The Compound and Friends - Welcome to 2026

Episode Date: January 2, 2026

On episode 223 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠���⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Ben Carlson for the very first of the year TCAF livestream, breaking down what to expect in the year ahead. This episode is sponsored by VanEck. Learn more about the VanEck Semiconductor ETF: https://vaneck.com/SMHCompound Sign up for The Compound Newsletter and never miss out: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

Are we up? I think so. Yeah. All right. All right. Hi, everybody. Welcome to the first compound and friends of 2026. You heard that beat drop so you know it is time to get down to business.

It's first trading day. of 2026. And I'm so excited. We have Ben Carlson here. You guys that are compound fans. You know Ben from Animal Spirits and Ask the Compound. Ben is the director of institutional asset management at Ridholt's Wealth, where he helps shape portfolio strategy and investment policy for institutional clients. You know his shows. You know the blog, A Wealth of Common Sense. And the 12, 15, 20 or so books that he's written in the last 20 years, Ben, welcome to the show. Hey guys I don't have any

I don't have any applause button But you could imagine if I did It would be It's in my head It would be going crazy right now All right Michael Batnik My co-host is here

Michael say hello to the folks What's up guys I'm kind of surprised That Lamb Research is the best S&P performing stock of 2026 I know it's early but Did not see that coming So we wrote

We wrote about We wrote about Lamb as being one of the best stocks last year that we had written up in our best stocks in the market column at CNBC Pro. I just wrote about it this morning. Well, it's one minute to the year. Yeah, it remains. Nice follow.

Nice follow through. All right. Guys, let's give a quick shout out to, let's give a quick shout out to today's sponsor. It's Van Eck. We talk about hyperscalers every week. You know the story. Massive CapEx budgets and the race for AI dominance. But picking the single winner in the semiconductor space is getting harder,

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Own the leaders. Check out SMH at Vanek.com slash SMH compound to learn more. Thank you, Vanek. Can you guys see the live chat? We have some people here. Let's give Cliff Peoples a 2026 shout out. He says it's early. I know.

Brian Grill is here. Smoky Toast is here. Back to work. Another nutty year for National Parks. um let's see who else is here i don't know we got we got a lot of folks in the in the live chats 930 as we're recording this um ben where are you hey i got 730 a m in arizona right now thank you for waking up and doing this when are you when are you going back to michigan taking off tonight and i'm snow is going to be waiting for me so i'm going to enjoy the sun

for one more day all right good for you i got i'm here till uh i'm here till monday in in florida all right um we're going to start out with our favorite candidates for turnaround stocks in 2026 I just threw a whole bunch of tickers on here that I'm watching and I don't know I don't know how you want to start this but the one that I thought was most interesting because there's now an activist fight is Lulu do you guys is this even on your screen anymore is anyone still even following this company so it's on my screen because you and I did a show a couple of months ago value of value traps and it was Lulu it's the names that we're

talking about today basically and we've flown because the economist, which I'm, I'm sorry, they're just a fantastic contrarian indicator. And I'm an anti-magazine guy, but they just have a special ability. And the stock is up 20% since they wrote it. But I'm not, I don't, listen, I don't. Wait, what are they right? They said it's a value trap? I think it was on the cover, like Lulu out of fashion, whatever it was, doesn't matter.

But I don't know how you, how a retailer, like Lulu gets his mojo back. I feel like it's over, like it lost. Why did it get crushed so bad in the first book? Because it's down 60%. We had a mall yesterday. My daughter went in and goes, geez, the pins are $150 or something. Is it just a trend thing that like this was in fashion and now it's not?

No, it's aloe, I think. No? That's what I think. They got destroyed. None of the moms in my town wear Lulu anymore. It's all out all the time. I think that I think it's like death by a thousand cuts. At the low end, they're competing with Athleta,

which is a Nike brand. and you know like everybody makes yoga pants at this point like old navy it's not you know it's not so at the low end they have competition where people that want the look don't have to give lulu $150 and then at the high end like from a fashion perspective alo has just stolen their thunder I think the clothes are better quite frankly better made and view already wasn't around a couple of years ago at least in a big way yeah good call um there's a proxy fight and this spring we'll see what happens but like what's made the stop let's put a chart up this name is 59% off its high so it's it's just um it's just been absolute torture chamber it seems like

it started to rebound a little bit into year end maybe because of this here's the journal lulu lulu lemon founder chip wilson is launching a proxy fight in an effort to remake the company's board while lulu searches for a new chief executive wilson said monday he has nominated three director candidates to the company's board. The nominees are on running co-CEO, Mark Maurer. That makes sense to me. On is like a newer, hotter brand in footwear. Doesn't directly compete with Lulu.

Former ESPN chief marketing officer Laura Gentilly and former Activision CEO, Eric Hirshberg. He's been personally ridiculing the CEO. Wilson, who is the controversial founder, who kind of got pushed out because he said some not so nice things about overweight women and some of the problems with dressing them, I guess, in yoga clothes. And it was just like very off message. And he's kind of been like estranged from the day-to-day running of the company for 10 years. he bashes the current CEO he said quote finance focus CEOs don't know how to attract or motivate creative talent even worse they think they understand great product when they

don't a company bereft of a visionary loses its singular voice for product and long-term strategy he also ripped them for buying mirror in remember that that's stupid we didn't want there were a lot of dumb deals happening in 2020 but that was maybe one of the top top worst deals 500 million dollars for the fitness product mirror they were chasing peloton dumb idea they also started putting mickey mouse and like the kansas city chiefs logo on their clothes um so basically the the founder is like the founder is blaming the the current CEO and let's just put up that share price. This shows Calvin McDonald's starting a CEO in, I guess, what is that, late 2018, mid-2018. You had a good start.

