The Compound and Friends - Where is the Crash?

Episode Date: May 19, 2023

On episode 93 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Chris Davis and Morgan Housel to discuss the big wave of AI coming, the most important chart in the stock market, SVB insiders facing scrutiny, the worst startup investment ever, and much more! Thanks to Kraneshares for sponsoring this episode. For more information on KLIP, visit: https://kraneshares.com/klip/# Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com 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. Wealthcast Media, 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

Wait, what? No, I don't. I have a phone. Chris does everything. He writes everything by hand. Slide rule. Michael's going to turn his computer around and let you see it. I will at least five times on the show. That's sort of my... Headphones?

Headphones, yeah. You know why? It just will help you regulate the sound of your own voice better, because you'll hear yourself if you're too far from the mic. So it's a little psychological trick, but leads to better audio. How long are you guys in town for? I got in last night. Both of us came from Richmond yesterday.

Yeah, but I live here. Were you doing something together? Yeah, we were at the Markel annual meeting. Chris is a longtime Markel shareholder. And he's a board member. So is Morgan technically your boss? Practically. I mean, in a sense. No, he works for me. I'm a shareholder. That's Morgan technically your boss? Practically. I mean, in a sense. No.

In every way. I'm a shareholder. That's true. I'm a shareholder. Vote him out. Vote him out. I'm going hostile. What's the stock up today? It's down 2%.

Oh, my God. That's it. We're going hostile. I read about Markel in the book. What is that book called? It was so good. Carter Weiser. No, the other one.

Dear Shareholder. Is that what it was? It's probably in there, yeah. Is that Jeff Grammar's book? Yes. Oh, it's great. It's so good. There's like 20 companies

in there, right? Yeah. And they take the letters that have been written to the shareholders and then tell the story of the company. Tom Ganner has been

the Markel CEO for a long time. He's been at Markel for 30 years. He writes a great annual letter. It's really, really worth the read. It's great. Ikel for 30 years. Yeah. He writes a great annual letter. It's really, really worth the read. It's great. I would actually bet

that if you did a portfolio of companies where the CEO personally writes the letter, that would be a portfolio that would have outperformed for 30 years. They're probably only eight of them.

Yeah. And what about CEOs with a 20-year tenure? It's probably pretty rare, too. Tom has not been CEO for 10 years. He's been sole CEO for four months. Before January, it was a co-CEO structure with a guy named Richie Witt. And they had been co-CEOs for five or six years.

And before that, a guy named Alan Kirshner was CEO for 20 years or so. Yeah, and Tom was a crank in the investment department. I met him 30 years ago, 30 to 33 years ago. When you were 10 years old? No, I met him at, we were sitting, he was sitting behind me at the Orpheum Theater in Omaha at a Berkshire Hathaway shareholders meeting. And he changed the arc of my life actually and my career. Well, I used to have this line. I was actually in seminary for a time, but I grew up in this investing family. My grandfather and my father, they loved what they

did. I mean, they loved investing, and they made it interesting. I'd worked there in summers, but I didn't think it was for me. I wanted to go to seminary. And when I ended up going back and working and investing, my throwaway line was – if anybody would ask how it was going, I would say, well, it's really interesting work but it's not a high calling. And I made that line when I first met Tom, like in the first five or ten minutes. And he said, actually, you're wrong. Stewardship is a biblical profession. Like it is, it is an incredibly high calling. And it totally reoriented me from this idea of investing as this fascinating puzzle and studying current events to, to this idea that actually you're, you're a steward for somebody. So when you think about it as stewardship, as opposed to like, oh, we're just

going to make these rich people richer. It's a different frame. Yeah, well, actually, Morgan and I were talking about this earlier because very early in my career, there was this path that we could have taken to become essentially a hedge fund. We had much higher fees, you know. And I thought about it along those lines, you know, making rich people richer. I think our average client might have $35,000 with us. So it is, it's a totally different mindset. So it's, it doesn't have sort of the glamor and the high fee structure and all of that of a hedge fund.

What percentage of CEOs do you think write a personal letter to the shareholders once a year? If you had to guess. It's not even percentage. It's like the, you can count them on. Come on. I would guess 1%. Well, Bezos does now. Bezos did. He doesn't anymore. He doesn't anymore.

Jamie Dimon. Dimon. Dimon, yeah. Dimon's letters, I think, are probably the most prominent now. I said they're the new Buffett letter. Yeah. Yeah. Yeah.

And they're 40 pages. Yeah, they're long. It's a book. You said you met this guy at the Berkshire meeting. What's your Berkshire origin story? book. What's your, you said you met this guy at the Berkshire meeting. What's your Berkshire origin story? Ah, well, it was, I mean, it was sort of legend sort of growing up, but, but, uh, uh, I met Charlie Munger probably around then, around 1990 or 91. Uh, uh, how old were you when you met him? Well, I was trying to sell a business to him. And this is a true story.

