

Where are the next generation of winners? And I've probably said that when Apple was one and a half trillion dollars, but it's now 2.7. And so where, like, are we going to be talking here in five years when Apple's at like 7 trillion? And we were like, I was worried at 2.5. You would think that at some point there is an upper bound of how big these companies can get, but maybe not. You would think until you see Google or Alphabet in a difficult quarter from a macro perspective put up, and FX have wins, by the way, put up 13% revenue growth. All these players- They have so many levers to pull so that when one part of the

business is hurting, they can do something somewhere else and just deliver. And these companies are machines. They just deliver. But so history would say that there is a lot of turnover at the top, right? The top 10 lists, there's a lot of turnover. At the risk of sounding like an idiot, is it different this time? I think that you can make a case that these names are so entrenched. And I know that you could have done that probably previously with the IBMs and the energy names, but not to the extent that these names are just such a part of our life. And what disrupts Google? What disrupts Apple? Yeah. I mean, to the point, the quote you started with, I mean, cloud computing, in my mind,

is part of what that is. It's something that's a benefit to all corporations and society at large if it lives up to the- And the scale. We've never seen companies this big, growing this quickly, this profitable, these margins. It's never happened. So I guess I don't agree with the premise

that they're undisruptable forever because look at what's going on with meta. It is being disrupted in every facet of its business. But if we were talking about this two years ago, like you would have put them in the same category in terms of lock-in that you would now put Apple and Amazon. Like you would look at the stranglehold of Instagram pre-pandemic, pre-TikTok. TikTok before the pandemic was called Musical.ly. And my kids lived on the app. And I looked

it up. I'm like, who makes Musical.ly? And it's like, I don't know. It's a Chinese intelligence, black ops. Don't worry about it. But so much has changed to the point where Meta has lost half its market cap. We're going to do a whole thing on Meta later.

So just put a pin in this for a second. Alex, where do you think we are generally on earnings? I made the case that I think that we can say with the benefit of hindsight that the market got it wrong in terms of selling Apple off 29%, Amazon 45%.

Given that we now know that Apple had a record June quarter, that Google still was growing? Like, where do you see, generally speaking, earnings? Outside of advertising, most of the names I've seen have been fairly strong. We were talking about Disney before we hopped on. They were talking about the parks

and saying that the parks are doing very well and they see no sign of that changing. I mean, that's a very expensive trip to take. I think this whole thing, I don't know that the market got it wrong, but for a very expensive trip to take. I think this whole thing, I don't know that the market got it wrong, but for a different reason than you might think. I think it's a tale of two consumers. So when you watch business television or you read the Wall Street Journal or whatever, you hear about the consumer, this, the consumer, that it's not one consumer. And

actually as good as Disney's parks business was, Six Flags was a shit show. We're in the same business. It's a different customer. Different demographic. Well, that's my point. So Apple caters to a customer that is not really going to materially change their lifestyle based on inflation. I'm sorry. I'm just telling you like that's the reality.

I bet you Android is not doing as well as Apple in whatever metric that you want to look at for that reason. So it's really tough to monolithicallyata within the US consumer where $5, $6 gallon of gas materially changes the way they live their lives. Yeah. But that's not most people. Sure. I mean, food inflation running in double digits

means something a lot different for different people. It sucks that it is that way. So if you were looking at the data, the consumer slowdown, and you looked at Walmart spitting the bit and being like, guys, it's bad. And then you said, this will apply to Apple, then you don't know anything about the US consumer because these are two different worlds. Well, and again, as we've seen in so many industries too, the pandemic had a weird impact even on someone like Walmart, where you see the non-food categories

had a fantastic two-year run. And some of this can just be overhang. If you buy TVs for your house- You don't need to keep doing that. You don't need more of them. And if they cut the price 10%, that might not change anything anyways, because if you just bought one 18 months ago, you may not need one. When I say that markets were wrong, I mean, investors were wrong. Investor expectations were clearly wrong, because look how people were positioned going into earnings season. Like people, and this is mainly the reason

why you're seeing stocks react the way they are, where you're seeing companies miss and still trade higher. Coinbase's report was dog shit and it's had a very nice run since. Why? People are off sides. People are way too bearish. So this is the net percentage

taking higher than normal risk levels. And it's a Bank of America Global Fund Manager Survey. And we're literally – like these people are as defensive as they've been since freaking Lehman blew up. The July – right. The July reading was as risk-off for global portfolio managers as October of 2008 was. So people were not positioned obviously for softer inflation numbers, and they were definitely not positioned for earnings holding in the way that they did. And the theory that I have on this is that people were saying that there was maybe a one-to-one correlation between inflation and consumer slowing down. And I think

that a lot of the target Walmart inventory stuff really threw people off, and they read too much into that. I think I did. But maybe inflation is having a lagging impact because consumers, as we spoke about, going into the recession, we're so flush with cash that maybe inflation hits them on a lag and earnings don't soften up until maybe Q3, Q4. So we know what you just said is true. And consumers are also now willing to go back into more credit card debt to keep their lifestyle now that they've had a taste of it. It's very hard for people to downshift. And actually Wells Fargo put out credit card data indicating that their customers are using their rewards points for everyday purchases like groceries and gas.

Whereas I think during the pandemic, they were able to use those points for like something bigger like a dishwasher or something or something now they're just using it to get by and that's like usually not a great sign um credit card spending overall has now eclipsed the pre-pandemic high so we're like back to as though that never happened so the consumer is more resilient than you think because they still have access to credit, which they haven't really had to use for a couple of years. The other thing, though, that's happened, I don't want to give earnings season all of the credit for this market rebound. Look at what's gone on with the 10-year. And look at what's happened to the price of gasoline.

In the last 60 days, we've seen gasoline prices, relatively speaking, collapse. And we've seen borrowing costs come back down. 30-year mortgage just dropped. Like we're seeing refis again. Again. We maybe never see another refi again. They're back. And it didn't take long.

So I think there's a really quick reaction where the consumer gets a little bit of relief at the pump and says, you know what, I think I will go back to Dairy Queen tonight. Thank you very much. Yeah. Hey, is Airbnb an inflation hedge? I guess it could be in theory, given that they take a take rate off of the daily room rates. So I guess in theory. So what did you take out of their earnings report? One of my main takeaways on Airbnb is that as I look at all the companies that I follow, so many of either early on or now had a negative impact from the pandemic. And obviously they had a negative one very early on. But I think it's actually led the company to become better on the back end because they they were coming from a place where they had been private, obviously, for a very long time. Their funding was they had they didn't live in the public markets. And then they went public and went through a ton

of pain. And I think they had to basically start building a real business and get their cost structure, you know, normalized, basically, and figure out things like marketing, whether or not they needed to spend money or if the brand was good enough. And they basically have learned that we don't need nearly the marketing spend that we had. And yeah, now on the back end, they're just seeing massive increases. And long-term stays is, you know, when people stay in an Airbnb for a week or a month or longer, that's a part of the business that is obviously very differentiated from a hotel as opposed to like a one or two night stay.

Nobody stays in a hotel for a month. When you stay at a month at an Airbnb, can you negotiate different rates? Yeah. Okay. And you typically get- Because otherwise an Airbnb, can you negotiate different rates? Yeah. Okay. And you typically get – Because otherwise it would be an unfun affordable, right? You're not going to pay – It's still very expensive.

But yeah, you typically get like a 20% discount if you're going over 28 days, something like that. All right. So you follow Airbnb closely. Are you bullish overall on this story? Do you feel like it's got much, much more potential than we've seen so far? Yeah. I think – What has this stopped on in the last year to date?

It's not been great. With all the technology stuff. Yeah, it hasn't done very well. Okay, why are you bullish on the story? I think the long-term growth potential for this business, particularly as a result of what's happened with long-term stays, seven plus days stays are now half the business.

That's amazing. I think a lot of that is structural. We may see some correction, obviously, as behavior coming out of the pandemic may normalize a little bit. But I think they've found something that is, again, there's no real competitor for it outside of VRBO. You're not competing with the hotel room at that point. And I think Airbnb- VRBO is Expedia? Yeah. Do any of the hotels have competing services that are starting to scale? Not like extended stay or stuff like that, but they don't have –

Okay. Like Marriott doesn't have an Airbnb killer. Not anything sizable, no. Okay. So they have this to themselves. They just have to – I mean it's them and VRBO. Expedia doesn't break out any numbers basically.