Can we just think how hard it is to do these turnarounds and predict these, especially in fashion? I think like fashion and exercise, trying to predict the comebacks is so difficult because we got three dads here talking about, you know, women's yoga pants. I think trying to figure out these like you get one of these out of 30 maybe that do come back and the other ones just kind of go away forever right well also it could be a really really long time for these companies to come back into fashion but it does happen Sydney Sweeney single-handedly um resurrected uh resurrected uh American eagle this year like it was like if you look at a chart like it happened And the gap has a pretty decent comeback underway.

The gap in May of 2023 was a $7 stock. It looked like it was going to zero. It's 25. Abercrombie is having a massive renaissance. The big thing that happened with a lot of these apparel retailers that won't happen for Lulu is they got a denim cycle. The style that the Gen Zs wear is a throwback to the 90s. They're wearing big, baggy jeans.

and all the skinny jeans had to be thrown out of the closets, Lulu doesn't sell denim. So they're not going to benefit from the same wave. Abercrombie's $124 stock. In the spring of 23, it was 25. I mean, it's up fivefold. So the denim cycle is huge to resurrect some of these, like, hurting apparel and fashion retailers, to your point,

but you have to wait a really long time for it. Lulu's not getting that benefit. So I don't know what turns it around. You guys have any interest in the stock as a buyer? If he wins the board seats, it could change the narrative. I just don't care. I'm not buying Lulu Lemon. There's so many other things that are working.

Like, I don't need to get involved in this. Someone who's retired from stock picking five times in the last 12 months. Can I talk about the stuff I actually am bottom fishing in? Yeah, let's hear it. So you got these on the list. I've been buying Nike and Netflix. All right. Let's do Nike first. It's all brand for me.

She had a year off because she got hurt, but I'm still buying the Caitlin Clark trend. I think she's going to be the female Michael Jordan. And I think once she has her own shoe out, I think it's going to be massive. And I know that there's been a lot of insider buying. We talked last week on Slack that Tim Cook is a director in Nike, and I had no idea he was. Show us how much I'm studying the stock for buying it. But to me, these are just two brands. Does she sell shoes?

Does kids, like, do little girls go out and buy shoes because they love her at anywhere near the same rate that a little boy would run out to buy something because Jordan or LeBron or Steph Curry endorsed it? I don't know. So maybe it's because I'm, I'm, my daughter plays on a, on a travel club basketball team now. And I can't believe how well this, how good the skill is for sixth grade girls now. Like they're better, they have more skills than I did at that age. And I, so maybe that's clouding my judgment. But I just think she's going to be massive. Nike is down four years straight, which I don't, I don't, I don't, I don't think

that's ever happened since the company came public in the early 80s. It's so bad. This is literally like the worst multi-year stretch for Nike ever of all time. But maybe it's so bad. It's good. Maybe this is it. Okay. Let's do Netflix.

I think this is a turnaround story. It really is. Huh? No, I think like, people are like, wait, Netflix. I mean, it's decently off a tie. It's in a 30% drawdown. But the business doesn't need to be turned around. The business is as on fire as it's ever been.

I own Netflix as well. I'm nervous. I think it might be dead money. I'm second guessing myself. Do you guys think the fact that they're making a push into podcasts is a good indicator or a sign that they are freaking out? because they took a lot of the podcast from The Ringer in Barstool Sports, and they said, hey, we're taking these off of YouTube.

We're putting them on Netflix. Netflix is obviously terrified of YouTube. Is that actually like, hey, they're getting ahead of this? Or is it like, oh, my gosh, Netflix thinks they are in trouble. This is a bad sign. I don't know the financials of these deals. So I don't know if it's like a freak out or not. Like, if you told me they're spending billions of dollars to do this,

I would say, yeah, that's a freak out. But I don't think that's the numbers. I doubt it. yeah so i because the the content spend for podcasts is like what spotify did in 22 i guess like all that shit is way over the other thing i don't think i don't think it's either i don't think it's either like i don't think they're freaking out i don't think it's uh because how much of youtube's revenue or watch time this podcast i'm sure it's pretty healthy time but i just i don't think i have enough information well it's the thing that youtube has that that that no one other than

Spotify has. And that's why it's strategically important. Netflix is battling YouTube for control of the living room TV. This is not about what's on people's phones only. Like, people are watching this show right now on TVs in their living room. So Netflix can't just allow YouTube to start monopolizing more and more of people's living room time. That's the battle.

It's going to be a bad look if and when these shows go crawling back to YouTube and go, oh no, we made a huge mistake. Oh, because the numbers aren't going to be there? I can see that happening. It's just not as easy to click on Netflix as it is on YouTube for some people, I think. Yeah, and the other thing is that Netflix controls its algorithm more tightly, meaning like Netflix in what becomes a hit more so than YouTube does. Like YouTube has an algorithm, but they're not picking favorites.

