The Compound and Friends - What Today's New Traders Don't Seem To Understand, Only The Vaccine Matters, The Best Investing App You've Never Heard Of (w/ Hadi Yousef)

Episode Date: October 30, 2020

On this episode Josh explains why we're facing three worst case scenarios all at once, how markets are reacting and why the vaccine is the only thing that matters. Plus, today's new traders seem to not understand what has happened to prior generations of new traders. A brief history of daytrading - from the Turtle Traders to the SOES Bandits - seems to be in order. Then Josh talks with Hadi Yousef about how he created the best investing app of the year. It will totally change the way you keep track of your investments and learn about what's happening in the markets and the economy. Ratings and reviews go a long way so please, if you're enjoying the show, tell the Apple or Spotify or whatever app you're listening on! Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

We have so much to go through today. I don't even want to take a second introducing anything. Let's just get right into it. We're going to talk about very quickly, worst case scenarios. We're facing three of them right now. And I just want to walk you through the way I'm thinking about what's going on and what these worst case scenarios are, because it's very rare to be in a place in the market where you're contending with three things of this magnitude. And they're all somewhat interrelated. So the first thing I want to talk about is the fact that we're basically going into the end of the year with no follow-on stimulus package. And I've talked about this before going back to July, talking about how

that original package was sunsetting and how helpful it had been to the economy. And we didn't end up replacing it. So there's not going to be anything that gets done. Donald Trump made it clear that stimulus will have to wait till after the election when he wins, LOL. And basically now the situation is that regardless of who wins, you're probably going to have to wait. Look, if Trump wins, maybe he tries to do something before the end of the year and he pushes Mitch McConnell around a little bit to go for a bigger package, which is what the Democrats want. McConnell was like thinking $500 billion, which I know it still sounds like a lot of money and it is. But if the Dems are at over $2 trillion, we're nowhere near where we need to be. So maybe he pushes to do something if he wins. It's more likely he doesn't win, but that there is going to be this tremendous court battle over the result of the election. And even if Biden ends up winning that battle, it's not until

February that a second stimulus happens because Trump's not going to do anything as a lame duck. And you got to get through the inauguration and everything that leads up to that. So if we're not doing a second stimulus package until at least February, and we're seeing this environment that we're in now where the pace of job growth is already slowing. The recovery is already stumbling. It's going to be very tough for markets to remain optimistic for that long. And so many sectors need for there to be another stimulus bill. The boom in consumer spending that we saw over the summer from the first one was hugely meaningful. So it's not happening.

And this is a worst case scenario. I'm actually shocked that the two sides couldn't come together, sacrifice a little bit of what they want to get something done for the people who are just completely vulnerable and have no one right now coming to their rescue. But that's where we are. The second worst case scenario is the virus is completely out of control. We did 72,000 cases two days ago, 76,000 yesterday. I don't know what it's going to be today, but we've now crossed 9 million cases in the United States since the pandemic began, headed toward a quarter million dead in the near future. In September, in October,

people were eating in restaurants again in large cities. People had been traveling over the summer. It kind of felt like we were getting a little bit back to normal. You can throw that all out now. We are seeing new restrictions being put in place all over the country, even in places like Texas, up in Massachusetts. Chicago just closed indoor dining. I have a feeling if there is a resurgence in New York, Governor Cuomo won't be far behind. They're closing down bars again. They're closing down, you see curfews being announced in cities outside the United States. So I don't want to say we're back to where we were, but we are not going in the right direction. And I think people over this past weekend

were really taken aback by how quickly the resurgence came on. And I think people felt, all right, this winter will be tough because it'll get cold out. People will spend more time indoors, which is how the virus spreads. But it happened in October. It's coming on real quick. And I also think there's some truth to the idea of just social distancing fatigue, like people having get togethers again, people having parties again, and just being like, whatever, I can't take it anymore. So you've got all these things happening and they're happening faster than people thought. And that's why you saw Wall Street react the way it did this week. You had a thousand point crash on Wednesday. You had a tough day earlier in the week. And I think

like we're in earnings season and people had expected for companies to report good news and for that to be enough to support the stock market, but they're taking these earnings calls and they're kicking them to the side. They're basically saying, look, it doesn't matter what companies are saying about the third quarter because the environment of the fourth quarter is going to be very different. Think about what was going on in the third quarter. You had the reopening. You had people coming back out. The comps got better. People were shopping in malls again. People were eating out again. People were traveling. If we're going backward, then backward-looking earnings results and commentary from management doesn't really help you that much in terms of supporting stock prices. So this is the second worst case scenario and it's very much with us. And I think people reacted by selling because they feel the ground shifting beneath their

feet again and us getting into another phase of this. Remdesivir being approved for hospitalized patients is a positive development. It's keeping people off of ventilators. It's, they say, getting the average patient who would spend 15 days in the hospital out in 10 days, which is great. I would also mention the death rate for hospitalized patients is way down. At the start of the pandemic, you had a one in four chance of dying of coronavirus if you ended up in the hospital. And now that's under 8% chance.

So that's very, very good. And our doctors and nurses have gotten a lot better at treating people and deserve a lot of credit. But we're still going to have to go down to lockdowns. Not complete and total shutdowns, but bad enough that it's going to impact sentiment. It's going to impact the stock market and away from the giant technology companies, it will impact earnings. So I think that's what you're watching get priced in as we speak. The third thing is the election. I'm not going to spend a lot of time on this, but people started to talk about a blue wave and they actually started to get optimistic about it. And they would say things like, oh, well, if the Democrats take Congress

and the White House, then stimulus will be huge and fast. And maybe that was true, but it's still unclear to me why anyone would expect there to be a decisive election outcome. So if you listened last week, you heard Barry Ritholtz and I discuss the fact that there's really no reason for Donald Trump to walk away. He's going to spend the next five years in court anyway. So he may as well decide to spend it in the Supreme Court trying to hold on to the presidency. So I have the same expectations for the post-election climate that probably many of you share. I don't think anything I'm saying is not consensus.