It was a securities lending business. And my grandfather had it in a brokerage firm that he had started. But my grandfather was determined when he died that all of his money – and he had started – he borrowed $100,000 to get started. It was $800 million by then. But 100 percent of it was going to charity. He didn't believe in inheritance. And he wanted somehow his firm to live on, like the name, but there wasn't it was going to charity. He didn't believe in inheritance. And he wanted somehow his firm to live on, like the name, but there wasn't going to be any capital. And one of

his operations was a security lending operation. And I don't know if you know that business. It's a very back office intensive sort of business, and it's a little opaque. But I had thought that Berkshire could be in that business because they had a portfolio of appreciated securities, had a very high credit rating. And so there were like 17 employees and so we felt a certain amount of duty to them. They had been at the firm a long time. But they were – it was a totally different culture and I mentioned it to, so I got an opportunity to have breakfast with Charlie and I talked to him about this business and he stopped me and he said, I have no interest in a business run by seven guys named Vinny. But I am interested in how you-

Stock loan. Yeah, yeah. And he said, but I'm interested in how you thought of Berkshire. And then he left an open invitation. He said, anytime you come to LA, you could see yeah. And he said, but I'm interested in how you thought of Berkshire. And then he left an open invitation. He said, anytime you come to L.A., you can see me. And so, like Tom Gaynor, he became this enormous influence in my life. And I actually went on the board of Berkshire. He hasn't changed at all. Charlie?

Yeah, it doesn't seem that way. Oh, no, he hasn't changed at all. Which is great. It is amazing. How long have you been on the board? Just a couple of years. Just a couple of years. Well, save your seat for me.

What is that response? I'm a Berkshire shareholder, hopefully lifelong. What is that responsibility like? What do they ask of you as a board member? Well, I think that, I mean, I like to joke that, you know, I'm from a family culture where the motto is always work before play. Yeah. Or Morgan and I were talking about ways that you manipulate yourself into doing things that you don't want to do. And so you eat your vegetables and then you get dessert.

And I was saying Berkshire is sort of the opposite. Like you get the dessert now because you get to be with Warren and Charlie and this just incredible – Yeah, it can't feel like work. No, no. It's an incredible gift. And they are so wired for stewardship and duty that the idea that you're representing the shareholders seems sort of crazy, crazy redundant. Right.

But I think that in the future, the work will be that Berkshire's structure is so unorthodox and it so flies in the face of all of the conventional forces of consultants and investment bankers and corporate structure that I think the responsibility of the board will be to defend and to sort of hold back that sort of conventionality and to really protect and preserve the culture that's been built there. I like it. And I think as a shareholder, I felt really good coming away from last weekend just seeing Greg on stage. And it's really the first time that they've put him that front and center. I know Jane has been up there. But to see him there and just like feel that continuity starting.

Yeah. I know that was deliberate. Yeah, and I think Ajit also did an incredible job. I mean there were some questions about Geico and his just candor and straightforward way of describing what had been the challenges, what was the opportunity. And I always like to joke, can anybody name the second CEO of Exxon? Right. Or the third. Right. But what John D. Rockefeller built was a collection of assets that had enormously long lives, cash-producing assets. And he built a culture that was engineering-focused, totally rejected Wall Street,

rejected really any outside interference, but was incredibly deliberate, thoughtful. You know, I think there was a comp plan. If you were to read the proxy of Exxon a few years ago, I think their executive compensation vests like 10 years after retirement. After retirement, right? Because that's – there's nobody – there's no other company that thinks like that except in some ways Berkshire. I mean Berkshire thinks you have a management that is so passionately protective of their successors and the people that have entrusted their savings there. And so I think in some ways I like to think that people are saying,

who's the next Warren Buffett? And I feel like that's like saying, who's the next John D. Rockefeller? I already said it. It's Chamath. I said that on an open mic two years ago. I love how you guys laughed, but he actually said that. No, I literally said it. But I didn't put a time limit on it. And in Josh's defense, he said might.

He did say might. And I said might. So maybe he was wrong. I agree. There's no next Warren Buffett. And based on what you're saying and what shareholders feel, it doesn't need to be. John, let's get this party started. The structure is there.

Good. Let's start it. Three claps are coming in. All right. We're so excited to have you guys. You can hear the crowds going nuts. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions

and do not reflect the opinion of Red Holtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's show is brought to you by our friends at Crane Shares. One of the most popular investing strategies over the past couple of years has been cover call strategies, particularly in ETFs. They blew up over the last, I don't know, 12, 24 months. We've spoken about the Craneshares China Internet ETF before a million times, KWeb. There is now a cover call strategy on that. The ticker is KLIP. That's CLIP. If you would like

to learn more about the fund, visit Crenshares.com. this is your chance. This spring, we opened an office in Austin and we're coming to celebrate on Monday, June 12th, Tuesday, June 13th, and Wednesday, June 14th. I'm bringing eight of my top financial planners and client service people with me for a week of meetings, music, and barbecue. If you want to talk to us about your situation, this is how you can get in touch. Send us an email.

Info at whitholtswealth.com with the subject line Austin. That's info at whitholtswealth.com subject line Austin. We have a limited number of meeting slots available, so don't wait. One other thing. If you're a financial advisor in Texas and you're looking to take your career to the next level, this is a great opportunity to meet us. Founding partner Chris Venn is coming with me as well as new firm president Jay Tinney. We love our fans and followers in Texas. See you in June. All right, 93.