The winners tend to be the shows that are really good at mastering the algorithm. What makes people click into a thumbnail? What makes people continue to watch? What do we have to do in the show opening to keep people? Like, if you're already a popular show, I guess you have to worry less about that. So I feel like YouTube is safe. YouTube will be fine. They'll keep having podcasts, but they lost a couple of marquee podcast video things.

I just trust Netflix more than any, like to handle the current situation, whatever happens with them at Warner Brothers. I trust Netflix to navigate that better than that. than any other streamer. I don't think you can give the other streamers that benefit out, even Paramount with all the stuff

they're building. I agree with that. I agree with that. The main point is not that, oh, no, they're competing with YouTube. That's not like breaking news. Like, they know who they're competing with.

The bigger story is that they, it's a two-headed monster. Disney hasn't added subs in three years. Paramount, uh, prime, the free stuff, uh,

whatever else is either. Peacock, forget about it. Like, it's a two-headed race. And I don't think that YouTube doing a, is necessarily like the end for Netflix, hardly. When they announced the bid for Warner Brothers,

I sold 85% of my Netflix, not because I think there's anything wrong. I could just picture a year of back and forth about what they have to do to get the deal done. I think there are going to be like political, you know, very public fights about, you know, people that represent the interests of Hollywood guilds like screenwriters and directors and actors.

I just, I don't think, I think this is going to be super messy. And so I just wanted to not have that dead money. So this is a big difference between... If I missed the bounce, I miss the bounce. A big difference between me and Ben. I have no patience. So like Ben will wait it out a year and buy more if the stock goes nowhere or down,

which is probably the right move. But I like to buy stocks that are going up in bull markets. I think... Look, I think... I think... I think... I actually think it's a good deal for them if they can do it. because they end up with a lot of production synergies and they end up with an incredible library

that they can create a lot of new content from. So I think it's a good deal. But like from a portfolio management standpoint, like I don't want to sit and watch this and trade between 90 and 100 for the next year while we figure out whether or not it's actually going to happen. And so one strategy, and again, if you own it in a non-taxable account, you know, account like I do. One strategy is to put a buy stop limit at 101, good till canceled, and just leave the

cash aside, and your account will automatically buy the stock if it starts to break away out of this range that it's been trapped in. And that way you don't have to guess, you let price kind of put you back into the stock. But so long as it's languishing here in the 90s, I just, I got to be free to do other things. So I'm bullish on Netflix, but not yet. I guess would be the way I put it. Can we do Uber?

I think this is, the stock went up 35% last year. So nobody would say that it was one of the losers of 2025, but it's in a 18% drawdown right now. I want to read something from Jonathan Boyar, who has this forgotten 40 list. Barron's picked up some of his picks. So he looks at like 40 stocks, from the prior year that were forgotten or left in the dust

and tries to pick names that will have a better year prospectively. It might seem odd to characterize Uber whose shares have surged more than 35% this year as underappreciated by investors, but Boyar argues that Uber trading at 16 times 26 estimated earnings before interest, taxes, depreciation, and amortization remains a bargain. The consensus forecasts on Wall Street are that,

Bitcoin dollar will increase by 34% this year. That's 25. And another 26% in 2026. So if they grow cash flow by 26% this coming year and the stock is selling it 16 times, you have to ask yourself, doesn't it seem like everyone just believes automation is going to render this platform worthless? Okay, I was going to ask you what else could be happening here. You're the Uber guy. So I want to talk about this later in the show, but I'm in the Phoenix area, and I took my first Waymo. And it was as magical of an experience

as everyone says it is. And I thought, so what happens to Uber in this self-draft? Like, where are they on that? I think, like, a quarter of their fleet will be autonomous by the end of the decade. Like, it's to me the same thing. But you trust them to, like, make this happen?

Because the Waymo experience was... They have no choice. It was ungodly. It's like I was... My kids kept telling me to shut up about it because I couldn't stop talking about it. how cool it was and once you do it you go oh my gosh this is this is like i can't believe we did this how do they do this all right can uber can uber do that yeah they have well they are doing

it so they have partnership with waymo in two different cities um so that's what they're going to do they're just going to partner with waymo and they'll they'll be the interface they're going to partner with everyone so the uber the uber worldview is that what's best for them is for there to be a highly fragmented autonomous vehicle market globally. And it would be great for there to be hundreds of players all over the world. And they partner with as many of the players as they can to bring those autonomous vehicles onto the Uber app. So they're doing it. They've got a partnership in Saudi Arabia that's already online or UAE, rather.

They've got partnerships in England, in Germany, here in the United States. They're working with Wii Ride, they're working with A-V-Ride, they're working with Pony AI, they're working with Waymo. There's a company backed by Nvidia called Wave in Europe. They're working with them. The worst thing that could happen for Uber is that Tesla and Waymo carve up the whole autonomous landscape because then neither of them need Uber. So what Uber really needs is for there to be this thriving ecosystem of hundreds of players.

The Waymo app was very good. I was, I mean, I'm setting the temperature before I get in the car. I'm telling it when to unlock. It, well, it blew my mind. As someone, I'm sure the people who have used it are used to it now, but it is so cool. Holy cow. The other wild card here, the benefit to both Uber and I guess to a lesser extent lift because they probably won't be as good at forging these partnerships.