Okay. I have never been – So I have never been bullish on Airbnb. never been, I have never, so I have never been bullish on Airbnb. And the first time I heard about it in like 2011, I was like, would let strangers stay in their house. I'm very bullish on Airbnb. I just never got it. So, so I remember when you, when you wrote about Airbnb last quarter, you said that the opportunity set is more attractive now, but relative to the other attractive opportunities, it doesn't make the cut. But you wrote today, or whenever you wrote this, at $115 per share, the company has a market cap of $80 billion with the business at $1.7 billion in trail and 12-month operating income. That

implies a valuation of 45 to 50 times EBIT, which is obviously rich. But you made the point that even going out a couple of years, if they continue to grow with significant margin expansion, that they're still 25 times going out to 2026. But the point that I made to you earlier is that would this company ever be cheap? And if it is, that's when you don't want it. Yeah, it happens. I mean, it was at 90 bucks a couple of weeks ago, but go pick a list of stocks that were significantly cheaper then than they are today. Throw this chart up, average daily rates. I want to ask you about this.

So on the surface, it looks good, but is that even keeping up with the rate of inflation? So explain to people what's in this chart. What are we looking at? Yeah, so this just shows the cost of a room night, basically. So $164 is the average daily rate for all Airbnbs in Q2 2022. And the last quarter of 2020, for a comparison, it was 128. Well, 2020 doesn't count. And people were not really traveling.

It's grown is my point. If you go back to pre-pandemic, it's up basically 50 bucks. Hey, I want to ask you about this. Companies having the ability to maybe manipulate their free cashflow or get, get cute with accounting. Obviously the street was, was rewarding growth at all costs over the last few years, right? Like Silicon Valley, we're, don't worry, we'll subsidize, we'll subsidize, we've got your back, just grow, grow, grow, grow, grow.

And the CEO of Uber was telling, I think there was an employee member that leaked that, okay, the game has changed. Now we have to start showing free cashflow. They did, Lyft did, Airbnb did. Yeah. Is this going to be easier or harder than investors think in terms of like turning the dials up and down to show the street what they want to see? Well, I think a lot of companies are going to be easier or harder than investors think in terms of like turning the dials up and

down to show the street what they want to see? Well, I think a lot of companies are going to drastically change what, I mean, we even hear it from the companies that we're talking about that are doing very well, like Apple and Google and Microsoft. Even these guys in some ways are saying we're going to make adjustments here, there to be more thoughtful about where we play. Other companies are just going to completely get out of markets, in my opinion, in order to, they have to satisfy that demand of their investors. We saw PayPal bottom out in the 60s or $70 per share or something. And they basically were like, all right, here's the deal.

We've spent the last few years focused on building the user base. Now we're going to change our focus entirely. They have 400 million users. They don't have to. So now instead of that, pursuing growth at any cost, we're going to focus on better monetization of the users we have. Yeah. And I'm guessing the street liked it.

Stock went up 30 points. Yeah. Spotify is a very similar story. Yeah. Warner Brothers, Discovery is a similar story. They're coming from a different angle. So like cash flow is cool again. Zaslav, CEO of Warner Brothers Discovery, said on the call, I don't care what the subscriber number is anymore.

Where a year ago he was saying the primary goal is 200, 300, 400 million BSC subs. So that's like a meme that floats around through the economy. Which one? Just like the changeover from growth to cash flow. from growth to cash flow. And like all the CFOs, they hear it somewhere and they adopt it and they bring it to their CEO or the CEO goes to the Sun Valley conference, right? And comes home and is like,

man, Bezos was talking about free cash flow and everybody's into this now, let's do this. But is it that simple? Yeah, and back to our earlier discussion. It's a vibe. The big boys, the Apples and the Microsofts and Amazon, I mean, especially if they can buy other companies, which I don't know how much leash they'll be given on that going forward, unless they're very small deals, but they can just continue to play offense through this, or at least on a relative basis, more offense than everybody else who has to,

again, they have to appease shareholders, especially companies with huge stock-based comp and everything else. They have to appease shareholders and do something to get someone to want to own the company. You must love this because as a fundamental investor, not every company is the same. Like Shopify is going through whatever they're going through. Spotify seem, listen to Spotify's call and things seem to be never better there. I know it's not necessarily the case, but like there are companies and stocks are like not one and it's not just one blob anymore. Right. And I, it is, it's interesting to see how stock price and investor, I'm sure, obviously the companies are directly communicating with the street and hearing their concerns, but

it's interesting to see how those things can push companies to at least tweak the way they approached us. Spotify very clearly did that. Even Facebook. I mean, Zuck came out on the Q1 call and said, we're not just going to grow the reality lab stuff in perpetuity. It has to have some connection to the operating income growth of the core business. And they're seeing that put to the test right now because obviously the core business is really hurting,

particularly from macro factors. But companies have to, even in a situation like that, he felt the need, we have to do something. Because, again, we pay a lot of stock-based comp and our employees care what the stock price is. What did you think of what Rich Barton did over at Zillow, like topping off RSU's? I didn't see it, but Zillow's been...

He basically made the case that it's much easier to keep and retain talent as opposed to going out and hiring new ones. And so given the destruction of the stock, I don't know if it fell 90%, but it might as well have. They're topping off and taking care of some key employees. So it's going to employees and just being like, all right, we're going to replace a lot of the value that you lost. That's smart. Smart of him trying to hire in this environment brand new people. I think you have to operate under the principle

that when these really bad times come around, companies are just going to, I mean, Google did it during the financial crisis, I believe. Other companies did. They're just going to do this and either accept that or you don't, basically. Not that I like it,

but I think they're just going to do it. They have to, basically. They said this will dilute existing shareholders over the next few years by 2%. All right. I mean, big deal. Yeah. Smart business.

So I feel like the recession meme really got very carried away on social media. And people that are very influential like Elon Musk basically like, I guarantee you were already in a recession. And I think I got to a point where you saw a lot of like venture capital guys doing these like very performative tweet storms about how they're going to be the last man standing and our founders are getting the message from us that we blah, blah, blah, blah, blah. Forget growth. Survive. Right. And I'm not saying there's anything wrong with that, by the way.

I'm not like mocking it at all. What the hell do I know? it at all. What the hell do I know? I actually think that with interest rates going up and economic growth 100% slowing, it doesn't have to be a recession to just say like, okay, maybe this isn't the best time for empire building. And maybe there's not going to be unlimited capital that you can raise. Okay, so that makes sense. And then it goes all the way up to the top, to the point where S&P 500 CEOs are feeling and acting the same way, which leads me to the concept of a vibe session. So it's not quite a recession technically. Obviously, nobody would look at employment data and conclude that this is like a recession,

but it's a vibe session in the sense that people feel like it's worse than it is. But it's a vibe session in the sense that people feel like it's worse than it is. What do you think? So we're going to give Kyla Scanlon credit for her very – I don't know if it's controversial. Her very notable op-ed in the New York Times talking about this concept. And people went nuts. And some people were like, how dare you call it a vibe session? My grocery bill, blah, blah, blah.

All right, fine. We all get that. But I really think there's a lot to this also. And I think she's right. I think we could talk ourselves into a recession with a vibe session. What do you think about that? I think it makes sense. And it's funny. You see that you see that on one side and then on the other side, you see people saying like, I went to Vegas or XYZ place and people are spending like, there's no end in sight. I mean, and you see it in the company's numbers too. So depending on the industry, I was just talking to my friend who went to Vegas and he said he was speaking to one of the CFOs of the company. He's like, I don't understand what the street says. Like, look at my numbers, look at my parking lot. We've never been busier. Right. This is Kyla in the times. Economic indicators are a Jackson Pollock painting of data points and trends. If you think hard enough about all of them, they begin to make a bit of sense.

But there's a lot to interpret. Economists have baseline theories about what the economy should do. But a pandemic, a war, and supply chain woes have widened the gap between the, quote, reality of economic data and people's experiences of that reality. So I think that's right. And then you throw in the political angle. There are some people who are highly motivated to convince everyone around them that we're in a recession for a partisan reason because it's a midterm year. So nobody should be surprised that when you get two contracting quarters of GDP that people are going to seize on that and use it to tell a bigger story. But then I saw this guy on Squawk Box this morning.

He's a pollster, Frank Luntz. Did you see this? I didn't see it, but I know who he is or I know the name. I mean, no offense, but this guy's whole – Andy Ross Orkin was like cornering him. He's like, how could you look at this data and say people aren't spending money? And his answer was, oh no, they're spending money, but they're not buying the things they want.