This is going to be one of the biggest shows we've ever done. No pressure. No, no pressure at all. But I have to say, we are so blessed to have the guests that we have in the house. And I actually want to give Michael the microphone to do our introduction. Shock and fear. The future proof introduction you said? Listen to me. Introduce our guests. Okay.

We've got Morgan Housel. Everybody knows who Morgan is. Let's move on to Chris. Only kidding. I'm only kidding. Morgan Housel is a partner of the Collaborative Fund but most notably known as just the best financial writer of our generation

that was literally the title you gave Ben Carlson well no Josh said that I never said that you know what I did I said Ben is the best financial writer of his generation and you are the best financial writer of yours Ben's got you by three years totally different things Ben is the best financial writer of his generation. Okay. And you are the best financial writer of yours.

Ben's got you by three years. That's right. Different generation. Totally different things. Is Ben Gen X that? Yeah, Ben Gen X. All right, so it's different. You represent the millennials.

I'm an elder millennial. So Morgan is the author of The Psychology of Money, which literally sold two million books. Three. Three million books. Two million. Please. Not to rub it in. So that's got to be, honestly, like a top 10 financial— Nobody sells three million financial books.

No, but that must be all-time top 10. Yeah, I think it might be for finance books. I think it's— Well, what are they? Is it Rich Dad? Rich Dad, The Intelligent Investor. Napoleon Hill? Napoleon Mill and Pill.

Dude, you probably sold more books than Security Analysis. Securities Analysis? Is it Securities? The Intelligent Investor is up there. That's different. Nobody. Securities analysis? Is it securities? The Intelligent Investor is up there. That's different. Nobody bought securities analysis. It's a tome. No one reads that one.

People bought it. Nobody read it. But anyway. But you're now part of pop culture. You're famous. It's crossed out of financial book. It's book. That's what I'm saying.

It's good. You pushed out Ben Carlson as the writer. Oh, my God. I'm kidding. We like God. out Ben Carlson as the writer. Oh my God. I'm kidding. Go easy on Ben. And wait, Morgan's got another book that is out for pre-order. You just have to wait four months. But in November, what's the title?

It's called Same As Ever. And it's about the behaviors that never change over time. It's just like what people have always been doing that they will always do. And I think there's so much focus on change. Wait, so you rewrote Sapiens? What are we saying here? It's not quite as broad as Sapiens. Sapiens for kids.

But there's – No. I just think there's so much attention. Is that what you did? It's called Little Sapiens. All right. No, I like it. It's a good idea for a book.

There's so much focus on everything that changes. Yeah, yeah, yeah. I'm just looking at – It's just 23 stories about things that never change. What people will always be doing forever. So that's going to be ready for what? The fall or Christmas? It comes out November 7th. Perfect.

Okay. Alright. We'll make sure that we link out. For the people that have not yet read Psychology of Money, my wife read that. She hasn't read an investment book ever. And I said, what made you pick that up? She said, I don't know. Like you always talk about Morgan and I like the cover and his picture of a brain.

And I wanted to learn something. That's the secret. You didn't do a picture of the stock exchange. You didn't do a picture of like somebody trading on a keyboard. There were 50 iterations of the cover though. And all of them were that until number 50 that we can, that's a big part of crossing over is like the cover. Yeah.

It's so obvious. It's really important. They're like, don't judge a book by cover, but everybody does. Everybody does. Literally does for a cover. It's really,

it's just like in a blog, it's the title in a YouTube video. It's the thumbnail. Those things are really important. Listen, we're, we're proud of you. We're jealous and proud still. All right, Chris Davis is here. Chris is a chairman and portfolio manager for Davis Advisors,

an investment management firm with over $20 billion in assets under management. That's underselling you. Obviously, you're an eminence. Is that too much? Oh, I like the sound of that. But I want to just say one thing about, about Morgan's book is that the reason that your wife loves it is because it's not an investment book. It's a book about how to be happy. It's really a book about equanimity. And, and that's what's so powerful about it is it's,

it's the opposite of a get rich book book. And it sort of crept into the tent that way. And then people were totally misdirected. And then they realized, oh, wait a minute. It's not about how I get the highest possible return. It's not about how I get rich. It's about how I find contentment, how I get off the crazy train. And stories are so powerful. Like every chapter is at least one story. And people, so powerful. Like every chapter is at least one story and people,

that's how people really learn. They learn from their own experiences and then they learn when somebody tells them a story. It's always the best story.

Like how many, right, how many formulas do you remember from the night before your test in college? Like zero. Nobody,

but how many, if you hear a good story, you'll remember it forever. who accumulated stocks and never sold. Yeah, it's simple. These stories are important. Not only do you remember it forever. A janitor who accumulated stocks and never sold. Yeah, it's simple. These stories are important. Not only do you remember it, but it's easier to contextualize your own life with that.

I feel like in blogs, it's the same. Josh, you tell stories. You tell stories. If your blog is just a data dump, it's out. And even Nick Maggiuli, who is dollars in data, he's a storyteller. And that's why his blog is great. It's like that. It's always like that.