And maybe that's a good thing in that the market is already expecting a long, drawn-out, ugly, protracted process in order to decide if we have a president going into 2021. But again, it's another worst case scenario situation. So we're facing these three things, the virus being out of control once again, and nobody really knowing whether or not we're going to do anything about it, the lack of stimulus package, and now this election chaos. And you can understand why the Dow gave up, I don't know, 1,700, 1,800 points over the last week. This is where we are. It's hard to get a sense that all of a sudden any of these negatives are just going to stop on a dime or quickly reverse course. The one thing that I've said, and I said it on the blog this week, is that we do know that this vaccine is out there in the ether. We know it's coming.

I'm thinking about it like a deus ex machina. The deus ex machina is literally Latin for God from the machine. I'm not sure why we say it in Latin. It comes from ancient Greek theater. ancient Greek theater in 400 BC. Euripides and Sophocles and several of the famous Greek playwrights would do this thing where they would write this really complex set of conflicts in their plays. And the characters would get all twisted up and all these problems. Who's the real father? Who killed my son? Et cetera, et cetera. And then at the end of the play, there'd be an actor dressed up as one of the Greek gods, Zeus, Apollo, Athena, and that actor would be lowered to the stage by means of a machine,

hence deus ex machina, a lever of some sort or a crane, and they would lower that actor down to the stage and the actor would say, behold, it is I, Athena. I'm here to tie up all these loose ends and save the day in some cases. So I often don't look at these big, bad binary events and say, yes, this is something that will make a big difference for investors or they should obsess over it. But I do think a vaccine is a deus ex machina in the current economic situation. It is a game changer on every conceivable level. It absolutely has the power to not only shift sentiment within seconds, but to actually shift

fundamentals and change the course of the economy. And that's not to say that I think there will be a billion doses ready for the whole world overnight or that everyone, you know, there'll be enough to go around or that they'll have them ready soon. Forget about all, that's not important. What's important is how people feel always, always. And if the vaccine truly is coming, news of it truly coming is the more important thing. And I think that when that happens, you will see a major market reaction. Ordinarily, I would say, yeah, everyone thinks that so it won't happen. No, no, no. In this case, I don't even think you need the FDA approval. I think you get a good readout on a phase three trial at any of the various companies that are

working on this, and it's good enough. It's good enough. So when I talk about these worst case scenarios that we're facing, understand that that's not happening in a vacuum. That's happening with this deus ex machina somewhere off in the distance, not too far in the distance, and coming at any moment. So I would just say if you think about it from that standpoint, maybe it keeps you from getting too bearish or too fearful to function as an investor. Okay. The second thing I want to get into is I've been having a lot of fun mixing it up with the new generation of traders over the summer. I did this thing with CNBC called Summer School. Every Friday night, Jim Cramer was on vacation and they let me and Frank Holland do a show where we basically took calls, video calls, took questions from the audience. And it turned out that a lot of new and young investors had questions and wanted to be part of the show, which was amazing. I had so much fun. And I am unequivocally bullish on the next generation of investors. I think it's so great

that they're here. And I think in many ways, they will be superior to generations of investors that have come before them because of how savvy they are with technology and how entrepreneurial they are and what a head start they seem to have gotten this summer. So it took a while for this generation to discover stocks. But now that they have, they've given themselves a huge head start because of the way that they've just dove in. They're all in. So I love mixing it up with these people. And I'm giving you that as a preface for what I'm about to say. What I'm about to tell you is that there is just so much delusion out there. And a lot of it is understandable. There's an innocence to people that just started investing three months ago, made money really quickly. There's an innocence there. And it's totally cool because when my generation started investing during the first dot-com boom, we were every bit as delusional. So it's not different. I'm just surprised at the sheer quantity of it. So I've

been doing these old school finance tips on TikTok and having a lot of fun with it and getting amazing feedback. But in the comments section, there are people that really get mad and offended when you say obvious things like a majority of frequent traders will not be profitable. They're offended by that. So I want to just go through the history of day trading very quickly because I feel that so many people who started trading this year, they think they're doing something new or unprecedented and that they're going to break the paradigm and that millions of them are going to become multi-millionaires from frequent trading or momentum trading or day trading. It's obviously not going to happen, but I want to give people some sense of what's come before them. So the invention

of day trading really starts in the early 1980s with the turtle traders. It was a guy named Richard Dennis, who was a successful trader in his own right. And he was absolutely convinced that by teaching people off the street, a set of trading rules that they could go on to become million-dollar traders. And in the 1980s, like a million dollars was a million dollars, right? So in I think 1983, this was based on like an argument he had with a friend of his. And his friend said, no way, not possible. You can't take people off the street and teach them how to trade. not possible. You can't take people off the street and teach them how to trade. And he was convinced if I give them a system, I can. So he tried it and he placed ads and he started interviewing people. And there's an unbelievable book by Michael Cavell,

who's a well-known trend trader. And basically this all really happened. He brought people in off the street. He did teach them a system. And they did go on to make millions. Not all of them, but there were like a lot of success stories. And these were not people who were professional traders prior to learning the turtle trader system. And the turtle trader system is – these are people that are placing orders based on chart patterns. They're looking for stocks that are on their way up, and they're selling them when they're on their way down. It's not complex, but it's trend following, and it actually worked. But it hasn't continued. You don't have people

40 years later who are still following the same system because once something starts working, it can be arbitraged or imitated by machines very easily, very, very easily. And so like I'm describing the early 1980s, the turtle trading thing ends up flaming out because there are people that take the system and they do a lot with it and they're really good at it. But most people don't, or most of the edges involved with that type of trend trading eventually get arbed away. It's not like there's just – if you think that you can do the same strategy forever for 30 years and not change it and no one is going to catch on, that's the equivalent of saying someone is going to leave piles of $100 bills up and down the street and everyone else is just going to keep stepping over them. No one is going to stop to pick them up. And of course, that would be absurd. But that's the equivalent of what you're saying when you're saying that your system is going to last forever.