They're buying like things that they don't really want that much. And I was just watching this like, dude, don't try that hard. Don't bend yourself into pretzels. It's not a recession. The consumer is not behaving as though it's a recession.

There are some companies telling us that consumers are trading up. You know what Disney said? They said we have less guests, but we have so many guests that there are some days that are totally sold out. And the guests who are coming are spending more than ever. So what are you literally talking about? Yeah, per caps are up 40% from 2019. That's crazy. Per guest spending at the park. So I actually think spending might be slightly down from 19, but to your point, spending per guest is literally, by the way, that's the best inflation edge. Maybe not the stock, but Disney parks are. The other thing is that the layoffs that you're seeing are from brand name companies. And so you just see a headline, Robinhood, Coinbase, Netflix,

like it's just Tesla. It's just one after the other. Google, Apple slowing hiring. And so you take all these little like anecdated points and you say like, okay, see? Yeah. Right. A lot of those tech companies have hired a ton of people

over the past handful of years. Yeah, that's more of a corrective back to a normal, like Amazon added a million workers in a year. What did you think? They're going to do that again? I saw somebody tweet like tech CEOs in 2021 were hiring like crazy. Tech CEOs in 2022, we hired like crazy.

Here's the chief economist at LPL talking about the last jobs report. So the economy added 528,000 payroll jobs in July. Very recessionary. Again, very recessionary. But this is his comment. Firms ramped up production and increased manufacturing payrolls by roughly 30,000 in July. So for every 500 people laid off from Netflix, here's 30,000 added to actual work.

New jobs in manufacturing are likely due to improved supply chains and this sector should continue to add jobs as remaining supply bottlenecks improve. Total employment has now returned to pre-pandemic levels in February 2020, but not to pre-pandemic

trends. The one negative is the participation rate dropped slightly, but we have a lot of boomers. There can't be a recession with 4% unemployment. Sorry, that's it. Look at Costco, Target, Chipotle. They all have raised wages significantly. So we have added back,

this is the big picture, we've added back 22 million jobs in 18 months. It's insane. It's insane. So we might have a recession. But to say that we're in one now, I mean – Yeah, we might have one. Might have one.

Should have one at some point. What are we looking at here? This is broad-based job gains in July. Surprise to the upside. Change in – yeah. I mean not just the change in payrolls but now look at the three-month moving average. Look at the six-month moving average. This is stable.

Is that a head and shoulders? No, but it's stable. The moving average is stability. It's not really going anywhere. So it threatened to for a moment but it didn't end up happening. Before we get to some of the streaming stuff, which to me has been the most exciting topic to follow of the year, how would you describe your style of investing? I tend to focus on company. Reckless. Just completely wild-eyed. Just the road arts.

The Yeezy of stock pickers. No, I really focus on business quality above all else. And over time, I've married that kind of with management quality as well because the distinction for me really falls apart because I tend to be long-term and concentrated. So again, the management team, strategic decision-making just becomes part of business quality over time. But it's really finding 10, 15 names that I really want to own for the long-term. Like Berkshire and Microsoft are my largest positions.

I've owned them since 2011. How do you avoid long-term like the pitfalls of something like a GE where that was the most vaunted management strategy in the whole world? They wrote book, many, many books, leather bound books about that. And it ended up that actually the company was so mismanaged that it became one of the biggest wrecking balls in American corporate history. So how do you avoid that pitfall? Yeah, well, for one, I try to stay with things

that I understand and that I can really, you know, nail the kind of drivers of the business over time. So it's like very consumer-focused, tech, media, stuff that you can see. Why is this company growing? Why do they deserve to make more money five, 10 years from now? Something like GE.

I mean, I've gone back and, for example, I looked at Countrywide, the 10K for 2006 one time just to see what it was. And reading it in hindsight, I was like, I still wouldn't have known that there were problems here. I just can't understand a lot of what's being written here. So I try to avoid things like that to the best of my abilities.

And then, you know, I've really had trouble in the past or a handful of my ideas that haven't worked have been ideas where the company was kind of losing relevance in terms of what consumers cared about. And you can make a case maybe on valuation or something like that. But I've learned I just got hurt in names like that. IBM, I got into JCPenney around the same time as Bill Ackman, Kraft Heinz, names that if you step back and looked at where they were positioned relative to kind of competitors or emerging competitors, it was very obvious even at the time of the investment, they were losing some of their relevance. So I really try to avoid those things now. But how do you measure that so

that you can avoid it? I'm guessing it's not quantitative. It's got to be a feel thing. Well, it could be something. So I own Meta, for example, and it might be an example of breaking this rule, something like TikTok becoming clearly a much more relevant player. Now Facebook's daily active users continues to grow and the family daily active users continue to grow. So I think there's – Allegedly. Allegedly. It could all be a lie. So I think there's evidence on both sides in that situation, but it could be an example.

Joey's not out there. Yeah. So we're going to get all into meta. The thing that I find especially fascinating about the streaming war is how Wall Street can influence business. Because one of the big things that the market prized and valued highly was recurring revenue, right? And that is subscription services, that is streaming. And so that's the game that everybody was playing was let's catch up to Netflix, right? Always trading at a ludicrous multiple. And then the wheels fell off, right? And then, so we're at this interesting place where everybody was chasing them. Now they're sort of chasing it. So streaming is doing poorly. Cable is doing poorly. What the hell is the, what is the state of streaming right

now? Cause it's, it's just, it's a lot. Yeah. The state of streaming is, uh, six months ago, Netflix came out and said, subscriber growth is, has completely changed from the trends that we saw previously. Went negative. Yeah. Went negative. And, you know, before they were adding on a trailing two month basis or two year basis, they were adding, you know, mid 50 million subscribers a year leading up to the pandemic. And now they're coming out and saying it might not grow much from here, essentially. So that was kind of the first major, the start of the reset. Subsequently, other companies have come out. I mean, Disney is one kind of exception, but they've also had their own headwinds. But the other companies have come out and said our results are not that good.

The difference between them and Netflix is Netflix has built up a $30 billion run rate business, and margins have improved over time. They have a path to make this actually work. For a lot of the subscale players, the path to make that happen. What are the subscale stocks in this space? Paramount? Paramount. Who else?

NBCUniversal, which is part of Comcast. It's amazing that NBC is subscale. All these stocks suck. In D2C, they are, at least. WBD is on... Is that Warner Brothers? Yeah, Warner Brothers Discovery is... I'd still say it's subscale. In terms of global D2C. But that's HBO. Yeah.

Which is basically a US brand. And what the hell are they doing? What is their story? Are they going to get rid of the HBO name? basically a US brand. I would say, right, I would say. And what the hell are they doing? What is their story? They're merging, they're going to get, are they going to get rid of the HBO name? HBO, it sounds like HBO

is going to basically become a part of whatever service they have. So it'll be a tab. We'll never get rid of that name. Yeah.

So that's the name but it won't be the name of the service. It sounds like that's the direction they're heading. Okay. It just basically becomes a studio.

Yeah. Just like Disney's not going to get rid of Marvel just because they own it. Right. Like you have that, you have that brand. Yeah. The brand has value to the consumer's not going to get rid of Marvel just because they own it. Right. Like you have that brand. Yeah.

The brand has value to the consumer. You don't get rid of it that quickly. It could be within the app or whatever. Okay. But these are some of the worst performing stocks in the market. Comcast, Warner Brothers. Yeah. Paramount, all of them.

Yeah. I mean, Warner Brothers, they came together last year with Discovery and Warner from AT&T, which AT&T, my understanding of what they wanted was they wanted a bunch of cash to help pay off debt as opposed to just having a massive equity slug in the combined company. So this new company got saddled with $50 billion plus of debt and they're going through- Wait, they put the debt on the streamer? Yeah. Yeah. Because AT&T wanted cash. I mean, they still got equity as well, but the Warner piece

of this combination was so much bigger than the Discovery piece that... What's so funny is that AT&T itself is such a shit show for stock price,

so it's not even like it helped them. Right. And how bad was the movie Batgirl, honestly? It was probably, and I like bad movies. This was probably unwatchable.

I mean, it's getting trashed. I mean, no one's going to see it now, but... I actually, I saw a rough cut of it. Oh, yeah? How was it? Yeah, no, I think they should have released it. mean, it's getting trashed. I mean, no one's going to see it now. I actually saw a rough cut of it. Oh, yeah? How was it? Yeah, no, I think they should have released it.