And there are a lot of good finance minds out there, like really technical-minded people. But if you're just putting out charts and whatnot, it doesn't – you could even say like JC. He's a chartist. But he tells a story and he's got a personality. So like that's – even when it's pure – Boy, does he ever. Yes, he does. Even when it's pure analytics, it's – that's like the people that get ahead are the ones

who tell the best story. And you are speaking at Future Proof this year. Yeah. Okay. Are you talking about the psychology of money or are you talking about – You tell me. We don't know yet. It's your event.

It's a secret. And Chris – Can we go back to the eminence part? We seem to have drifted a little bit here. Chris, you're right. Stay on task. You're right. I want to read this.

This is from the Davis Advisors website. I thought this was – I like Wall Street history. I'm really into this stuff. He's just going to read the fine print. Our firm traces its roots to – yeah. Past performance does not count. Our firm traces its roots to legendary investor Shelby Cullum Davis, a leading financial advisor to governors and presidents

who parlayed an initial investment of $100,000 in the late 40s into more than $800 million by the end of his career in the early 1990s. In 1969, Shelby Cullum Davis's son, Shelby M.C. Davis, founded Davis Advisors after serving as the head of equity research at the Bank of New York in order to offer the Davis investment approach to outside clients. 1940s.

And so you come along into this and then you build on it and the firm is still doing what it's doing. And that's like rare on Wall Street. Yeah, well, I'm the generation that usually screws it up. You're the third generation. Yeah, yeah. Shirt sleeves to shirt sleeves. But it was interesting because I think part of the peculiarity of both my father and grandfathers, they didn't believe in inheritance.

They really had that view. Now, I was still born on third base. Are you still bitter about that? A little bit. My grandfather said, I wouldn't want to ruin you. I wouldn't want to rob you of the opportunity of making a living. I'm like, well, you could rob me a little bit. Yeah, yeah, yeah.

Just a little. That's beautiful. But – and so they were very clear about that from the beginning. But they also said, we're going to give you – I mean we're going to put you on third base. And you're on third base because your education, reputation. What does Buffett say? I want to leave my kids enough that they can do anything, but not so much that they can do nothing?

Yeah. Was that him? That was Ward. I heard this story from Munger recently. One of his rich friends said, Charlie, how do I— He said, if I give all my money to my kids, is that going to ruin them, ruin their ambition? And Charlie said, of course it will, but you have to do it. Otherwise, they'll hate you.

And I thought that was— That's like the curse of it, but it seems like you, you guys pulled it off. It sounds like there's a way to do it where it's like, I will give you the advantages that you need, but you have to do something. Yeah. I mean, was there any animosity when your grandfather had 800 million and you didn't get any of it? Well, I, you know, I, I was already working with him.

I felt like I had been, you know, and he gave me a passion for this vocation, you know, both. You know, I used to describe my father used to commute from Hoboken. He'd take the Erie Lackawanna train out. He lived out in Tuxedo. Isn't that an amazing name? And, you know, we'd go down and meet the train, and it was a big deal coming in when I was a little kid. And these men would get off that just – when you think of those lives of quiet desperation like gray, beaten down, getting off the train. And my dad would come out like just exuberant.

And if he was driving us somewhere, we'd stop and see a company and he never – it was a little bit like if you want your kid to learn French, you can like put them in French lessons and you can get a tutor and – or you could just go to France for a while. And it was a totally different way of – So you grew up in the lifestyle and – Yeah, just – and seeing two generations that were so excited about what they did. My grandfather called it the best game in town and And, you know, he just loved it. So I don't think there was any, and I will say, especially in case my father hears this, I don't want to be an ungrateful whelp

because my father actually surprised. He has six children. And we were all completely flabbergasted when we got a letter from him about, I want to say three years ago. And he said he had actually set up trusts for each of the six of us that he hoped would be used to pay for our kids' education. And I think his mindset was that

I want you to be free not to ever feel obligated to take a job that you don't like or feel that you're one medical procedure away from really being desperate. And it can happen quick. And so that surprised us all. In fact, we all got together like, wow, he really gave us the head fake. What were your grandfather and father's philanthropic interests? Like what were the things that they were passionate about giving the money away to? My grandfather had very, very much a sort of a political orientation. You've got to think it was a time, you know, in the 60s and 70s, especially, he had always wanted to be in public service. His namesake, Shelby Cullum, nobody's ever heard of him. And yet 50 years, this man was a governor,

a senator. He was a senator from Illinois. He died in 1917, but he'd been governor of Illinois and a freshman congressman under Lincoln. And it was sort of my grandfather's role model. Like that's who he wanted. Buffett's dad too. Yeah, but I will tell you, I read this man's autobiography. In fact, we were all sort of obliged to. And it's like, I don't know, however thick that is, 400 pages about the Interstate Commerce Commission

and some problems with the Mormons and Hawaii. I mean, it was so boring. Like you can't believe it. And on the last page, he says, I'm writing this as an old man from my apartment in Washington, D.C. I have outlived all of my children and both of my wives who were sisters. That's different. Successive.