And let me just say a quick thing about systems. There's a reason why Renaissance Technologies, which is the most successful hedge fund in history, continues to hire new PhDs and math geniuses and science geniuses and government codebreakers, army codebreakers. Why do they keep hiring if they've already figured it out? Because whatever you figured out, someday will eventually stop working as other people figure it out. So when you tell Wall Street you have a system, they lick their lips. They love the sound of that because they know that they can eventually arb away those profits.

When you tell a casino you have a system, they send a fucking plane for you. There's nothing the casino loves more than a gambler who says he has a system. All right. So just keep that in mind, generally speaking. After the turtle traders, sometime around the aftermath of the crash of 1987, we had the Soz bandits. So in 1987, one of the reasons why individual investors were so badly hurt was that the brokers and the market makers literally stopped answering the phone. The markets were crashing and the market makers disappeared. The brokers disappeared. They literally wouldn't take calls, which may have helped stabilize the

market had they been there to execute trades and keep things moving. But you just had just this massive gap lower and no one to fill that in. And individual investors, retail traders, what have you, were really badly hurt because they couldn't get a trade-off if they wanted to. They couldn't get out of something if they wanted to. They couldn't buy something if they wanted to. So the regulators and the exchanges went back to the drawing board and they came up with something called the Small Order Execution

System or SOZ. And this completely flipped the dynamic. So prior to SOZ, large institutions had a trading advantage over small players because they were first in line in the queue. So market makers would execute their orders first. The SOZ system, which was largely electronic, which at that time, again, was from the late 80s, was pretty revolutionary, actually biased trading in favor of the smaller players. They got automatic bids for their trades or asks. So if you were entering an order on the SOZ system for under 1,000 shares for smaller lots, you could trade 800 shares worth of Coca-Cola instantly. You could just move that security. You could buy it. You could sell it. You had an automatic bid waiting.

You didn't have to wait in line to get filled with the market makers. So the SOZ system in the aftermath of 1987 as a solution to give smaller players a chance to get executed quickly, a few people picked up on that. A few guys realized, wait a minute, wait a minute, wait a minute. Think about what we can do with this. We can jump in front of the queue. We can go on level two data and we can see huge institutions that are waiting to buy or sell. And we could jump in front of them with small orders and we could basically eat their lunch. orders and we could basically eat their lunch. And so they became the So's Bandits. And there were a few of them that went on to fame and fortune. There was a firm called Daytech that was founded. There were some guys in Staten Island that built a huge trading firm based on that.

There was someone who opened up a trading floor in Chicago and was basically training so's bandits in a giant trading room. And they were just scalping. That's why they were called bandits. They were literally jumping in front of larger orders and taking the profit from that trade. And they were doing it on a small scale, but it was definitely annoying the larger investment players. They looked at it as a tax on their own profitability or their own business. So the So's Bandits was a big phenomenon. But then again, like most things, computers ended up taking away that small edge, right? Software ends up coming in and saying, why are So's Bandits able to even make a dollar

when we can write a program that scalps those profits right out of the system? So that went away. In the 1990s, you had the rise of prop shops and day trading firms that were taking advantage of all this new technology, and they were doing it with human traders. And these were the original day, you know, these are the first people to really call themselves day traders. And these were the original – these are the first people to really call themselves day traders. And I guess the most successful version of that is a firm called Schoenfeld Securities. I don't think he calls himself securities anymore. But it started as a brokerage

firm. And then some of the brokers, guys selling stock to clients, some of the brokers taught themselves to trade their own money and trade the firm's money. And Schoenfeld blew up and he's got like a ridiculous house in Westbury on the north shore of Long Island and many, many, many firms launched where they were no longer dealing with the public and they were no longer selling investments to people. And many of these day traders had started out as stockbrokers who switched careers. And they said, you know what? We can train these guys. They can use the firm's capital.

If they're good, we'll give them a little bit of leverage and we'll split the profits. And that was a great business until millions of idiots tried to get into it and blew themselves up. And again, this is another situation where technology eventually makes it so that there's like the last day traders left. And I know them, there's like five of them. Like there are very few people who are earning a living day trading, which is why most of them are selling some sort of product to other traders, or most of them are running a school, right? Because it's really hard to consistently make profits as a day trader. I'm not saying it can't be done. I'm saying there

aren't many people who can really do it for a long period of time. So Schoenfeld figured this out in 2010. This is like archival material that should be in a museum somewhere. Maybe it is. In 2010, Schoenfeld Securities wrote a goodbye letter to his own human traders. He literally told 60 people in a letter that went to the press, I'm sorry, but I have to let you go. Because he saw that the future was not dudes in chairs trying to outsmart the market every five minutes. He saw that this was all going to become technological, right? And there would be some really great traders at prop shops who would manage the software, but having rooms and rooms full of people would become unnecessary. And having mediocre versions of a day trader would become unnecessary.

So the only day traders that are still around and doing this professionally are the best that there are. You don't have like middle of the road day traders, at least not professionally. If they're doing that, then they're sitting in their houses. Anyway, so Schoenfeld writes this letter. And I mean, it's absolutely brutal. And I'm just going to give you a little taste of this. On December 5th, 1988, we started Schoenfeld Securities. Very soon after, we started hiring prop traders and many years later formed the Opus Trading Fund. So that was the proprietary day trading fund within Schoenfeld. And then he basically said prop trading has always been and will always be an extremely

important part of our business and certainly the one that is closest to our hearts. The best Schoenfeld traders will always have a place to trade and the capital to maximize their earnings potential. And then he goes on to say we are rethinking the notion that less skilled and less successful traders can be here forever without producing sufficiently for themselves and the firm. So he kind of did like a Pareto principle thing where he kept probably the top 20% and let everyone go. And he basically is like, I'm doing you a favor, firing you. So he's like, look, the direct competition, this is him, quote, the direct competition from black boxes, stat arb, high frequency trading continues to grow at exponential rates and is here to stay and has caused us to change our outlook for lesser skilled traders.