The most expensive part of the Uber ride is the take rate to the driver. If that goes away and Uber is able to successfully incorporate millions of autonomous vehicles into its app, its profitability should skyrocket, even if they have to split that with the providers of the cars. Dara has said that he thinks the way this market shapes up is that the autonomous cars themselves are toaster ovens. Like, they're amazing technology now, but ultimately they'll be commoditized. he thinks there will be whole fleets of AVs that are owned by private equity. Private equity will basically treat these like Timberland or commercial office buildings. It'll just be a cash flow. The biggest surprise to me that I had no idea that the Waymo cars are Jaguars.

It was a really nice ride. The car was really nice. The cars cost Waymo $150,000 each. Do you know how many rides they have to? And the rides are cheap because they're doing what Uber did. I couldn't believe how cheap the rides were. For a 20-minute ride dinner, it was $10 or something last night. So obviously they're trying to get mine share, and then they'll jack the prices up.

But, okay. The other thing that makes Uber shareholders nervous is Tesla, and he's going to have his own app. And Elon has publicly stated, he's not doing deals with anyone. It's going to be an all-Tesla ecosystem thing. And he's still talking about regular people turning their own cars into Uber's, which I would take the under on. I think I took the under on Airbnb a long time ago I just didn't think that hotels would be dead

and that ended up being the right bet Airbnb has a really nice niche they almost have it to themselves other than Verbo but like the hotels have never been busier because not everybody wants that and not everybody wants to turn their home into a boarding house I don't think everybody wants to turn their car into a taxi I know I'm not doing it

So I think they'll have like a selection of the Tesla population that thinks that's really cool. While they're at work, their car is out completing rides. I don't, I don't see that being something that like more than 10% of people do. I don't know. What do you guys think? I agree with you. Uber had to go 2025 because it had a really bad 2024. The stock is basically flat since February 24.

So there is there is the growth story that continues. but investors just aren't buying the sustainability of it. They're just not. And they might be wrong, but that's the story. Adobe put this chart up. I don't have a ton to say on this. I own it. I have a fairly tight stop here.

I'm not willing to ride it to new lows. Here's another company where the market thinks nobody is going to pay professional licenses for AI creation tools now that SORA and, Nano banana and all these other products are proliferating. And I sort of don't agree. I think AI is going to become a tool that professional designers use, but they're still going to want to pay the, they're still going to want to pay Adobe for pulling all those tools together

into one ecosystem and having the highest grade professional version. What do you guys think? I agree. I'm in it with you. And I also am not going to ride it much lower. But I think one of the big stories of 2026 is going to be that AI is making these software companies more efficient as opposed to the view that they're going to really eat into their business. So why is it down so much then? Well, because the view, the prevailing view, is that Adobe is not necessary if you could code so cleanly on Chad or Gemini or whatever.

And I don't believe that. And the earnings per share keep hitting an all-term high. but obviously the market is not buying that either. The only take it would be like the narrative of this story is going to change 10 different times still. Like it's going to go back and forth a million times until people really figure out what's going to happen. Like an amateur person, an amateur person who owns a candle store can go on chat GPT

or Gemini and say, create me a flyer for a 20% sale that I'm going to run on my website tomorrow. and they can have it in 30 seconds and that might have been something that they would pay a graphic designer for. So that's the negativity on Adobe. But I feel like the word of the year,

the Merriam-Webster word of the year for 2025 was slop, as an AI slop. And I just don't think that everyone is going to outsource graphic design to AI. If you were making a movie poster for Odyssey, which you're,

you think it's going to be a billion dollar movie like you're you have people using adobe's creative suite to produce that like it's a i think there's a professional market that never goes away is that enough for adobe like if they lose the amateur users of photoshop and all this stuff but they maintain the professional market is that enough have we taken enough of a discount in in the stock to account for that that's the that's the central question around why this thing is sucked so much. I'm not saying I know the answer, but it's in almost a, what's the drawdown here? 45% drawdown. They took half its market cap in two years. So put that chart back up one more time. I don't know. Did it bottom at the end of the year when all the tax law sellers

finished and now it could levitate higher? I don't know. It's a tough bet. I'm making the bet, but I'm not very confident. All right, so we have Sean track a basket of all these loser stocks for the year and see if it outperforms. Yeah. You buying a basket of these losers versus the marker market.

CRM, sales force. This was a, I don't know if, is it still in the Dow Jones or do they pull it out? Michael, do you know? I think it's still there. They don't let them out that easy, do they? They just got in there. I don't know if it's still in or not.

I know they added a lot of other big tech stocks. All right. This has been a wreck for a while. It's in a 28% drawdown. In a year where technology stocks, last two years, technology stocks have done incredibly well. This thing just seems to go nowhere. It's another name where the narrative is. They're going to get their ass kicked by AI.

Enterprise users are going to need less headcount. less employees, therefore less seats that they're paying Salesforce for. That's part of the story. The other part of the story is people are going to write their own code, write their own software to operate their businesses. And as a result, Salesforce will have less dominance over the market when companies become more proficient in creating their own workflow, software, et cetera, using AI.

They have a secret weapon, though. They have McConaughey. They're paying Matthew Conahey. True. you do have to factor that in. What if the market is right and very early? And this happens eventually in five or ten years. And the revenue, the business, whatever, continues to grow.