You know, he wasn't married to them both at the same time. And so I'm leaving this book as my legacy. Oh, he has nobody else to tell. Three or 400 pages? And you're talking about burying the lead. I had no idea. But so that had always been of interest to my grandfather. So when he watched in his mind the country going to hell,

why isn't Princeton teaching proper history? It's got all these communists in there. I mean it was a very sort of familiar idea, demonstrations in the street, people – things being burned and riots. So he was very involved in what I would call sort of conservative political organizations and, you know, some like Hoover that were behind sort of Reagan's election, the Heritage Foundation. My father went in a completely different direction and he sponsors and at a cost of, you know, millions and millions of dollars per year. I think he is the largest funder of higher education for kids that have this sort of

international orientation. So, you know, it might be $20 or $30 million a year. Oh, wow. So it's an enormous program that's called the World Scholars Fund. Josh and I were just talking about this this week. There was a big article in The Times about the largest generational wealth transfer ever and how it might worsen inequality. But I was making the point that one of the silver linings of all of this money is there are real philanthropic efforts today that I know it sounds like your family

has had in place, but that did not, that was not like global or there was not a necessary thing in the 60s. Yeah. Although it's funny, I lived in Europe for a long time. It is one of, if you want to take enormous pride in being an American, you could start there. The culture of philanthropy, and I would say it was really started with Ben Franklin. You think of what Ben Franklin created in terms of philanthropic impact that rolled through, you know, Pennsylvania, the city and the state for 150 years and continues to this day. But certainly Carnegie, John D. Rockefeller, I mean, these were enormous, the Mellon family,

enormous fortunes that changed the world. And that's why the names still live on because the money still lives on. Yeah, and there's no tradition of that anywhere else in the world. Is that true? Yeah, it doesn't exist in Europe, in the UK. Why? I think it has to do with this view, of that anywhere else in the world. Is that true? Yeah. It doesn't exist in Europe, in the UK.

I think it has to do with this view, this sort of – I read a book about architecture in the Hudson Valley. It was a pretty obscure book. It was written in the 19th century and it included blueprints for building a country house because you had the middle class was being created then and there was this idea of, wow, people in the city could afford to. And these blueprints were these very modest homes that you could add on to over time. And in the beginning, he says, why not palaces? And he said, because our system of democracy will not allow for an aristocracy. And so what we want is the capital to continually be recycled. And that's what we expect. And he what we want is the capital to continually be recycled and that's what we

expect. And he predicted, the author of this book predicted that the great mansions that were being built in Newport and that would become, would have to become educational institutions or religious institutions. So many have. And they did. Yeah. It was right. Or just torn down around here. Or just torn down. And so that, I think it has to do with this anti-aristocracy view that was so sort of embedded in this history. We don't like aristocracy in this country, but we do like oligopoly. And there are some differences, but there's room for one. How many people signed the Giving Pledge? A lot. You know. How many people signed the giving pledge? A lot.

A lot. I want to, so, all right. So I wanted to hear how the two of you hooked up because you guys are like, I don't know. I hope you're not using hooked up in there. No, no. Not the way my teenagers use it. Finance Tinder? How did you guys meet and hit it off?

I'll let Chris tell the story. Yeah, well, this was amazing because I read this book when it first came out. And I really thought, like, if one of the most, I think the highest praise you can give a book about finance is if it's useful. is if it's useful. And I read it, I thought, this is the most useful book on finance that I've really ever read in terms of the breadth of its appeal, right? You think of like one up on Wall Street,

but, you know, to me, one up on Wall Street was a little bit dangerous because it was telling everybody, hey, just find something at the mall that you like and buy the stock. And of course the intelligent investor is just, you know, a masterpiece, but it somehow is not something that is going to cross over into the world of people that are not interested in

investing. And I liked it so much that I actually bought copies for all of my children, my god children, my niece's nephew. And I wrote them a letter where I said I would pay them a couple hundred bucks to read this book. It was so useful. And I said, all they have to do to collect the money is to write a one sentence synopsis of each chapter. And this was before chat GPT, but just in case they read the cliff notes, they also had to cut and paste their favorite sentence from that chapter. Oh, okay. So that was it. And I said, do that, you'll collect a couple hundred bucks. And I was saying to Morgan the other morning, I wish I could short the relatives that did not respond

and go long the ones that did. Well, you were saying like you think a fund of CEOs who write a letter to their shareholders every year, that's a good screen. It's a good sign. Go the other way. Yeah, it's a good screen. That might go the other way. Yeah, it's a good sign of their sense of accountability. But anyway, so then I talked to our client team. I was like, we should send this to clients.

We should order, you know, 20,000 copies, which we did. And then I said, and I'm going to reach out to Morgan. So I sort of cold called, cold emailed. He had to sign all 20,000. Morgan, I was like, get your pen out.. He had to sign all 20,000. Morgan. I was like, get your pen out. You're going to have writer's crayons. Like George Jetson finger at the end here.

Get your stamp out, more likely. And I said, you know, I don't know if you know anything about our firm, but I just need to tell you a wonderful story. And I got the most wonderful note back from Morgan saying, I actually saw that order, and I was curious where it came from, and I was really— I had from. And I was really – I had known about Davis Funds forever, particularly at The Motley Fool.