The opening scene is Batgirl goes into a kindergarten class and starts having this very heated conversation about gender with the kids. Oh, wow. So Duncan cut that? And then it gets way better from there. Don't you dare cut it. These kids just doubled over laughing. The cable companies are in secular decline, right?

People are cutting the cord. Yeah, pay TVs. I mean, in my opinion, pay TVs in secular decline, and it's become worse in the past six months. And so it is just interesting that those stocks suck. They are in secular decline. On the other hand, like the winners, which are the streamers, are getting the shit kicked out of them too. Yeah, I mean people are trying to figure out what this business actually looks like on the other side. And the question is partly,

are you going to be a global company? Are you going to be a regional company? You know, Warner Brothers, they have a reasonably good US business in terms of direct-to-consumer. It's international where they don't really have the pieces. And it's partly because of HBO's prior strategy where they licensed so much content.

The brand doesn't mean the same thing internationally that it does here. Do you own any of these? I own Netflix and Disney. But anyway, so they got together with Discovery, which has an international portfolio. The only problem is a lot of the content is like filler that it's HGTV and Discovery Channel and things like that. And it's when they were a standalone company. It's like two guys in a junkyard.

Yes. Storage wars look looking for uh a grandfather clock to restore right and there are people that will watch that if they like are switching channels on a television right but probably aren't subscribing to a streaming service right because that exists on but so when are we going to find out whether or not netflix's uh ad experimentation is going to work because they're going to phase that in very, very slowly. Right? They're going to start, I think in South America they said.

So this could take multiple, multiple quarters. They said Q1. Yeah. I mean for this to be rolled out in a big way and for us to see. I mean a big question is going to be how well can this thing monetize? Well, let me ask you. I'm optimistic on that front. Let me ask you about that.

You must be optimistic given that you own the stock. Here's what I think is interesting. If you look at any of the legacy media companies that has an ad-supported tier and just a subscription tier, they all across the board say that the ad-supported tier, the ARPU from that advertising piece, makes that a higher ARPU offering than the premium tier. Does it cannibalize the premium tier, though? It could, but I guess part of the question would be do you care at that point? I don't think people are going to switch down. Do you find it interesting that they went to Microsoft

as their partner to build the ads out? And considering that Microsoft is who Facebook went to in 07 when they needed an ad strategy, they had no revenue. Was that before or after? Because Microsoft eventually invested in Facebook. Well, that's how they got, no, they didn't. They were given equity as part of. I gotcha. So Zuckerberg went to Microsoft or ultimately chose Microsoft, help us build out an ad platform. And they did. And the rest is history. It became one of the most successful ad platforms of all

time. That's who Netflix chose. I doubt it's the same people, but I found that really interesting. Yeah, there's a lot of connection between those two companies going back as well. So I think it's a pretty sensible partner for them. Just a big picture. Like is Reed Hastings not going to do this? Of course he's going to do this. I mean, that might be naive, but that's just how I feel. Let's look at some of these charts.

I mean, this WarnerMedia directed consumer trail on 12-month profitability, this is savage. I mean, that's what happens. But this is on purpose. See, that's the thing. Look when this chart starts, Mike. Q3 2020, the mindset in the NASDAQ is still growth at any cost, do whatever you have to do, build the subs, right? Yeah. So that's why they're spending like this.

That was the strategy they were pursuing. They said they were going to do it. It's effectively done now to a certain extent. The new management team has said that's – we're not doing this anymore. They said we're going to make so many new episodes of this Sex and the City horror show. We're going to spend unlimited amounts of money to continue to make Sex and the City. But so one of the things that you keep talking about, and John, next chart, please, is that— Just real quick, though.

Yeah, go ahead. On that point, Disney, the successful entrant in the space, everybody basically agrees with that. Since the start of 2020, their D2C business has lost $7 billion. Success here is years of significant losses. They just said they're going to— As you build a base. They just said they're going to cut— That's what you have to be willing to do.

They're going to cut spending from $32 billion to $30 billion. Yeah. Think about these numbers. Yeah. And they said more important, the next handful of years are probably going to stay in that ballpark. So now you have both Netflix and Disney saying we're going to stay here for a bit. Can we stay on this? So, okay.

So they're both going to spend Netflix and Disney full speed ahead. Yeah. Still a lot of money. Okay. Now you have Amazon Prime is going to start writing billion-dollar checks to the NFL. And Lord of the Rings. And you have Apple who's – It's getting better.

At any moment, Apple could just decide to drop a huge spending blitz, a bomb on Hollywood anytime it feels like it. So how could you be subscale in an environment where the average consumer is going to have how many of these things? So who is that, like Peacock? Yeah, I mean, those people, they won't stick around. Paramount Plus?

They won't be services. Could any of them get bought? Why wouldn't Apple just buy one of these things? Well, I mean, I think Microsoft ATVI is an interesting case of whether or not stuff like this is going to be allowed to be done. I mean, is Apple going to be allowed to go buy any company for $20 billion? I think Apple will get away with it because they're not acquisitive. I don't think Alphabet could or Amazon.

I'm pretty sure Apple could. What's Disney Hulu going to look like in a year or two? Well, they have to resolve the fact that Comcast still owns a third of Hulu. But once they do that, I think they eventually collapse Hulu into kind of a Disney app. I mean, they have the bundle now, which effectively works okay. But I think they

need to integrate it more than they have currently. But these services are getting better. Apple's getting significantly better. Hulu's getting significantly better. The content is getting better. But the next chart shows that Netflix is still the king. Let me see. Oh, wow. By double.

Yeah. What is this? This is streaming revenues. Netflix is still twice as big as Disney. Run rate annual revenues. Netflix is twice as big as Disney basically and bigger than all three of them combined. Just slightly bigger.

Netflix is so big. And it's so international. They've done such a great job in so many countries in a way that like i think would be even be a challenge for disney back to the previous point about wbd and their international problems their their international run rate revenues now are basically 1.7 billion dollars a year netflix international 17 billion yeah oh my god17 billion. So to go global for them is just such a massive challenge. And if they had a decent balance sheet, it would be a massive challenge. And then Netflix repurposing global content for the US market has been an absolute home run. One that nobody thought was possible. So this chart to me is like index funds. It's just like a one-way

secular rise taking stream. We're looking at the share of US time TV streaming. Right now, it's at about 30%. This is going to get to 50% eventually.

Do you disagree? Hold on. This is share of US TV time for streaming services as a percentage of the total TV time. On the surface, it hasn't grown that much,

but this only goes back to May 21. Yeah, Nielsen just started. But Justin Senneman went from 25 to 30, to 35 almost. That's a lot. It's massive. It's a third of TV time. So Netflix in May was 6.8% of all hours on TV

was based on Netflix. In June, it was 7.7%. That's a huge increase. Yeah, Stranger Things. Okay, there it is. But Netflix is maintaining this it was 7.7%. That's a huge increase. Yeah, Stranger Things. Okay. There it is. But Netflix is maintaining this 6%, 7% share of the total pie pretty consistently. As the pie is growing.

As the overall pie is growing. And this is their most competitive market by far. So if you want to reason- What is, the United States? Yeah. If you want to reason me bullish, Netflix, this is a pretty compelling chart right here. They've managed to hold their own in the most difficult period competitive wise. And that competitiveness is going to start going. But so there's got to be consumer fatigue because even on my TV and I subscribe to a lot of them,

it's like click, click, click, click, click, click. It's a lot. Yeah. Yeah. I mean, that's part of their problem, right? They have to figure out how to obviously make a lot of really good shows, but then also to surface them and get people to watch it. Well, the consumer is winning because there is just a ton of good content. Yeah. But the old content still works too, which is so remarkable about streaming. Like there are people starting Game of Thrones for the first time. Yeah.

There are people starting Breaking Bad for the first time. These were expensive shows to make, but the tail is so long for all of that stuff. Yeah. In certain cases, those shows can hold on, which is obviously huge. Hey, let me ask you, how terrible on the scale of 1 to 10, 10 being incredibly terrible, is the new Game of Thrones going to be?

I was not a huge fan of the first one, at the end at least. I'll say it's going to be pretty bad. I never watched it. What am I doing here? I watched it. John, how bad is this? What is it called?

Dragon Love? House of the Dragon. House of the Dragon? I think. It looks horrible, right? Yeah, not excited. This could be deathly for WBD stock. Yeah, that would not be good.