Based on the above competitive changes, we feel we are doing an injustice to both our lesser skilled traders and the firm by keeping them around. At best, they will barely get by. And that's not why we're in this business. Unfortunately, the career of trading is not a good option for lesser skilled traders going forward. We will be letting go many of these traders over the next six to 12 months. It is with deep regret and blah, blah, blah. So he's like, look, we're helping you get out of here. You can't do this. Sorry. You can't compete against software. You're not that good. You could barely compete against other people. So that's 2010. A decade has gone by. And hopefully the lesser skilled traders took what he said to heart and figured out something

new to do. Or more likely, they're sitting on Twitter talking shit to everyone else because of how miserable they are. But regardless, that's something that had been a long time coming. And now we get this new influx of traders because of this confluence of the pandemic, the lack of sports on TV, the rise of, you know, Davey Day Trader and Barstool. So you get this new burst of enthusiasm for day trading and all these new people, they don't have this context. They don't understand that every generation of trader, day trader, eventually gets arbed out from the turtle traders to the so's bandits to the 1990s day traders. It's not like you're going to have millions of people who started trading in 2020 and go on to reliably beat the market

every year. And if they're trading intraday on a regular basis, honestly, it's almost embarrassing that there are people that believe they can do that. So when you go on TikTok or Instagram and you come into Reddit, forget about it, Reddit, and you come into contact with all these people who they really think like, I'm going to wake up every day, set my alarm, read a bunch of shit on the internet, and then trade those stocks during the course of the day and be in message rooms and chat rooms. And I'm going to do that professionally with no training whatsoever. Like I'm going to teach myself to do that. You see how many people really believe this and how offended they get when you're like, I don't know if that's such a great idea. As optimistic and

as excited as I am about this next generation, it makes me feel like, okay, these people have a long way to go before they get to the point. And nobody wants to hear that from anyone else. That's the other thing I wanted to mention. People have to figure that out on their own, unfortunately, and they have to learn some harsh lessons. The best case scenario is they have fun doing it and learn enough to realize, you know what, actually, I'm not going to do this all day

long. I'm going to focus on my real career and I'll become an investor on the side. And I had a great summer trading and now I'm more mature and I've learned something and I think I really would rather be an investor. So I think a lot of them will have that experience and that's great. And there's nothing wrong with it. But then you're going to have this other group who start launching hedge funds and shit and like talking their family members into giving them real money and their friends and their neighbors. And you know, you see like 19 year olds giving financial 16-year-olds on an app and you just say to yourself, that's not going to end well. I'm going to button this up by sharing a tweet with you that I think is one of the funniest

tweets I've seen this year. In September, my friend Joe Weisenthal tweeted a chart of Citadel trading revenue. Rosenthal tweeted a chart of Citadel trading revenue. Citadel is this gigantic hedge fund in Chicago that also has a market-making business. And basically what they're doing is they're trading against Robinhood. So if you ever wondered why the commissions on Robinhood are free, it's because the order flow is being sold to Citadel. And Citadel is the counterparty to all these kids on Robinhood. And it doesn't matter. It's not a reason not to trade because the counterparty is smarter than you. You should just assume that they know what they're doing when you're trading and you don't.

But Citadel is making a ton of money from all this order flow because there's just an endless amount of trading going on. And not just at Robinhood, at TD Ameritrade, at E-Trade, at Schwab, at Fidelity. The amount of trades, the amount of new accounts open was incredible this year. And Citadel is like sitting on the other side of all these trades. So Joe tweeted this chart and he's showing that Citadel's trading revenue, net trading revenue went from 800 million in 2014 to 2 billion in 2017 to 4 billion in the first half of 2020. And God knows where it'll end this year. Could it be 8 billion? Could it be 10? I don't know. But that's pretty jaw-dropping. So anyway, here's my favorite tweet. So this guy at Quantian1, Quantian, who's a really, really clever guy or girl, who knows, says, I just can't get over the fact that an app called Robinhood is the vehicle for

transferring wealth from indebted, low-earning millennials to Ken Griffin. Ken Griffin's the founder of Citadel. So I got a kick out of that. It's a reverse Robin Hood. But again, no harm done if people are using dollar amounts that are under control relative to their financial situation and are learning something in the process. If they're launching hedge funds based on six months of successful day trading, that's another story. All right. Here's what we're going to do today. We talked enough about trading. We're going to talk about investing. I have a guest today named Hadi Youssef. Hadi Youssef created what I would consider to be the single best investing

app of the year. I love this thing. And this kid is in his late 20s. Super impressive. I think someone's going to buy him out pretty soon. He's built something truly special. I really, honestly, technologically, I don't even understand how the hell he does it. This is a tool. It's an app on your phone. It's free. Every investor should add this to their repertoire to better understand what's happening with their investments, what's happening in the broader economy.