Chris's grandfather is a legend. And he's a legend for anyone in the industry. But Tom Gardner at The Motley Fool just idolized your grandfather to no end. He was Tom Gardner's favorite investor by far that he learned the most from. So I've been following – Why do you think that was? It's a good question. I don't know. I mean, the results speak for themselves. I think there was a simplicity to what your grandfather and father and you do that really caught on to The Motley

Fool, where it was talking to ordinary individual investors. So I had known about the Davis family forever. And then when I heard someone bought 20,000 copies, I thought, oh, that's neat. And it wasn't until a couple months later that I learned, oh, it 20,000 copies, I thought, oh, that's neat. And it wasn't until a couple months later that I learned, oh, it was Davis Group. And I thought, it can't be that Davis Group. And I learned it was, so that was cool. So I wanted to start with something where, so I was on TV today

having like a little bit of a heated argument with two people who I really like a lot and they call themselves value investors. And there's nothing, you know, everybody has, I'm a GARP investor. I'm a growth investor. GARP always kills me because it's growth at reasonable price. You're like, what are the other guys? Growth at unreasonable prices. Growth at unreasonable prices would be a great book title. So, so they're like, they call themselves value investors

and they really are, and they really have a discipline and they, okay. And the argument was, I mean, it was stupid. It was with friends, but it was like, it's on TV. So everything's amped up. And it was basically like, like they're investing in things that are obviously not what's hot right now

and they should not be. And that's perfectly fine, like industrials and whatever. And meanwhile, you have this AI thing like crashing on us like a wave. And the dismissal of it was like, all right, so why are these stocks going up? Or why are people buying that? And it was like, well, it's just behavioral.

Like they don't know what they're doing. They're just, and I just took that. Like I'm not like chasing every AI stock up, but I own Alphabet and I'm buying it. And I think it's – I don't think it's outrageous. It's at 22 times next year's earnings. I don't think I'm buying a bubble. Maybe I am. So I just thought that dismissal like, oh, it's over a 15 PE.

It's a stupid investment. That's – I'm paraphrasing. But I'm curious what somebody like yourself, when you see this and you've seen it before, we've seen it with blockchain.com wireless 3d printing. Some of these turn out to be meaningful. Some of them don't. What's your, what's your takeaway from a situation like this where the entire investing public becomes captivated by a new technology that seems to be emerging out of nowhere and just grabbing everyone's attention. Well, Gates had a great comment where he said, you know, new technologies

tend to be overhyped in the short term and underestimated in the long term. I love that. And I think that's exactly right. I mean, you know, it's funny. I want to say something about my grandfather in terms of a culture. Big AI guy, I've read. Well, in a funny way, he was a big hot growth guy. Okay. Because when – this part is boring, which is he started life. He wanted to be in public service.

He took work for Governor Dewey when Dewey was running against Truman. And he thought, I'm going to ride Dewey's coattails to D.C. I'm going to get a job in the State Department. It's going to be really cool. Dewey loses to Truman in that famous headline. But he's still governor of New York. So my grandfather, who thought he would be, you know, deputy secretary of state or something, is instead deputy superintendent of insurance for the state of New York.

Oh, okay. Talk about a comedown, right? Yeah. But the soldiers were coming back. The baby boom was underway. The suburbs are getting built. What's the hottest growth area? What's the first thing you do

when you create a family in 1948? House and car. And insurance. Oh, insurance. You buy insurance. Life insurance. Because you need security for your family, family formation, life insurance. And the trouble with the way life insurance works is salesman sells you a policy.

The salesman gets a commission. That commission might be higher than the revenue in the first year. But you're going to stay with that company for 30 years. So these companies were reporting losses, but they were creating huge value. So think of it as net subscriber growth. Yeah. Right. So he's thing. So he creates this idea of owner earnings, right? If I own the company as a regulator, I'm looking at these companies, wall street hates them because they look like they're just losing money. And he says, but they're creating value. So he resigns as deputy superintendent of insurance. He borrows $100,000, invests it entirely in insurance stocks. And it was like biotech. It was this enormous growth

machine. So on paper, they're losing money this year, but they're creating this revenue opportunity for decades. They're getting a subscriber. They're getting a subscriber that's going to stay with them for 30 years. So it's an LTV calculation. Absolutely. So that became part of sort of our culture. And he had all sorts of phrases for these, you know, growth stocks in disguise. And it started, and honestly, a lot of our orientation over the years has been he did it entirely in financial stocks over, I would say, 95% of his portfolio was in financial stocks over, I would say 95% of his portfolio was in financial stocks when he died and had been for his whole career. And he found different ways to find growth in that industry. So you think about Geico or you think about Tokyo Marine and Fire, you know, so you had this growth

in Japan starting in the 60s. He bought his first share in 1960 in Japan. And so he loved that lens of looking at an industry that was where the accounting sort of obfuscated and the perception. Cable was like that. Cable was a perfect example. Yeah. Cable was a perfect example. And the best example of my career is Amazon, right? Amazon, you know, this idea that we had this great example that we used to hold out for clients. We'd say, look, over the course of 17 years, Walmart grew from a billion to 70 billion in sales. That took 17 years. Over 17 years, Amazon grew from a billion to 100 billion. So roughly that's the same. Compounds to almost the same.