If this thing flops on arrival. That would not be good. It would be very bad for that stock. So if there's not enough choices, what the hell is Walmart doing now? So Walmart's trying to basically find their path to Amazon Prime. Oh my God, stop.

It should just be closed circuit television of Walmart cash registers. That should be the whole streaming service, just brawls in Walmart. It's not going to get watched very much, so they might as well do that. Well, what would they really do to differentiate themselves? They've toyed with this stuff in the past, and they never found a way to do it,

partly because there probably isn't a logical way to do it. How about just one show? It's just Dukes of Hazzard, but it's every season. I don't know. What could Walmart do that everyone else isn't doing? I mean, they'll probably do agreements. Just charge less? They'll just do agreements like the wireless companies do,

where you get a service for free or at a very discounted rate or whatever. But they shouldn't do anything on their own. Again, they've toyed with this stuff in the past and it's not where they should be focusing I'm only watching a CVS streaming content right now. Hey, this is a dumb question. How do cable companies like grow their subscriber base? Is this just like household formation thing?

Cable meaning like internet or? Like just like the cable, like Comcast, getting new people to subscribe. Yeah, a lot of household formation and then taking share in the markets that they compete in, which is part of the problem right now. They say move or churn is down significantly and household formation is down. And we typically, when someone moves or goes to buy a new house, we win a larger percentage of those new opportunities than we have in our base. So we gain share and we grow our customers,

but people aren't moving like they were before. So it's an impact to their business. Let me ask you this. So Ben Carlson is famous for every year he claims that he negotiates a lower price on his cable bill. I don't buy it, but that's what he says. Sprinkles does.

That's what he says. No, we do. Okay, I don't believe you either. We get free. No, it's not a lower rate, more free shit. Okay, because I tried last year and- You're not, you're not, lower rate. More free shit. Okay. Because I tried last year and I failed. You're no Ben Carlson. I failed miserably.

And here's my thesis is that people in the Midwest are nice. And so most people in the Midwest don't try and renegotiate. Whereas New York is full of assholes. And like 80% of the customer base is calling a threat and quit. I said, I will leave. I will leave. Who's your cable service provider? And they said, sir, you're free to leave Verizon.

Who's Ben's? Charter? I don't know. Some Midwestern sleepy little cable outfit. It's like a mom and pop shop. He says, yeah, it's Ben. Very confident in my assertion. And I am not happy with my price.

And they said- So what do you get? How do I haggle? You just ask for free shit? Yeah, I called up. I learned this by accident. I called up like five years ago and I'm like, I have like nine boxes in my house. I have a box.

I have a cable box in my garage. I'm just like, listen, I don't even know what I'm paying you for or why, but can you just throw in red zone? He's like, I'm not sure about that. I'm like, all right, I'm going to start canceling some of these boxes. I'll list them. You shut them off. He's like, all right, I'm going to start canceling some of these boxes. I'll list them. You shut them off. He's like, ah, wait, wait.

Hang on. We do have a promotion. We have a promotion, blah, blah, blah. I'm not paying a less amount, but I do that. Shari does that every year. We just keep getting more free stuff. I want free Chipotle for a month. Can they throw free Chipotle?

No, but listen, I'm not even joking. We got the better broadband, like the top level. We just call every year and make demands. And the guy answering the phone doesn't give a shit. He's just trying to clock out. So I feel like if you – maybe you should have Ben call for you. Yeah, that's the plan. What do you think about that?

Have Ben call for everybody. Very confident in my assertions. Shout out to Ben. All right. So what are we doing with this chart here? What are we doing with this total broadband customers? This doesn't look like anything's happening with it. No, it's up and to the right.

It's up and to the right. Yeah, they both have about 30 million customers now throughout the US, so they are very significant players. But so why? Oh, because here's one thing that people don't understand though. Hold on.

You call up and you go, I don't want any channels. I just want broadband. And they go, yeah, but it's cheaper to get the broadband if you buy the package with the channels. So that's what's going on. They're making you take the channels by underpricing the broadband. Because if you're 23 years old, graduate college, get your first apartment in this economy, and you call up and

you're like, listen, I just want wifi for my apartment. I don't need anything else. They're like, yeah, but take the channels and we'll make it, you know, we'll, we'll make it less somehow. We'll like make it a better deal for you. But so why are these companies, why do these stocks suck? Are they just, are they just killing each other? I mean, part of the, part of the worries that people have is about competition over time with, with fiber and now fixed wireless is another concern. So I read your piece today. So what's going on? So team, so of the worries that people have is about competition over time with fiber and now fixed wireless is another concern. So I read your piece today. So what's going on? So like the wireless companies are getting into this now?

Yeah, T-Mobile is offering fixed wireless, which is basically – What's fixed wireless? You would have your home internet products, but it's a wireless offering. So you could use your computer. Is it as good as cable broadband or is it good enough? Depending where you're at, it's probably good enough. or is it good enough? Depending where you're at, it's probably good enough.

But if you listen to someone like AT&T, they say this doesn't have the ability technologically to keep up with fiber or a real internet product. That's how you know it does, though. Well, maybe, yeah. But AT&T's not playing this game. Can you watch 4K video on fixed broadband? Yeah, you'd have to try it out, I guess. And it depends, obviously, in rural areas,

you might not be able to anyway. So it could be a competitive offering in certain markets where they're going to. People are concerned whether or not this will be a competitor for that $30 million or $30 million broadband base that Comcast and Charter both have. And I think T-Mobile is going to – because of the T-Mobile Sprint merger, they had a lot of excess capacity on their network basically. And this is one way to use it where kind of the way they frame it, we're not even really paying for it because we already have this capacity. But at some point that runs out and then you do need to pay for the incremental capacity to justify doing this. And a home broadband customer uses so much more data than a mobile customer that the price on a, you know, unit basis is significantly different.

on a unit basis is significantly different. And they'll probably eventually, some version of like throttling the home internet customer to prioritize the wireless people because they pay them so much more money. So that's probably where this goes over time, but it is a relevant product for a certain type of customer. So why do you own these? When you say you own these names through Liberty,

what does that mean? So Liberty Broadband owns a decent chunk of Charter. Got it. They own a decent chunk of a lot of things. Yes. Right. I want to go right to Meta with you. Sure.

Let's do it. I'm like so bearish on this name, but I'm willing to have my – I don't have a position in it. I don't short stocks. Alex is one. No, I know. So I would love for you to like maybe change my mind because it is because in the end it is a stock that's 50 off it's off its high yeah so i would love to be wrong and for there to be an opportunity here sure um but i want to start off by just uh sharing something with you that i think probably doesn't matter

right now but i think is very relevant for a long-term meta-shelter. Where do you get this data? Franklin's? Franklin's provided – no, this is Pew Research, so you know it's good. This is a survey of U.S. teens, 1,316 U.S. teens between the ages of 13 and 17. I don't know how they get to these people. It must be super creepy. They probably have to do the poll in the form of a TikTok. Anyway, according to Pew, only 32% of teens say they use Meta's Facebook app. See, that's high.

I would have thought even lower. But that's a decline from 71% who said they use the app in a survey they did in 2015. So in seven years, they've lost half of the amount of teens who are willing to admit that they are using Facebook. So for comparison, YouTube is 95%

of teens say they use it, obviously. Worse for meta is 67% of teens report using TikTok. And I actually bet that number's low. And we know that they have just tried to turn Instagram into TikTok. And there was a huge backlash.

And it's just not really going to happen that way. They tried to shove all this content down your throat of people you don't follow. Right. And they tried to orient the whole thing toward vertical video. And it just, people were grossed out. Anyway, in Q4, Facebook lost daily active users quarter over quarter for the first time in history. Probably tough to turn that ship around. 62% of teens say they use Instagram, which is 5% fewer than say they use TikTok.

So they are losing ground in a lot of ways. And then if you look at like the usage, the growth of usage, And then if you look at like the usage, the growth of usage, there's a 5% difference between TikTok and Instagram use, which doesn't seem huge. But the survey also said Instagram usage among teens only rose 10% since 2015. Usage of Snapchat rose 41%, rose from 41% to 59% in that same time. So they're like losing ground to pretty much everybody. That being said, why should I buy the stock? Yeah, I think it's important to frame.