You're going to love it. So we're going to get to Hadi right now. But first, Duncan, do the thing with the disclaimer. Welcome to the Compound Show with downtown Josh Brown. Josh is the CEO of Ritholtz Wealth Management. All opinions expressed by Josh or any podcast guest are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Okay, we're here with Hadi Youssef. Hadi is the creator, the founder, and I suppose the CEO, the man running Earnings Calls, which is an app that earlier this summer,

I referred to as my absolute favorite new investing app that exists. Basically, Hadi's here today to talk about what he's hearing from CEOs and CFOs on Earnings Calls. We'll get into a little bit about how investors are using his app to figure out what's going on with the companies they're invested in. So Hadi, welcome to the show. Josh, so good to be here. Absolutely. So I wanted to start with this. It's kind of weird in this current earnings season because every CEO and every CFO, I think they want to give meaningful guidance about what investors can expect in the

fourth quarter and the first quarter and next year. How on earth can any executive seriously do that right now? Well, that's exactly the thing. They're not. I can't tell you how many times I've heard the word uncertainty on these calls and that they just can't give any meaningful guidance. And there's just too many variables at play right now, whether it's, you know, the pandemic returning, you know, as a second wave, stimulus talks, there's just so much going on that nobody, especially if they claim that they know what's going to happen, really nobody knows what's going to happen. And that's something I just keep hearing over and over again on these calls. How many calls are you listening to a day or a week, would you say, on average? You know, this week is pretty crazy, but probably

five to 15, depending on the ones that, you know, what I'm interested in. So your app is cataloging how many corporate calls in each earnings season? How many are you guys doing? 5,000. 5,000. Yep. Okay. So even if you wanted to listen to them all, you couldn't. So how do you choose what you're going to be paying attention to as both an investor and as someone who's building this app as a service for many other investors who we'll talk about in a moment? You know, for me, it's a personal, you know, choice for me. What am I interested in? What are the companies that I understand that I've been following for a while? Because it's

kind of a long narrative that you kind of are piecing together quarter after quarter. And so, you know, what are the companies that I'm personally interested in hearing how they did over the last, you know, 90 days? Those are the companies that I, you know, like to choose. These are the companies that I either have an investment in or I use their products and just curious about their overall performance. Or maybe I like the CEO and just like to hear their take on how things are going. You know, it's just, it depends on what I like really. And, you know, there are some companies that give you a pretty good barometer for how things are going, whether it's, if you're listening to a Visa call or American Express, MasterCard, you know, these, you get a good sense of, you know, how, what consumer behavior is

around payments and spending. Obviously the big tech companies are very kind of interesting to me and I enjoy listening to them and hearing how they're doing and how they're taking advantage of this fundamental shift in the way we work and the way we conduct business. And so it's really a personal, it's really what I like. And I think that's the case with a lot of people. So what are the things that you're hearing aside from uncertainty specifically, like some of the calls that you've been listening to this earnings season, what are like the big takeaways for you? Really the biggest thing and the way I would categorize it is the genie's out of the bottle.

So when I, you know, I was listening to the payments companies, the, you know, Visa, MasterCard, American Express. growth in contactless payments and e-commerce spending, they themselves, they're quoted on the call saying it's never going to go back to the way it was before. They're seeing huge spending on, for example, Visa was talking a lot about their huge growth in debit usage versus credit usage that's actually declining. And that retail spending on debit is growing for all the daily, everyday spend categories, they call it. And so people prefer to spend the money they have rather than relying on credit. And so it's just really interesting trends that we're seeing around, they see these trends having staying power and that's what they're saying. And so it's really interesting.

Yeah. One of the things I've been saying a lot is that once you get people used to conducting commerce in a certain way, it doesn't really matter if we, quote, reopen the economy or introduce a vaccine. It's not like people are going to say, oh, yeah, I don't need that convenient thing anymore. Let's go back to doing things the way we were doing them. They're not going to. Yeah. On the MasterCard earnings call, I heard this really interesting study they did where they found that 70% of the people globally that took this survey said that the shift to electronic payments is permanent. That's what they think. 70%. That's really interesting. I was thinking about this Christmas coming up. So when you think about all of the people that

were forced to start buying things online that maybe would not have, and I think of older people, of course, there was a point in time where they had no choice but to try online groceries. And then once they did, they were like, yeah, why would I ever go back to a grocery store? And I always hear this thing like, oh, I like to pick up my own produce. No, you don't. No, you don't. What do you even know about produce? All right, fine. But let's assume that that idea carries forward into all types of shopping. And now you've got just so much more reliance on e-commerce. Why wouldn't we expect, for example, Amazon to have the most incredible holiday shopping season

ever? So I was thinking about that. It's really important to break it down by categories. So travel, entertainment, these kinds of leisure activities, that's obviously declined, but things like groceries, uh, and, you know, that's, that's obviously seeing, you know, very, you know, it's a very stable, uh, kind of pattern that they're seeing. Um, one of the most interesting things that I heard across all three, you know, American express mastercard visa is that they all kind of validated idea that restaurant spending is the most resilient category versus travel and entertainment. And Visa was even saying that they're seeing it back to pre-COVID levels, which, you know, when you hear all these, you know, headlines around, you know, the death of restaurants and kind of the craziness and the hysteria around it, that's not what the payment processors are saying.

So I guess it's just a mix shift, which restaurants, right? And how much of that is takeout versus indoor dining. And that's probably where the big difference lies. And then there are just restaurants that what they do doesn't translate to contactless payments and delivery. And that's where I think the pain is probably coming from. I want to talk about your creation of the app, what led to it, and then we'll get into who's using it, how they're using it, and why you think conference calls in general are such a great resource for investors. Yeah. This all started while I was still in school, attending Indiana University. And I would be on the way to class and I had- How long ago was that?

Five years ago, probably. And so I had some high school graduation money, always really interested in the stock market, wanted to learn about the companies that I had heard about and just wanted to understand, are they a good company to invest in? I would read all these news articles, you know, maybe I'd find that a random tweet, analyst report, whatever I can find. And I kept seeing references to earnings calls, quotes from them, you know, takeaways, summaries, all these things. And so after seeing it probably for six months, a year, and it's kind of funny to say that, but I said, well, what are these earnings calls? Let me, I want to listen to these things. You know, I always enjoyed, you know, the CEOs I like listening to.