Right. Over 17 years. If you owned Walmart in that period, you would say, but yeah, Walmart earned a lot of money. Amazon didn't earn anything. Yeah. Look at the cash flow statement. If you owned Walmart for that entire period of time, over that 17 years, you had to write a check for about, I'm doing this from memory, but I want to say $8 billion. So you owned 100% of Walmart. You grew

sales from a billion to 70 billion. And yet somehow, and you reported a lot of earnings, but when you went to your bank account, the balance was negative 8 billion. Now, why? Well, because they reported earnings, but they had to buy land and build stores and put in inventory. And so that's a capitalized expense, but it's a cash expense. Yeah. So when you looked at Amazon over 17 years, they went from a billion to a hundred billion.

Somehow in the bank, they had about five or $8 billion of net cash generated during that 17 year period. It was no earnings, but there was like a 10 or $15 billion difference. Because the difference is building it in the 1960s and 70s versus building it in the 2000s. Well, it was one was built by capital spending and one was built by investment through the income statement, which was essentially we are willing to lose money on each new policyholder, each new prime member.

We're going to give them free shipping. But we think the lifetime value of that subscriber is going to be much higher than the cost that we're paying together. So, Chris, I think you're giving me license to just go crazy and buy AI stocks. Well, I will say for every dollar Jeff made for Amazon shareholders, I used to say for every dollar Jeff made for Amazon shareholders, he's going to lose $20 for all the companies that wrapped themselves in the same flag but actually had no lifetime value for that customer. Let me read this quote. Hedge fund billionaire Steve Cohen reportedly urged investors not to miss the, quote, big wave of artificial intelligence and to stop fixating on a recession.

The founder of Point72 Asset Management and owner of the Mets said at a private SALT conference event Tuesday that focusing too much on recession odds may lead investors to overlook AI investing opportunities, acknowledge the types of jobs that AI would displace, but it'll create new jobs, et cetera, et cetera. Okay. He said, quote, I'm making a prognostication. We're going up. I'm actually pretty bullish. His take is that AI is going to be a wave of capital spending

and cost savings for corporations all at the same time. Stanley Druckenmiller just bought and loaded up on NVIDIA shares and made a new investment in Microsoft. Bill Ackman just bought a billion dollars worth of Alphabet. So like – Michael Banner just bought $10,000 worth of AMD and Microsoft. That's right. So it's not just retail. It's like some of the most successful living, working investors are buying into this, or some would say kind of leading it,

it makes it really hard to look at that and say, everyone's going to lose money on this. But this is a perfect tee up for Morgan's, the conversation that Morgan was having relative to his next book, which is what doesn't change? That's right. So the question is, AI is going to change everything. Well, of course, it's not going to change everything. It's going to change a lot of things. And so the first question is,

what isn't it going to change? And so are those things undervalued? The second is, what is it going to change favorably? And the third is, who is walking dead and they don't know it yet, right? Like think of the newspapers

in the early days of the internet. You know, you could have thrown a dart at internet companies and you were going to lose a lot of money. I mean you had to get Amazon, but you would have lost money on a lot of others because all of the charlatans were in peddling the hot story. That's right. And, of course, you had time in Amazon, right? And, by the way, you had – even had some time in Google. Not really. I mean Google really came out and kept going up.

But it came out in the ashes of that tech telecom meltdown. So, I mean it was – I think it benefited from it. I think Google – Google IPO was 04. Yeah. Yeah. I think they did a Dutch offer or something. It was a fabulous system. Yeah.

It was sort of a reverse auction. Yeah. And – In terms of predicting the winners, wasn't Google like the 15th search engine to come to the market or something like that? Yeah, Ask Jeeves. They were not the first. First mover is not always important.

I don't even think they were the first 10, honestly. They might have been, but it was not. No, they weren't. Yeah, Yahoo, Ask Jeeves. Yahoo was the obvious. I remember Ask Jeeves. I remember using it. Yeah, yeah.

Excite, there was a bunch of them. So, all right. So, my prediction is we're going to have a full-blown AI mania. And unless the Fed takes overnight rates to 8% or 9%, like – And even still, you could have a bubble with high rates. And here's how early I think it is. Rates higher in the late 90s than they are now.

They're like 6% on average. Yeah. It's so early that we haven't even had the IPOs yet. There's no companies. There's no companies. And that's part of why these stocks are levitating is because there's so few of them. You're doing like the picks and shovels of Nvidia and Microsoft right there.

There's no supply, right? I feel like there's very few products where the first time you use it, it's obvious that you're experiencing magic. And you've made, I think it was you who made this of like, ChachiBT is what Bitcoin wanted to be. That's right. And in Bitcoin, it's right and in bitcoin it's been

15 years of it's coming it's coming it's coming it's going to change the world it's coming soon just wait just wait just wait building where's chat gbt the first time everybody used it you're like nope that's it necessarily i can use this and i i already know i think three realtors who use it to write their descriptions of the homes that they're selling there's already i think the closest thing in with the internet was the first time that you used AIM, AOL Instant Messenger. The first time you use it, it's instant. Like I can see how this is going to change my life. Everyone's first reaction to Chachaputia is holy shit. I wrote, I wrote, I, as a joke, I wrote a legal document with a command. Like I probably wouldn't, I probably, I don't know if it would hold up in

court, but just the idea that – It's probably good enough though. It's probably better than the 25-year-old paralegal that's writing most of this stuff when you're paying $300 an hour for the lawyer. Is it morally wrong to invest on the premise that other people are going to come along way thirstier than you are and pay much higher value? I'm a greater fool investor. That's my style. I know it's going to happen. That's my strategy.