I think there's definitely truth to that statement. I think it's for U.S. consumers and probably teens most likely. Because that one chart was just showing there. John, throw that back. The U.S. is obviously an important part of their business, particularly in terms of the ARPUs that they generate, but it's not the whole business. And a big part of this is, you know, thinking about- Wait, hold on, hold on. So Facebook has 197 million active U.S. users. Yeah. And this doesn't include Instagram. But they have 836 million in Asia and 300 million in Europe. And then another 600 – where would the other place be?

Hey, wait a minute. I don't know. How many people in the world are connected to the internet? A lot, I guess. They have like all of them? They have all of them. They have 2 billion daily active users? You know what Facebook considers an active user?

You could be on any website. If you're logged in via Facebook, they're counting you. Okay. No, not so what. If you're not even using Facebook, but they're counting you as active because you had logged into that site before. Wait, wait. What do you mean? Exactly what I'm saying.

Let's say – you know how there are sites where it's e-commerce, but you could log in through your Facebook account or whatever? Oh, okay. They're like counting you as an active user, but you're not sitting there looking at Facebook. 63% of them. If there's a thing at the bottom where you can comment or things like that, they probably do count that. What's this daily active people chart? What does that mean? Wait, wait.

So wait, I was getting convinced on the stock. Go on. So it's global. I got that. So that first chart was Facebook and Messenger or whatever the service is called. Family Daily Active People includes all of the services that Facebook has. Oh, so that's on Instagram. And it's deduplicated. Such a huge number. Yeah. So 2.88 billion people globally use one of these services on a daily basis. Which is WhatsApp, Instagram, Meta, Facebook. Whatever the four.

Oculus. WhatsApp. Did you say WhatsApp? Yeah. Okay. But I mean, you can see from two years ago, it's up 400 million people. How many people are on Earth? Seven billion?

Yeah, that's what I'm saying. So to answer your question, it's like half. Half the Earth is in some way, shape, or form, somebody's using one of their apps. Yeah, 2.88 billion people. Very impressive. Yeah, 2.88 billion people. Very impressive. Yeah. So I think we sometimes paint these things through a US lens and obviously teens, and we all see what's happening.

I saw a great chart a couple of years ago that basically asked, or a poll, it asked people basically what is Facebook? And the percentages outside the US of people saying that Facebook is the internet, there are countries where it's over 50%. And it's- That's where they start. That's like their portal to the internet. Yes.

Yeah, I understand that. So, and again, there's an ARPU chart as well that shows their monetization and how it's grown very significantly over time. Would you agree that they have probably stretched to the limit of ad load on their feeds? Can they conceivably put more ads on? I mean, it depends.

If they can build out new formats like they're trying to do with Reels. So what is this? This shows ad impressions and then the price per ad just on a quarterly basis. And neither of these are particularly great charts. No, I mean, but look at ad impressions overall. I mean, obviously, if people think engagement is imploding,

you somehow have to get ad impressions, which means there's engagement, unless you're just stuffing the feed with ads. which they could be. They could be adding more and more and more, but that would eventually hit a breaking point. Why is the price per ad plunging? Because they're introducing new formats and they have to basically prove out like reels and things like that. They have to prove out to advertisers. They have to sell it to an advertiser for less until the advertiser actually sees it work. And if nobody's bidding for it, then the price is- What's your impression of how Reels is going so far?

I think it's gone reasonably well, but to your point, there has been some backlash, and they have, to some extent, just forced it on people. And I think they'll continue to do that to some extent because they think this is the future. And they really are investing heavily into this AI-generated content, or AI-selected content,, essentially being part of your feed. So they just did it too fast.

They didn't give you a chance to like warm up to it. Yeah. I don't actually mind them suggesting things into my feed because I hate my friends anyway. Yeah. So it's perfectly fine. Yeah. They have to do it well. I hate the strangers, but I hate my friends.

So you could put whatever you want there, I think is what I'm saying. John, let's look at the financials. So Alex, you wrote in Q2, Meta's family of app revenues declined 1%. It was up 3% in constant currencies, obviously the stronger dollar hurt. You said that this result was primarily attributable to a 5% decline in average revenue per person across the family of apps, which is offset by a 4% year-over-year increase in daily active people across the apps. What was really interesting to me is revenues are down like a lot. They were $33.6 billion in Q4, and they were $28.2 billion in Q2.

And I imagine that's not like a seasonality thing. It's just they're not growing. There is some seasonality from just the shops that are using Facebook ads in order to sell stuff during the holidays. But yeah, I mean, you can see year-over-year. It's basically flat. Yeah, year over year it's down. This is for a business that had consistently reported 20, 30,

40% revenue growth. So it's a huge change in trend. This next table shows it. Let's see. Okay, so Alex broke out the quarterly revenue growth over the last four quarters between Meta, YouTube, Roku, Snap, and Twitter. And forget Twitter, because that's just a bag of shit.

YouTube 5%, Roku 18%, Snap 13%. This is in the most recent quarter. And meta, negative one. Yeah, but look at the deceleration on some of these other names. The point was simply to show this is not just a meta issue. Oh, right. Snap has gone from 38% growth to 13% growth. So they're all slowing. A bigger drop- than Meta going from 7% to minus 1%.

Nobody says YouTube has a user or an engagement problem, but you can see, obviously, they've been impacted by the macro and IDFA stuff just alongside Meta as well. So you wrote that in the second quarter, they reported a 22% increase in expenses on a 1% decline in revenues. Uh-oh. That's a problem. This mismatch has been on display for some time, which explains why corporate EBIT margins declined by 1,000 basis points. This is a manageable situation for meta when revenues were growing by 31% a year. But when revenue growth meaningfully slows, that becomes a major problem. So let me ask you this.

A lot of this bottom line stuff is due to what they're doing with the meta stuff. If they nest tomorrow, hey, you know what? We're bailing. Just kidding. No more of that. We're going to kill that. Would the stock be up 20%? I think it would probably go up, but I don't think it addresses the problem that most people have,

which is the core business. Do people actually believe that it has a future? Okay. Why did Sheryl Sandberg leave? I think it was just the end of her run. I don't think there was more to it than that. Why was it the end of her run? All right. You want to play games? She was just there for a while think it was just the end of her run. I don't think there was more to it than that. Why was it the end of her run? All right, you want to play games?

She was just there for a while. Why was it the end of her run? I mean, there's been some reporting that other things were going on. They went after her for her wedding expenses. That seems like a cover. Yeah. Well, she was trying to get some things covered over with some reporting. She should.

She should. This is a woman that probably works 20 hours a day. I think they should pay for a fucking wedding. Yeah. All right, but she left, and she's really, like, the person. Yeah, she was important. Like, very, very important. Didn't she, like, single-handedly build the business of Facebook?

She was very prominently involved, for sure. So, like, if you're, like, trying to be bullish on it or you're invested in it, like, is she even replaceable? And if so, like, is there somebody that's going to have his respect and his ear and be able to, like, talk him out of some of the, like, clearly insane shit that he wants to do? Like, is there anybody that powerful that's going to come along and fill that role

that she's left? I think it's partly shareholders, honestly, and other outside forces. Okay, so let me stop you. They have no votes. along and fill that role that she's left. I think it's partly shareholders, honestly, and other outside forces. Okay, so let me stop you. They have no votes. Yeah, but again, look what he did in Q1, where they literally came out and said, we're not just going to, and again, it's starting from a very big base, so point taken, but they're saying, we're not going to just grow the losses in FRL in perpetuity. The only way we'll do it is if there's growth on the FOA side. So he's not listening. All right, I get that. So he's not listening to what shareholders are saying. He's looking at what shareholders are doing and they're selling.

Yes. And so what is the bull case at this point? Is it just valuation? Not just, I mean, that's obviously a compelling case, but is that it? I mean, the bull case is that the core business is actually sustainable over time and that the FRL stuff will have some value. If they just, I mean, it's at 10 now, if they run that up to 15, 20 billion. Expenses. And you go, yeah, a year. And you go five, 10 years and you just burn $100 billion, $200 billion, and you get nothing out of it.

It makes it very difficult for this to be a good investment. Okay. What if, instead of ditching the metaverse, an immediate catalyst that I think would add 20% to the stock in one day, spinning off Instagram. Don't you think everybody wants this? I mean, again, it depends. A lot of people are concerned about what Instagram's future looks like and how valuable that part of the business is. They should have done it a year ago. It probably would have got a higher valuation a year ago.

Both pieces. It would have worked out, I think, for both pieces. Yeah. I mean, again, it's funny to put this all in context. At the end of the day, the overall business, the revenue base is like 1% below where it's... Yeah. I mean, this is still a $120 billion a year business, which is kind of crazy to think about.