I go on YouTube, find their, you know, interviews. I enjoy learning about them and their companies that way. And so as soon as I discovered earnings calls and the fact that it's essentially the company's podcast, you know, it's their quarterly podcast that they're putting an episode out every quarter. And in that episode, the management team gets on and talks about how that company did, the good, bad, what their outlook is, et cetera. And then there is a Q&A. I'm describing what we all already know and everyone listening probably already knows this, but I found this very fascinating as kind of this, I guess, an early young investor. And so I kind of never went back to relying on headlines or tweets. If I was interested about a company, I wanted to listen to their earnings calls. I wanted to hear

directly from the management team. I wanted to hear the tone and the excitement or the pessimism from the analysts on the call and that kind of the question. Yeah. So you're getting it from the horse's mouth. You're literally getting news directly from the source. Now, there's spin involved there too, of course, because everyone wants to put the best face on what they just reported. I own this stock, Schlumberger. So I listened to the call on your app the other day. And it's like a French guy. And it was kind of hard to make out everything he was saying. But he was talking about like how incredible the quarter was.

The stock went from $50 to $14. I have no idea what he's talking about. So there's definitely some cheerleading and some spin coming from management. But the numbers are real. And then the Q&A thing, that's not like random people raising their hand to ask a question. That's the most knowledgeable analysts on Wall Street that cover these companies. These are the people that know these companies better than anyone. So the questions are oftentimes the best kind of question you could get. And you can learn a lot about what's important,

like what are the metrics that the analysts are following based off the questions? So if you're just kind of getting introduced to a company or even a sector, you can start to learn, okay, what are the questions being asked on these calls? What are the analysts or the, you know, whoever's on the call, what are they interested in? So you can learn a lot by just listening to the calls. That's a good point. Like you listen to the conference call for a real estate investment trust. They're not talking about earnings per share.

They're talking about funds from operations and adjusted funds from operations. Those are the things that matter. You listen to media companies, they talk about EBITDA, they talk about cash flow because they're making big investments. And the thing is not just profits, but it's like, what's the cash flow? It really boils down to, you can read all the headlines, tweets, whatever it is that you kind of consume. But I found the most valuable resource to understand what a company is doing actually comes from the company itself. And so when I summarize it, that's kind of how I like to summarize it. Who are your favorite CEOs to listen to? You know, I can't help but really say Elon Musk. Same. I don't own Tesla. I listen to every single call. Exactly the same. And so when you listen to other calls

and kind of hear the twist and everything, kind of the marketing spin that they do on prepared remarks and everything, Tesla doesn't even have opening remarks. They just jump straight into Q&A, which is actually something that I actually really enjoy and find valuable because most people skip to the Q&A anyways. When you listen to these conference calls, do you ever say to yourself, I don't see how this guy's the CEO? He doesn't seem to really be that excited about, because that's the reaction I have, but maybe that's just my personality. Sometimes they're really boring. Sometimes. And then there's also other kind of awkward interactions also happens in the Q&A where a question gets asked and nobody on the management

team knows who to answer. And they kind of fumble and you kind of get this weird dynamic. You kind of can, that's another thing that you get when you listen to these earnings calls is you pick up on hesitation, on awkwardness, on, you know, lack of confidence. If you're just reading a transcript, all of that is gone. You don't pick up any of that. But when you're listening to it, you hear the tone, you hear the confidence, you can really distinguish between who's... And listen, there are some people out there who are very good at faking it and will sound all great. But the way you get around that is just listen and look back at the history and how they've executed against what they said they

were going to do. And so by no means is listening to an earnings call the only thing you should be doing. It's merely one piece of a bigger puzzle. So I found that I was able to learn a few companies from your app this summer. So I spend the summer like the only exercise I really do is biking. You know, I'm riding like an hour at a time or maybe a little bit more. And I could knock out two calls during the course of that ride. So I learned about a lot of the new hot IPOs and brand new companies to the market that everyone was trading. And like, I didn't want to have an opinion on them without getting to know them.

that everyone was trading. And I didn't want to have an opinion on them without getting to know them. And I found that the conference call was a better starting point than reading 8Ks or reading articles. And for exactly the point that you made, listening to the things that the companies are being asked gives you a clue as far as what people really care about who are invested in the stock. So you guys built a business based on that premise. Yeah. I mean, when you think about it, the modern brokerage services, they made it easier than ever to buy and sell a stock, right? The same cannot be said for learning about a company. And my whole thing was before you decide to buy, sell or hold, how do you make that decision? You don't just put your finger in the air and see the way the wind's blowing. You have to actually do the research.

And so there's a huge discrepancy between how easy it is to buy and sell versus how hard it is and how much friction there is to actually get access to the information about that company. And so part of our contribution to this problem is to make listening to earnings calls, as I always say, as easy as listening to a podcast. That was your big insight, I think. Prior to you, if you wanted to listen to an earnings call, you had to, and like most people would want to do this on a phone, not on a desktop. So you had to navigate on Safari or Chrome browser on your phone to the investor relations page for each company separately. Every investor relations page is different on every corporate website. So you would have to like really try to find

where they archive the calls. Then you would hit play and you had to keep the browser open on your phone in order for it to keep playing. Like if you closed your phone and you had to keep the browser open on your phone in order for it to keep playing. Like if you closed your phone, it wouldn't keep playing like it does when you listen to a podcast. And that's super, that's super annoying. So I think your big insight was the ease of accessibility and playing these calls as though they were a podcast.

Now, the only thing is that you have to wait. They're not live. You guys have to archive them. Let's say Tesla reports earnings at 5 p.m. tonight, right? How long before people using your app could listen to that call in its entirety? I would say on average 15, 20 minutes after the call is done, it's up on our app. That's amazing. How the f**k are you doing that? That's the secret sauce. All right. Don't tell me. How many people are you doing this with? Your company's called Borsa, is that right? Yeah. Borsa, Ernie's called. What is Borsa? It's a Turkish word for market? Borsa means stock market in Turkish, Italian, Greek, Arabic, a bunch of different languages.

It's short, easy to spell, has a nice ring to it. So I went with that. All right. I'm going to try to, like offline, I'm going to try to convince you to change the name of the company to Earnings Calls, but you don't have to listen to me. Well, if you go on the app store, just search Earnings Calls and it'll come up. And so we named it for SEO purposes, just Earnings Calls for that matter. Smart man.