But the stock is just dead money because investors are collectively looking out. I don't care about the next 12 or 24 months. The terminal value of this business is a lot lower than it is today. This has happened. Like, we saw this. There was a time when one of the best. categories of tech stocks were PC makers and Dell and Hewlett Packard and there was a company called Compaq and Intel and there was like this whole ecosystem in the stock market of companies

that were highly involved in PCs and it's not that people don't buy PCs anymore. It's that investors just don't value that business as being worth much. Dell had to go private and then come back out as a public company focused on data center and cloud. At the time they went private, they were like one of the biggest PC makers in the world. Investors valued that business at nothing, like less than one-time sales. It was worse than an automotive business. So there's a universe in which we just decide enterprise SaaS is not worth anywhere near the multiples that people used to pay for these stocks. And that absolutely could be the case.

And Salesforce can say quarter after quarter, hey, look, we grew earnings by 10% again. And Wall Street could say, great, congratulations. I don't want any part of this. So I agree with you. That's like maybe an underappreciated risk for not just Salesforce. Obviously, that would have implications for hundreds of software stocks. So I'm with you on that. All right.

Should we move on? Yeah. What do we decide? We said none of these are. We have credit to Michael for giving a great CFA answer there. What's that? What did we decide? I mean, Netflix is obviously the best business here.

Like, I don't really care as a long-term investor in the stock, which I'm not. I don't necessarily care what happens in the next 12 months. As the overhang from this deal, is it good? Is it not? Does it go through? What does it look like? All that. Like, in five years, Netflix will be way higher than it is today.

Absent to like a full-blum market crash. I agree with that. I would agree with that, too. They'd be the safest bet for sure. Yeah. Banks, Bankst and mom in the chat is saying Josh is showing his age with the compact reference. Oh, I guarantee you most of the people here have had a compact at some point in the way. I was about to throw out the gateway.

Remember that? By the way, this is, no, this is NyQuil. Yes, it is. This is NyQuil. I need DayQuil. No, take the NyQuil. Are you sure? Okay.

He's going to be sleeping at the end of the show. I'm going to the doctor after this. NightQuil about a chaser? That's impressive. All right, chart on. Here we go. Okay. All right, take it away.

So, no, I need the chart, please. The viewers need the chart. We need the charts. I mean, take the show away. I know what you meant. All right. So chart goat, Matt, showed the average stock in 2025, and he broke it down in deciles, which is equal, 10 equal baskets.

and he showed how what was the 52 week drawdown at the end of 2024 and the conclusion is very interesting the conclusion is that the stocks that got the shit beat out of them the worst in 2024 at least heading into the end of the year gained 29% on average and also and also on the other end of the spectrum stocks that were closest to their 52 week high also had a great year the second best of the desiles And other than that, like the third and the fourth were sort of no man's land. Like the stocks that were like just sort of whatever, which are some of the stocks that we're talking about, had a horrible year. What was this kind of breaking my brain? This can't be normal, right? I don't know. I don't know. What were the stocks that were furthest away?

Well, how about I, well, I'm so glad you asked. Next start, please. Okay. So the Y axis is how far below the 200-day moving average they were at the end of 2020. Okay. And then this is the 2025 return. So like dollar general, for example, wasn't a 30% drawdown. Oh, I'm sorry, 30% below its 200 day. So really extended to the downside. And then it came like 70% in 2025. The names that got even smoked even further. I'm sorry. This is hard to read. SMCI, for example, was down 50% or 50% below it's 200 day and it was flat in 2025. Wow. So Mike Ron, obviously, Newmont, Lamb Research, as we mentioned, at the top of the show. Right. So the key to outperforming last year was to either be absolutely crushed or be at an all-time high.

Pretty much. Very helpful. Let's do the Mag 7 chart. Yeah. I put this in here last night. So this is surprising. I think this would surprise a lot of people. So the S&P was up almost 18% for the year on a total return basis.

Only two of the Mag 7, Google and NVIDIA, outperformed. All of the other Mag 7 underperformed the S&P. Huh. Is that not crazy for the year? Yeah. Is it wild that NVIDIA very quietly went up 40% last year? I say very quietly because I feel like it wasn't even controversial at all. It closed fairly close to the high, given some of the carnage that we saw in.

November for a lot of the AI theme stocks this thing was just absolutely fine are you guys surprised by that at all i think it had a rough year though like it was not an easy stock to hold because it went from and went from like 150 down to 85 so a 45% drawdown yeah um and then from there it was game on it was a springboard straight higher but then like you had a pretty a pretty decent sell off 212 down to 170 so yeah guess what this is the type of stock where it hurt to ride and that's sort of the point sometimes. Right. Nvidia up 40%, but still in a decent drawdown from that October.

Well, I don't even know what happened there. Like by the end of the month, it had gotten up to 212 and then in a flash, it was below 200. But doesn't that chart just prove that we never got the crazy blowoff bubble that everyone was waiting for? It just, it never happened. Well, thanks to Sam Altman. It would have happened, or it could have happened, I should say. Yeah, it happened.