It's a monster. Yeah. And it makes, again, the FOA business, the core business makes over $50 billion a year, which is in operating profit. You know what would be funny, actually? You know how they could drop the stock 20% in one day? We're getting into streaming video. There you go.

They're being pretty aggressive with share buybacks. So they had 2.9 billion shares outstanding towards the end of 2018. It's now down to 2.68. So a fairly material decrease. And they just authorized, I think, a $40 or $50 billion share repurchase program. Yeah. But is that offsetting all the stock-based comp

that they have to do? Yes. That's definitely part of it. Yeah. I mean, and again, they're at a position now where the core business, the profitability is coming in, partly just from that mismatch between revenues and expenses we were talking about,

but also the huge investments they're making in AI and ML and stuff like that to really evolve what the platforms are. Then you add on the FRL losses as well. This company generates a lot of cash, but that can change fairly quickly. So Alphabet did something very smart years ago that I think would work at Meta, where they brought in a CFO away from Silicon Valley. They brought in Ruth Porat from Morgan Stanley. And she's not a dreamer. She's just like a get-shit-done CFO from Wall Street, from the East Coast, who brought in discipline.

And then simultaneously, they took a lot of these moonshot investments they were making and they put them in a garage somewhere. And they called that segment of the business Other Bets. and now when they report they're reporting segment level they're giving you youtube and here's what's going on with office and here's right yeah and then other bets and they've like conditioned wall street to like disregard everything they hear about other bets as long as like the expense level of that stays reasonable, which I think is Ruth's job to communicate. Like we have to invest in these bets.

And we know they're doing like quantum computing and self-driving cars and rocketry and all kinds of shit. And nobody expects anything from that unit. Zuckerberg went the other way. Not only did he not carve this out into another bets, he changed the name of the whole company to this. I feel like that's a really interesting case study between those two approaches. So Alphabet is getting away with literally burning money, and Zuckerberg has this massive business

he's getting no credit for because he's burning probably an equivalent amount to what Alphabet is. Maybe it's a little bit more. I don't really know the numbers. If you had to give a percentage to the decline being responsible for the core business slowing and or the other shit that they're doing, is that 70-30, 80-20? Where do you think- Well, that's a good question. Since they first kind of broke it out, which I think was Q3 of last year. How much is the metaverse weighing on it versus the core business slowing down?

I think the recent pressure has definitely been more of just the core business and, you know, broader advertising pressure everywhere. But I think them starting to go through this period, a lot of it was, again, people thought the number I'd heard before they actually disclosed it was two, three, maybe five billion a year. And they came out and said it lost more than $10 billion in 21. It's crazy. So it was a massive number.

And again, at the start, there was no guardrail. They also did this at the top. They did this at the, they also did, not that they have any control over that, but they did this meta thing literally at the apex of a 10-year tech bull market where anything goes one second. And then the next day, everybody's like, cashflow. It's like, f**k. It just started.

The reasonable middle ground for them here that works and probably works for shareholders as well as for them to come out and say, we've been clear from day one that this is a 10 plus year, for this to be a real business is 10 years down the road. We have to recognize the reality of what's happening with the core business right now, even if it's just macro. And we're going to pull in some of the spend to kind of live to that financial framework core business right now, even if it's just macro, and we're going to pull in some of the spend to kind of live to that financial framework that we laid out, which is overall operating income growth for the company.

So if you think that weakness in the core advertising business is primarily the reason for the stock price being depressed, then do you also have to believe that that will get better in order to stay bullish? Yeah, I mean- You need the secular actually yeah you need like the the overall ad spending environment to improve yeah that could

be it could be a while i don't i mean who knows but yeah okay for them specifically too they have to kind of reprove some of the what made the business so strong so it's not like them pulling a rabbit out of a hat they just the, the environment has to improve and then this stock has room to move. I mean, I do believe it's cheap stock. Yeah. So what's evaluation now? 17. I mean, it depends how you think about what they're going to earn, but they, they could earn $40 billion in operating income, something like that. I don't know what the market cap is. So it's like, what's my market cap? 500. It's got somewhere around there. It's not bad. They have 50 in cash. So that's a very, very cheap stock in a sector that's not

known for having cheap stocks. Alright, I'm bullish. No, I'm just kidding. I'm not rooting against you, though. I don't care either way. You put this in here, right? I could be wrong, by the way. This may be literally the worst advice ever. This may be laugh out loud. Before we get to our last topic, I want to ask you

if you're having fun doing the show. Yeah, it's fun. All right. So I want to ask, I want to just throw this out to you guys. This was a Wall Street Journal? Yeah. Holy shit. This guy's a professor. All right. This is a Wall Street Journal article where they ask 20 experts for what they could do to a 60-40 portfolio or whatever. Stocks are down. Inflation is high and recession may be moving. 20 ideas for adjusting your stock and bond portfolio. 20 ideas for adjusting your stock and bond portfolio.

They didn't say good ideas. They didn't say good ideas. No, just ideas. Some of these were okay. And I actually have some friends who have been quoted in this. So you know who's in this? What's his name from St. Louis that I like? Peter. Peter have been quoted in this. So you know who's in this? What's his name from St. Louis that I like? Peter.

Peter. He's in this. Peter Lazaroff. All right. This is the worst shit I ever heard. Well, wait. Maybe it's not and I have it wrong. I wanted to ask you guys.

I'm just going to read this, okay? Yeah, go for it. Most working-age people's biggest economic asset is not their already accumulated savings, but their future wages. Wage growth has low correlation with stock returns. So future wages represent a huge implicit fixed income holding. That means most people should hold close to 100% of the money they don't need to cover regular monthly expenses and stocks. I'm sort of okay with that for young people, but that's not even the part that I have a problem with.

He's basically saying, look at your salary like a bond. So then your portfolio should be stocks. All right, fine. Wait, it gets worse. A wrinkle to the above advice is that when stock market volatility is extremely high, as it has been,

really extremely high, okay, it can make sense to temporarily scale back one's stock positions. Time out. That's because the market's average return doesn't increase when volatility is high. So the market is a relatively

bad deal during those times. I mean, that's true. In the short term. In hourly terms, that could be true. The next part, this is the coup de grace. This is too much for me almost. This is a professor at Yale. It's just so everyone- And I literally laughed to myself when I read this.

Okay. When the VIX, the market's forecast of the S&P 500 volatility over the next month rises above 30, start thinking about modestly reducing my stock exposure. In the early summer, I scaled back my stock positions by five percentage points. When the VIX hit its all-time high of 83 in March, 2020, I reduced my stock holdings by 80 percentage points. But why is this guy confessing?

In the worst case, I sold at the bottom. Why is this guy confessing to finance crimes? But be aware that high volatility episodes are usually short-lived. So if you do sell stocks in response to a volatility spike, you need to be attentive and ready to come back into the market quickly as soon as volatility has calmed down. This guy's supposed to say like panic. He has to be fired.

And then panic again. He has to be fired from the school immediately. 100% equities and then go to 80% cash. Dude, hold on. When the VIX ran up, he dropped his stock holdings by 80 percentage points. And then when the market calmed down, he bought it back? What are we doing here? We got to see his returns.

No, you sell low, you buy high. Hello? We got to see his returns. He definitely has tenure. No, but why would you put this in writing and then ask somebody at the Wall Street Journal to publish it? I don't know what he's trying to get at. I was going to say there's a non-zero percent chance that he's joking.

He's trolling. It worked. But he's probably not kidding. Unless he's totally kidding. Is he? What kind of professor? Professor of finance? Get the f*** out of here.

Alright. Maybe there's more to it and they edited it out. Also, there's a 2% chance he's kidding. Just totally kidding. Yeah, I hope. That's the most logical answer. Alright. Favorites. No more character assassination. That's not nice. I've probably written stupider things.

I'm going to go first. Roger Lowenstein is a badass. You know who he is? Yeah. You know, I mean, you know. He wrote a Buffett book. Yeah. Amongst other great things.

Some would say the Buffett book. I think he's written like 20 books. Which one? I think it's called Buffett. Some people say it's the best one. Some people get pissed when you say it's the best one. Why? Because of the snowball.

The snowball is such a more comprehensive book. Well, the Lowenstein one is Buffett for people that aren't psychos, like finance psychos. Yes. Like Snowball is great, but it's like 600 pages. Yeah, and the Lowenstein one is like a business book. The Alex Schroeder one is like a much more personal book. So Lowenstein has a sub stack that I don't think most people know he's doing this.