How many people are you working with to get all these calls into the app? It's a pretty small team. It's two or three people with an intern. That's unbelievable. And you're doing 5,000 of these every quarter. That's unbelievable. So there's a lot that goes into preparing for this. You have to know when the calls are happening,

what time, you know, earnings calls. It's not like a set schedule that gets announced at the beginning of the year. Here's all of our calls on this time and date. You got to wait for the press release to get announced or when the call is going to happen, where the, where that webcast is. And so that's another kind of offering that we do is we'll send you a notification. Like you don't need to worry about when it's going to happen.

We'll just send you a notification when the call is available. I could, in the app, I could say, I want to know when this call is going to come out and you could let me give me the heads up. This is about to be online. Yeah. Any company that's on your watch list, we'll send you a notification for when a new call is available for it. Dude, it's sick. It's sick. Right before this quarter, live listening is valuable to a good percentage of our users. is valuable to a good percentage of our users. Now, there's a kind of technical aspect to streaming the live webcast because all the different webcast providers.

But what we did as a kind of a temporary, almost like a test, is we will actually link to the live webcast if you really need to listen to the live webcast. And then when it's on archived, you can listen at faster speeds. So there's a lot of users out there that want to listen at 1.5x speed to get through calls faster. And that's the value of being able to listen to them as an archived call. Or you can download it if you're on a plane train back when we would do that for offline listening. Right. So how many people do you

have coming, let's say each month? And I know during earnings season, it's busier than otherwise, but how many people are using the app and what are they like? Who are they? Yeah, we have seen pretty remarkable growth this summer. We're now sitting at around 15,000 monthly users. I tend to look at it at a quarter because as you said, you know, one user may only visit at the beginning of the earning season versus, you know, at the end. When you look at the quarter, it's over 25,000 users. That's awesome. So who are these people? You know, I initially built this thinking it was just for me, like the professionals out there,

I initially built this thinking it was just for me, like the professionals out there, they had their special tools that they would use to listen to this stuff. And so I built it for myself. So retail investors, kind of, you know, novice, you know, people just wanting to listen to earnings calls and learn about the companies they're interested in. To my surprise, I started getting, you know, I would see the emails that would come up for, you know, for signups and you would have, you know, it'd be very obvious that they're part of an investment bank. They're reporters. They're analysts. And so it really spans the entire spectrum from retail investors all the way to people who manage billions of dollars.

Okay. And now the people who are managing money professionally who are listening to these calls, you're providing something that they would otherwise have to listen to either in real, maybe they're listening in real time, but they want to hear it again. Or maybe they're just casually getting to know a company, they're not invested in it yet. And you're just giving them this amazing experience to learn these names, which is what I described before. So then how do you take that a step further? How do you say, okay, now we have this audience of people that we know are into conference calls. What else can we do to make their jobs easier or to make their experience better or to get them to

actually pay us money? Like, where are you going with this now? By the way, I should mention the app is currently free. It is like, okay, so now how do you get them to pay you? Yeah. So at the very beginning, the big question that I was kind of testing or wanting to figure out as a kind of proof of concept of do enough people want to listen to Ernie's calls or am I the only weird other? As the proof of concept goes, it's been a quite successful proof of concept as far as these prototypes go. And that's kind of where we're at still, if I'm being frank. The exciting question is, now that we have all these earnings calls, and it's actually not just earnings calls, we also have shareholder events, investor day events, industry events. But for the most part, the big use case is earnings calls. But now that we have

all these earnings calls aggregated, organized, packaged into this really consumerized user experience, what are the new functionalities that can be unlocked now that you have all this content aggregated and organized? And so kind of the immediate thing and what we're working on is layering research and analytics tools on top of all these calls. And so it's, you know, that's kind of the direction you're going to see us going. And, you know, there are some obvious things, you know, we get lots of requests to do transcripts. You know, personally, you know, that's not where we started because there's so many services out there that'll do the transcripts. But even for us, some of the exciting things that we're working on is how do we marry the written transcript with the audio earnings call? And what can you do as far as annotation?

Yeah, because I think what people want from you is curation. Like I think where you could really add value is to just be like, look, we listened to this 50 minute earnings call and there's probably eight minutes that are really gonna be important to you if you're trading the stock currently or considering buying the stock

and then giving them that. Like if you figure out how to do that effectively, I don't know if it's a highlight reel or if it's something written, but to me, that seems like a lot of people would pay for that. You can do highlight reels for an individual call or across an entire sector or across an entire subject matter and start to pull out the obvious one, COVID or in the winter months when the weather is really bad and how that impacts kind of travel and airlines, pull out all the segments related to a specific event across a bunch of earnings calls. If you had a 15 or 20 minute highlight reel for all the semiconductor stocks, I feel like there are a lot of people that

would pay you for that because there are so many of them. And most of what they're saying is not terribly important, but there's probably a lot of really great nuggets in there, but it's, you know, it's labor for you to find them and put them together. Right. Yeah. That's something we'll, we'll grow into and you'll start to see us do small tests here and there. You know, kind of the easiest thing would be to start with a short summaries of earnings calls'll start to see us do small tests here and there. You know, kind of the easiest thing would be to start with short summaries of earnings calls and start to develop complementary or supplementary content to earnings calls and company content in general. Okay, so now you know what the next step is going to be. The quants and the alternative data junkies are going to come to you and they're going to say, all right, we want to write an algorithm based on the amount of mentions of this word. Or we want some sort of a way that we can systematize trading based on commentary or Q&A from analysts. and our proprietary data tells us that if analysts say congrats on the quarter more than three times,

there will be at least one upgrade of the stock the next morning. You know that's what's coming to your front door any minute, right? Yeah, and I have gone inbound interest with people wanting access to our API and whatnot. So those discussions are being had. and whatnot. So, you know, it's, it's those discussions are being had. Another idea though, that, you know, I've spent, you know, I don't know how many hours, dozens of hours shadowing, talking to, interviewing directors of investor relations departments. And it was tremendous kind of learning experience about what we do and kind of the content, the way the content gets created. What you realize,

and it's fairly obvious, but a tremendous amount of effort goes into preparing earnings calls. You know, people like to make fun of them. Oh, they're scripted, they're whatever. But a tremendous amount of energy and resources. It's not just the IR department, it's finance, accounting, you know, shaping the narrative that they're telling with the management team. So a huge amount of time and resources go into making sure that these earnings calls are put out, that they're put together, they're accurate, they're telling the right story. And so an opportunity that we have is to partner with investor relations departments. And by enabling them to get distributed on this of this new wave of audio only podcast, kind of this new medium that we have, they're able to develop a better relationship with their investor base.