Which I think is a healthy thing that it didn't happen. Yeah. It didn't even happen in the private market. Like, I think he just got financing at the top of the valuation range or something just had. I read half the headline. I don't care enough because it's not public stock, but like, I don't even think for all the controversy about Open AI, I don't even think it affected their financing in the

least. Like, I think they were absolutely fine. So I know we had this kind of blow off moment in November, but it really, other than for Oracle, it doesn't seem to have changed much. So, all right. What else we got here? Oh, this is a great one. This is breaking down S&P sectors.

This is duality research, whose work we reference a lot. They do great stuff. All right, so we're showing the price return. So communication services, let's Google, as we mentioned. Technology, number one and two. EPS growth. Number one is technology. Number two is communication services.

But then the P.E. multiple. So tech actually saw the largest valuation. contraction, which is kind of wild. The EPS was up 34% and the price is only up 23%, which is very healthy. Do you guys think most investors are aware of that or no? No way. I don't think so. I don't think so either.

People just assume, people assume, like, tech stocks went up a lot this year, therefore we must be paying up for them and it's just not the case this year. And I don't think, I don't think most people are aware of that. Hang on, 34% earnings growth with all the money that those companies spent on CapEx is kind of unreal. Like all the money that they spent didn't impact their earnings.

Yeah. Well, some of them are on the receiving side, in fairness. Like, Nvidia's on the receiving side of the CapEx. I put this together. I hope the data is right. I heard a guy from Morgan Stanley saying that the starting valuation for the Mag 7 right now, January 26,

is actually lower than where it was in 25 and I was just curious to see that on an individual basis and I threw an Oracle and Broadcom just for fun so there's some weird put this table up there's some weird shit going on here so Tesla is obviously a big outlier that's bucking the trend

Tesla's a year ago Tesla was selling at a hundred times trailing 12 months earnings and now it's 300 times I just think that that's a change in what people are valuing the company at It's not a car company anymore. It's a robot and autonomous company. And so that would explain why it's selling at triple multiple as it was.

Broadcom was 190. Now it's 72, but you also have to throw that out. They have this VMware acquisition that did some funny stuff with some of the net earnings numbers. But for the rest of these stocks, Nvidia was a 54 multiple this time last year. it's 46. Amazon was 47, it's 32. Oracle was 40, it's 36. Apple was 38, it's 36.

Microsoft's about flat at 34. Alphabet, slightly higher. It's 25, it's 30. And meta, 25, now it's 29. So for the most part, like thematically, these stocks are cheaper on

at least trailing 12 months I threw the forward PEs in but that's a tough game to play because we don't actually know what the real earnings will be but I thought that was an interesting observation what do you guys think let me ask you a different question

if you had to avoid one mag 7 for the next 10 years to me it's to me it's pretty easy what is avoid one mag 7 yeah it's easy Okay, what is it? I think it's Apple.

I think you've been bearish Apple for a while. I mean, at 32 times earnings, yes, they can still grow their way through buybacks and stuff. But the company's just not growing. I don't, unless there is a story that comes out of nowhere, which obviously that can happen. I think that I would at least want to be Apple. I might think the opposite is you. I sort of, I sort of think of think of it in the opposite way. Because I would ask you a different question.

Which of these companies' products do you almost know for a fact will be in your pocket and on your desktop in five years? Yeah, but that's, I don't think that that, I don't think those two things are in conflict. Like Apple is up, Apple was up 9% last year. Second, where's performing Mac 7 stock? Yeah. So I think the reason why it gets a premium is because of what you just said. Like, you know, you don't know anything. Absent like a piece of hardware from Open AI.

like a category killer could happen, I suppose. You know that Apple's going to deliver monster numbers. Now, then it's not monster growth at all. Obviously, all the growth engine is coming from services. I just think it's way too expensive. I don't understand innovation. But finish the sentence, the growth is coming from services. Is there any AI service that can survive absent paying Apple the toll?

If Open AI decides we're not going to build for the iOS ecosystem, it's zero. even Gemini like people's point of access to all of this AI shit is coming through the iOS app store and Apple's taking a 30% cut if you tell me there's a story where that goes away I'm definitely worried about Apple but if it's not going away and they actually get their AI act together this year and Siri becomes something interesting maybe even a competing chatbot like I don't know I feel like the 30% will make a lot more sense if that happens. Okay. So, so then which stock, if it's not Apple, which stock would you at least want to own? Avoid one mag seven, which is if it's not Apple.

I don't think, I don't think this is an easy game to play. I couldn't tell you, I couldn't tell you any of them. Maybe meta makes me the most nervous just because the competition between TikTok and Instagram will continue. and that's obviously a fight. Meta is not losing, but they really can't afford to lose it. I can't think of Apple competing with anybody. Ben, do you have an answer?

In that same way. I would have said meta, just for the thickness of social media. Yeah, it's actually miraculous that they have held the attention of people to the extent that they have. And their AI strategy is like in no man's land right now. Nobody actually understands what they're doing. or what all this money being spent is doing.

Boy, the Reels monetization is going crazy from AI. Yes, one of the best monetized products that has anything to do with AI at all. But don't you think that all the AI bots are going to make social media just unusable at some point? Like, they're going to have to do something to fix that. I don't know what you do. You put a watermark on everything that's created by AI.