It's called Intrinsic Value. It's way better than Alex Morris' sub stack. No, it's like free. It doesn't look like he's like looking for paid subs or anything. I just feel like he wanted a place to put his thoughts. Yeah. And I think it started during the pandemic. Yeah, I follow his.

And you read it? Yeah. It's great. Anyway, he's got a really great piece up from August 10th, so just published, called Policy and Tradeoffs. just published called Policy and Tradeoffs. And basically what he's laying out is the fact that we have a perfectly botched tradeoff in the form of allowing private equity to keep its carried interest loophole, which makes absolutely no sense when you think about where that money comes from, but taxing buybacks as though they're somehow like a cause of some sort

of problem or that by taxing it, we're going to reduce inflation somehow. Of course, all of that is nonsense. But I thought that this was a really good piece. And the gist of what he's saying is that the carried interest loophole that's being preserved is not about PE funds taking risk or private equity investors taking risk. Nobody has any problem with that. What he's saying is that the so-called carried interest is coming from the profits that have been earned by the investors on their investors' own capital. So it's not coming out of any risk that anyone's taking. It's fees being paid to the firm,

and then the firm is getting preferential tax treatment on those fees. That's the part that makes it ludicrous. So I thought it was a really good explainer. And basically what he's saying is, I'll quote him and then we're done with this. There is no justification for this break. I will not invest less money in a fund managed by KKR or Blackstone on account of the tax that is later imposed on the fee that KKR or Blackstone charges me. After I pay my fee, I couldn't care less what happens to it. The tax break does not create an incentive.

Exactly. happens to it. The tax break does not create an incentive. Exactly. So private equity would probably still be investing other people's money if they had a higher tax rate. And none of this does anything for the end user at all. So anyway, I thought it was a really good take. We won't get into the buyback stuff, but he is against the buyback tax for the same reason that I am. The talk around buybacks is fascinating, especially when politicians comment. It's a litmus test of who you hate more. Do you hate corporate America

and the investor class more or less? Right? Yeah. I mean, just so much of the commentary on it just isn't even logical. I mean, it comes from politicians. It makes it sound like something that is, it's fairly straightforward what it actually is in terms of what the company is doing with their funds.

Do you think they'll stop at 1% excise tax on buybacks? It's got to go up, right? I'm sure if they start going, they'll probably go higher over time. It's got to go higher. Yeah, probably. It's another lever they can pull where it's almost victimless in their eyes. I mean I can't remember who said it. Someone said I hate buybacks.

Some politician. I hate buybacks. Elizabeth Warren probably. Such an odd thing to say. Well, I hate't remember who said it. Someone said, I hate buybacks. Some politician. I hate buybacks. Elizabeth Warren, probably. Such an odd thing to say. Well, I hate dividends. Fat cats. These are very odd things to say to me. These fat cats.

All right. What do you got for favorites, Michael? Brawl in Cell Block 99. What is that? If you know, you know. I don't know. Right, Duncan? Yeah.

Doesn't look like my kind of movie. Okay. This is a movie? It's a movie. Okay. What's it called? Just Google it. How many Academy Awards is this up for?

Well, let me just tell you, it made $70,000 at the box office. Wow. In 2017. Is this a real movie? Where do you watch something like this? Amazon Prime. Oh, of course. But my real favorite thing this week, Industry is back.

I enjoy that show. Industry is about- I never saw it. First year in investment bankers in London. And I enjoy it. It's good. HBO Max. You never saw it either? What's that?

You ever watch this? Anybody? Let me see. That's a movie. What is this shit? Oh, it's like so bad it's good? No, it's- Is that Michael Caine?

No, it's the girl from Dexter. It's Vince Vaughn. It's the girl from Dexter. It's unironically good. Wait, is that Michael Caine? No, it's- Oh, Terrence Stamp. But that's Don Johnson. It's a girl from Dexter. It's unironically good. Wait, is that Michael Caine? No, it's... Oh, Terrence Stamp. But that's Don Johnson.

That's who that is. That's the old British guy is Terrence Stamp. That's the guy that takes all the roles that Michael Caine is too busy for? No, no, no. It's this guy. Oh, it's the guy from Game of Thrones. It's this guy. You've seen him before.

His name is Udu Kier. He's like the weirdo in all these like gross movies. He's the sparrow, a high sparrow. Oh, yeah? Right? Yeah, the high sparrow. Oh, yeah? Right? Yeah, and tomorrow never dies. Oh, yeah, yeah, yeah. He's the high sparrow in Game of Thrones.

Okay, I'm in. I'll watch it. It's grisly. What else do I have going on in my life? Alex, what are you getting up to? Yeah, give us your favorite thing right now. What did you watch on the flight? It's going to be hard to top Michael's, but try.

I listen to a lot of podcasts on the flight. I've been watching Stranger Things, finally, catching up. It's good. I can see how it can get a wide audience, I guess. It's not really in my wheelhouse, but I can watch it. I enjoyed it. I thought it was better than the third season or the previous season. I like that they are using it to bring back Kate Bush songs from the 80s.

Yeah, they helped her a lot. It's kind of dope. I like that uh what podcast do you listen to obviously the compound and friends what else the compound uh my good buddy bill brewster business brew i listen to that one a lot what is it called business business brew okay who does he what does he do uh he just interviews uh you know he had uh he interviews fund managers and you know tons of different kinds of people okay um i listen to a bunch of random podcasts now that i just find through spotify i was listening to something

on fixed wireless on the way up here apparently same fiber industry has a podcast i mean everybody he listens to alex listens to tim dillon with us tim dillon oh yes i love him honestly he is he's getting better this is such being on a podcast that he's been on, it's like one of my greatest – Yo, I should have thrown this on as a favorite, but he just had Curtis Yorvin on. Yeah. Did you listen to that? I listened to part of it. Holy shit.

Who is that guy? He's like – they talk about doing acid, but he's like a blogger who like rose to prominence because he's like pro-monarchy. And he like does these historical deep dives on why America basically should just admit that it's always been a monarchy and like do it for real. And just have like another FDR or JFK type president come in and just start acting like a king again. And he's – it's like deeper than that i'm not i'm i can't do it justice but it's an hour and a half of tim dylan and tim dylan doesn't get a word in because this guy just goes and this guy is like dropping shit from like ancient rome and it's just it's really very entertaining uh all right i'm with you on uh with you on tim dylan

we wanted to make one announcement about um the store, idlnshop.com. What were we supposed to say? So we're asking people to tag us on social media wearing their merch. Oh, yeah. Nicole gets really excited if you are rocking the compound merch, if you have the hat or the shirt or whatever, and you tag us on Instagram, on Twitter, whatever, Nicole gets fired up.

What are we going to do for the people that do that? We'll come up with something? Share it? No, I was thinking like a bed and breakfast with Duncan, like a weekend getaway. Sure. We'll reshare you if you shout us out. So make sure you go ahead and do that.

It's idonshop.com. It's idonshop.com. If you like Alex's talking, you'll like his writing even better. Yeah, much better writer than talker. Drop your email into our link. Links in the show notes, YouTube, everywhere. We also have a review. Oh, let's do the review.

So today's is from Cool Philly Mommy. And the title is High Octane. The knowledge I have gained from this dynamic duo, Josh and Michael, is remarkable. The well-chosen guests add to each week's unique experience. I feel as if I've gained a coach in my pocket to keep me grounded during this challenging market. I so can't wait to rock my workout with each new episode. Would love to take you to a dinner

at one of our city's coolest restaurants with unmatched sky-high views. Keep crushing it. Oh, from Philly? From Philadelphia? I guess. That's a nice review, but like, it's funnier when you read the bad ones. It's true. They have this restaurateur

who dominates Philly. This guy, Steven Starr. I think Budokan started in Philadelphia. They have like some, like, it's not just cheesesteaks. They have like cuisine in, oh, Sprinkles is calling me. All right, let's wrap it up from here. I want to say thank you to everybody. Thanks for your patience while we took two weeks off.

It was much needed. Duncan went to London. I went to Italy. Michael went to Parsippany. And we kind of all just need a little bit of a break. But we're back. Big show coming up next week. All big shows coming up.

Actually this whole fall, we are going to mow you down with talented people like Alex Morris. So stick around and we will see you next time. Well done. Is that fun? That was good. All right. What are you doing next Thursday?