And now, why do they only need to do, you know, an earnings call every quarter? What if they did additional content, additional, you know, think of new different podcast episodes that they could release as follow-ups? Oh, like something that was produced specifically for a podcast audience. Yeah, like they should treat their relationship with their listeners like a podcast host would treat their relationship with their audience. If anyone's going to do that, it'll be Daniel Ek at Spotify. Like that's the guy, that's the first guy that should get this, that should figure out, all right, we'll do the conference call. We know everybody wants that. But then what if I did a podcast episode that just went through our financials and all the highlights of the quarter

and any forward-looking statements we're going to make, we'll throw it right on there. We produce it. We make it sound like something interesting for the next generation of investors. Somebody's going to do that. And Josh, I don't know if you've heard any of the Square earnings calls, but what they're doing, and Shopify did this as well. I was listening to that this week. They're bringing in their own customers into the call to ask a question. I haven't heard either of those. And it's a really interesting, it shows you the way they're thinking about the change in the audience of their earnings calls. I think we're going to see more of that. I love that. I love that idea. I hope you're right. I hope you're right. All right. So the last thing I wanted to ask you is, so let's say someone's listening who

is an investor and they haven't spent a ton of time on conference calls. Like, what would you tell them if they wanted to get the most out of this, this idea of using your app and listening to these calls? Would you tell them skip to the Q and a, because the prepared marks all appear, you know, in writing somewhere in their, in their boiler plate or like what, like what advice would you give somebody who wants to incorporate your app into their investing process? Yeah. Assuming they're retail investors,

not very... The average person, right? Yeah. I would suggest they start with a company that they are fairly familiar with. They understand the product. They probably know the CEO. And to treat the earnings call like a podcast episode that this company has just released, where the subject matter is just inoculating themselves from lawsuits. Yeah. And every company does it on every single call. And this may turn off the person who thinks that this entire call is going to be all super jargony and something that they're not going to understand. I wouldn't suggest that they jump straight to the Q&A if it's their first call. suggest that they jump straight to the Q&A if it's their first call. Let them listen to the entire call. Get a sense for how it goes. Usually the CEO will speak and the CFO will run through the numbers. Just treat it like a podcast episode. Do the dishes. If you listen to the same company

like two or three quarters in a row, then you start to pick up on it almost like a storyline, like a narrative arc of how this company gets from A to Z. And you're listening, you're like checking in every 90 days, hearing how far they've progressed along the initiatives that they laid out earlier. And that's when you really get to learn a company well from listening to them over time. Yeah, I wouldn't start if you're just discovering a new company, you know, and want to listen to their calls. I wouldn't start with the latest one. I would go back as far as possible, maybe a year back and just start to listen in order. And again, you can listen at 2x speed, 1.5x speed, whatever it is. So that doesn't take as much time as you may

think it would. And just start to paint the picture for what their story is. What journey are they on? What's the best call you've heard this quarter or this year? What's the one that really stands out to you? Because I'm going to tell people to go back and listen to that one to get a sense of what you think is a great call. Two come to mind for different reasons. One, Shopify. I think they're just killing their execution right now.

ShopPay, they have a really, if you listen to their opening remarks, which is another reason why you should and not always skip to the Q&A, but ShopPay is just destroying right now. They're killing it with ShopPay. What is that? Their own payment process? Their own payment process. They can do payment plans and they're seeing a huge uptick in payment plans versus credit. People not wanting to put it on a credit card and get fees and all this stuff. Is that kind of like a firm? And right, you could break a payment into installments, but not pay credit card like rates.

Okay, what else? You can't listen to the Shopify call without thinking this company's killing it. The other one is a bit different. UPS. So UPS got a new CEO this summer. Her name's Carol. And I think she was the ex-board member, if I remember correctly. But when you listen to this call, and you can imagine UPS is a very kind of key element of our infrastructure, delivery packages, all this stuff it's fairly obvious but when you listen to carol's voice her tone her confidence her leadership skill you can't help but think this is a born leader like the way she responds to questions the enthusiasm that she has i am really enjoying i think this is her second earnings call that she's been on she sounds like a true leader i don't know how else to put it. And you can't help but stay engaged and listen to what she's saying.

So I think you just brought up something that we didn't even get into this. But like just the learning how to speak like a business leader is another ancillary benefit that you get from listening to these calls because you hear from Fortune 500 CEOs, this is how they set the stage for what the company is doing. This is how they communicate. These are the phrases they use. And I think especially for my younger listeners, that's such a great place to get that education, to actually hear them speak to the people who have money invested with them. That's probably as good as it gets. Hadi, I want to thank you for coming on the Compound Show. We're going to have you back for next earnings season. And we'll talk about some of the trends

that we're seeing then. But for anyone who's an investor who hasn't yet got into conference calls or figured out a way to do it, this is the best thing that I've ever seen. And you're going to love the ease of use. It's just like using whatever app you're listening to us talk on right now. And you can close your phone and it keeps playing. You can rewind, you can pause. It's just, it's so killer. So congrats on inventing this thing, wish you all the best of luck and we'll have you back again.