People aren't going to care. so all right um did you read the assemblage piece no to start the year all right so this is this is i think for all of our listeners all our viewers this should be required reading i don't want to go deep into it but i just want to share this one part because i think it's super important for this year um after a rally comprised in equal parts of technological progress a surge in tech cap spending and frenzied speculation we've arrived at the following destination 65 to 75% of S&P 500 returns, profit, and capital spending since the launch of chat GPT have been derived from 42 companies linked to generative AI.

Without the benefit of these 42 AI stocks, the S&P would have underperformed Europe, Japan, and China. To reinforce the point, tech sector cap spending contributed 40 to 45% of U.S. GDP growth over the last three quarters up from less than five percent in the first quarters of 2023 so it's not that there's nothing else going on in the economy besides AI but I guess my question to you guys is isn't this still the big risk for yet another year 26 that the AI capex story somehow stumbles or changes isn't that like still if you had to rank every risk out there for investors isn't that still the number one of all of the risks that

you could foresee, this is the obvious answer. Right, but it's, yeah, no, I agree. And people always want there to be a new narrative and they want to say something clever. But I sort of still think this is it. This is the main thing. Ben, what do you think? I start wondering if we're lumping all these into one thing and people want there to be this conclusion, right?

It's either going to take off and change the world immediately or it's going to end and the bubble is going to pop. But why can't it be that four or five of these companies don't figure it out in four or five of them do and if google is the one that like leads a charge what if the what if the is is no end of the story and it just it it just keeps growing and growing and we don't get a conclusion yeah that everyone wants literally i mean you saw that from me last week no offense um this is this is sembliss i mean i literally said that did i not did i not um you guys talk to each other too much this is semblist in this year's outlook we focus on four major moat risks u.s power generation

You might have a make a little dream on that one. I don't know. It's possible. China's ability to scale. Duncan, Paul, received from animal spirits. You were there. All right.

We'll get to that later. China's ability to scale the tech mode on its own. China's approach to Taiwan and then the ultimate profits earned on $1.3 trillion in hyper-scaler cap spending. This year looks to be another version of 2025, a 10 to 15% correction at some point due to profit-taking and a growth scare. But then equity markets end the year higher. even so it's the right time to start focusing on these questions so those are like give me this chart this is the tech cap spending in 2025 versus the spending on every other major u.s. infrastructure projects so you're looking at the black bar versus like four of these things combined

Manhattan project electricity the Apollo project the interstate highway anyway semblist is the best and uh I guess I still come down on the side of like Like, yeah, this is still the most obvious risk, but it's also the right thing to focus on. Will, like, will this continue or not? And if something can make it not continue, we're going to have problems in the stock market. So. All right. It was another tough year for stock pickers.

Only 27% of large cap equity mutual funds outperform the market, which sounds really bad because it is. Try down, please, John. Nope. next one most active managers are falling behind it there we go um so not quite the worst year since uh oh seven but not great i guess it's the the fourth worst year but in fairness um most stocks do not beat the benchmark so uh you can't you can't show this without showing the next chart 33 percent i mean this is wild this is this is this is just brutal it's impossible how do you do in this in this type of environment good luck if you're not overweight the big winners

is you're just not going to keep up. So, wait, less than 30, is this less than 35% of stocks had a better year than the, than the S&P? One out of three. One out of three. Yeah. So this, what you do is you change your benchmark if you're an active manager. I'm not tracking the S&P anymore. I'm doing something else.

Go to the Russell 3,000. I think the key is you just own the 35% that do better than the market. Isn't that like, isn't that the cheat code? We keep saying that this is like the hardest market ever. to see how to outperform it and it probably is for the S&P but throw that active chart back up but John like the numbers aren't any that much worse than they were in the 2010s either this is just I think this stretch of this past 16 years or so is just trying to outperform the S&P has been almost impossible like

that's why we don't have any stories of these legendary investors like Bill Miller or whoever we're not creating new ones no they're not yeah yeah no way is this just what it's gonna look like for the rest of for the next 10 years like will there ever be mean reversion and stock picking I think at some point there's got to be. Well, how about this? In the market, so Josh said the biggest risk is obviously AI. I think I talked about this with Michael last week.

And Michael, in my defense for your AI take, I was five beers in doing animal spirits last week because I came from the bowling alley, all right? So give me a break. So here's the, he's a return since 2019 for the S&P. We're up 30%, up 20%, up almost 30 again. 2022 is down 18. But then we're up 26, up 25, and up 18 last year.

So we're going 18% per year since 2019. Isn't the biggest risk just, it's mean reversion. Like, can we keep doing this for this long where we have returns this high in the market? That's the big risk. I mean, that's, to me, has to be shown, though, with earnings growth next to it. That's what I was about to say.

Because it explains it. So if you're going to keep the earnings growth up somehow, then yes. Then the answer is yes. But if you're not, then it's not going to be yes. But in a vacuum, it does seem like the obvious answer. is this can't continue indefinitely and it won't we know it won't but it can continue for three or four more years probably right we know bull markets last longer than people say yeah all right

which IPO are you buying if you had to pick one we think all of these are coming to market this year i this is also easy for me you want which one which one you want to own yeah i mean it's it's it's it's SpaceX no like how could it be at any but at any but at any price um at a trillion dollars I just don't want any part of open AI or Anthropic. I sort of like Anthropic. They are dominating the enterprise AI layer. I think they have more corporate customers than any of the other AI services. I guess it's going to be a tough story because they'll be up against Alphabet.

It's erroneous. Yeah, they're having success right now. But like, so what? Is that sustainable? Well, it's not erroneous. it's like speculative that it's sustainable or not, I would say. And it's, I don't know if it is. Is it too obvious that none of us would pick open AI?

I think if we had to short one of these, all of us would say open AI. Is that? At 500 billion? It seems. I'm paying them and I, and I'm frustrated every day. I'm getting a lot done with it. But like it's so, it's so stupid sometimes that I can't believe I'm paying it $20 a month, $250 a year

like sometimes it's so stupid that I'm just like I gotta go to Gemini I can't deal with this anymore it wants you to pay $200 a month that's why I don't but I don't even know that the results would be materially better

it's like and then if Jim I pay $2 a month try it for a month and see if you notice a difference why you're paying the $200 a month yeah what are you getting that I'm not getting as a result of that that's confidential

$200 a month is a lot money i'm getting better performance you know this you know this for sure um maybe you have you have a you ever you ever try like the old version versus the new no so that i can't do but i've tried it like compared to jemini and it's uh all right so i'm going to send you a query i'm going to send you a prompt and i want to see your result versus mine i have something very specific in mind we'll do that when you're feeling better after your, after your NyQuil wears off. All right, so are we all saying that anything but

open AI is the I think you have to pick SpaceX. You'd have to. I mean, that's going to be crazy when that, do you think that's going to happen this year? He said this year. So is SpaceX happening? I think so.

Let me ask you guys a question. What did we not talk about today that you are very excited to see what happens over the next 12 months. I'll go first. I'm going to stick with the private credit stuff and the private market stuff. Like, I am just really curious,

don't have strong opinions here, but I'm looking forward to fast forwarding. Are you buying some of these stocks? Because you've been on this story for a while ago. Would you buy some of these beaten down ones? Blackstone is one of my largest positions. But what's the thing that you're excited to see that like nothing major blows up

and these companies are fine? I'm just excited to follow the story because it is meaty. It is very juicy. The conversions from private to these closed-end funds, I'm excited to learn more about some of the deals that blow up that,

you know, there's blowups in public markets too. Like it's inevitable. There's going to happen. So I'm just excited to see if this spreads and a lot of the fears come true or if it is actually a better

mashtrap than syndicated loans, which by the way, those two things aren't mutually exclusive. Like both things can be true. I don't think the economy is bad enough yet to worry about the whole, like the whole category, but there are some fringe players who have made promises to investors and to financial advisors that they just can't keep. Correct.

They're going to be, even in a healthy economy, like the wealthy consumer is spending like there's no tomorrow right now, but Sachs just missed an interest payment and had to file for chapter 11 so even in a good economy you're going to have some failures um but i think the fringe players they're going to experience a lot more failures than a blackstone will so that's where the action's going to be sax is a great example i haven't read the story yet but like i saw that they just raised money like not too long ago and the fact that it's already going like belly up like who's underwriting these loans yeah we had a uh we had a blow up in uh in boca ratone down the street for me. There's a project called Via Meisner. They just filed for Chapter 11 this week. There's a

project called Via Meisner. It's going to be, I think, 366 luxury condominiums in one tower. A second tower is going to have a Mandarin Oriental hotel. And then the two things will be connected by like outdoor amenities and a huge shopping district. This thing is like the size of a New York City block you can't even imagine how large this project is and they just filed for chapter 11 today and everybody's owed money mandarin orientals owed a half a million dollars um they haven't paid taxes the junk bonds or or the banks are all owed money and this is in an amazing economy for luxury spending they can't build it they can't get it done it's the finance the financing is too expensive, and I guess they haven't sold enough units, and people that bought the units

won out because this has been going on for 10 years. It's like a giant white elephant. So my point is, there are always, even in a good economy, they're always going to be failures. The test is going to be the fact that these funds are so widely held by relatively unsophisticated investors who have been sold these things by intermediaries. And that's where I agree with you. It's going to be interesting this year. Even absent a credit cycle, it's going to be really interesting to see what falls apart. One more thing that I would throw out is can international have back-to-back years of our performance?

But everyone's waiting for a recession for these things. Oh, for the private credit stuff. Like we. Well, the international stocks. Sorry. My back? You're back. See, this is why you short Airbnb, shitty internet and the pool heater broke too.

No, but I think the international thing we didn't talk about even, no one cares. International stocks are up 30% and the emerging markets are up 35%. No one cares. So if we get another big year for international and the dollar keeps falling, will people start to care and we'll get a huge inflow of money there? Because no one, no one's talking about it at all. Yeah, it's a really great point. Like you have country stock markets up 30, 40%, I think Japan,

went up 25% this year or maybe more. And you're just not hearing people like pounding the table publicly on international stocks yet. Maybe that's maybe they need two years in a row of good performance before anybody wants to return to that story. Josh, is there anything that we didn't get to that you're interested about in 2026? Probably, but we're at the 10.26 AM mark and it's time it's 1026. That's the hard stop. All right.

See yes. It's time to wind down. Michael feel better. I want to say thank you to everybody in the live chat who joined us to begin the new year. Great to see you guys. And we'll be back on all your favorite shows going forward. Thanks to Ben for joining us. And happy New Year.

Happy 2026. Here we are. Thank you.