It's bad, right? It's like a Soros thing. It's like whenever he sees a bubble, he rushes out to buy it. Wait, hang on, Chris. What if you get up before crashes? I know, I know. I'm only teasing.

It's bad, though. It's reflexivity. The trouble is it works, but it's simultaneous that it works and that it's totally irrational. And so the question is, are you pragmatic enough to just do something that you know is irrational? And I'm such a regret minimizer that I was telling Morgan this morning the story of a guy that used to work for me. And he was always looking for a system. a guy that used to work for me and he got – he was always looking for a system.

And he got really frustrated because he said, you know, Chris, if I had a blind monkey in my office pointing to the Wall Street Journal and picking a stock every day and every single day that stock went up, day after day, week, month, year, three years, you still wouldn't put any money in that stock even though it had worked every single day. And I said, of course not. It's a blind monkey. The process. And it drove him crazy the process is bankrupt

because he's like you're just not being pragmatic and so we were also talking about there's a thing from George Soros he talked about his

most reliable market metric George Soros was his lower back would start hurting and every time his lower back would hurt there would be a market crash his son actually

his son talked about how crazy it is by the way I love that story. It's definitely make-believe. It's a great story, though. It's a great story, but that's bullshit. You think so? Yeah, I think it's totally make-believe.

I love it, though. So I want to talk about the economy a little bit with you guys. And the question is, where is the crash? So I know it'll start as soon as this airs. But we got, myself included, we got really negative, just in general, the public. we got really negative just in general, the public. We got really negative while unemployment was sub 4%.

Anyone that wants a job can have one right now. Pretty much in any region of the country, almost every industry, maybe not newspapers or commercial real estate. But like generally speaking, there's a job if you want it. Like generally speaking, there's a job if you want it. This week, we heard retail sales turned positive and home builder sentiment turned positive. This is not what a recession is supposed to look like. Let me just – let me give you the data and then I want to hear what you guys think. Americans boosted their retail spending in April for the first time in three months.

A sign of consumers' continued resilience, blah, blah, blah, blah, blah. Roses seasonally adjusted 0.4% last month from the month before after declining in February and March. That's one. Do we have this chart, John? This is U.S. retail and food services sales changed from the prior month. Like just one example. Aren't we supposed to be like breaking new lows in this blue line by now? Why are we supposed to do that?

We spent more on autos and dining last – because the Fed has raised interest rates 500 basis points and everyone predicted recession. That's it. Supposed to. Everyone knows how impossible it is to predict the economy, but then they get flabbergasted when they can't do it. Wait. Here's – real quick. Builder confidence. This is like home builders responding to a survey. So whatever.

Take it with a grain of salt. Builder confidence in the market for newly built single-family homes rose five points to 50 in May. It's the fifth straight month of gains and the first reading of builder sentiment since July that wasn't negative. Of the index's three components, current sales conditions rose five points to 56. Sales in the next six months rose seven points. Buyer traffic rose two points. Again, with what the Fed has already done, I don't think we were looking for these numbers to start to reaccelerate to the upside.

But maybe what do I know? I'm curious what you guys thought about this. I'm not a forecaster. I don't follow the economy. All right, next. What do you got? This is example number 10,000 of people can't predict what the economy is going to do. How many times have we got to learn about it?

You got that right. But everyone is still surprised when they can't do it. But historically, when the Fed wanted to slow the economy, they raised rates and they were generally successful, right? I'm going to – I'd take the other side. I think it's – we've had – like I probably invested through maybe three big bubbles. So commercial real estate at the start of my career, the S&L crisis. It was 89, 90. Yeah, look through office buildings, look through apartment buildings,

and recession, the tech telecom, and the financial crisis. What does look through mean? Empty buildings? Yeah, empty buildings. Nobody's there. They're just hollowed out. And then, of course, tech telecom,

and then the residential real estate and the financial crisis. The bubble that we have gone through in the last 10 years, there's no parallel in history for the scale of the bubble. I think if I'm doing this from memory, but I think like in two years, there was $30 trillion of debt issued at almost a zero rate. So there are huge losses out there, but that's not even the most important part. The most important part was people invested based on the idea that money was free. In 3,000 years of history,

money has never been free. It doesn't make any sense. I have some money. Quite an experiment we ran. It's an unbelievable experiment. So they printed all this money, but they artificially stopped the inflation and the devaluation that would have happened by buying up all the stuff that they were printing. So it may be puritanical, but I just can't believe that the popping of that bubble was three little banks who had some problems. That can't be it, right? A little bit of trouble in VC land, some markdown on private equity, and we're just going to coast on through this. I think it is – I think the ramifications are going to come out.

And by the way, I don't think owning good businesses is a bad idea given the uncertainty of the world. So I wouldn't – but I think the idea that it's a time where you should be thinking about speculation in terms of, well, we'll take a flyer on a few future earnings. And I think that the unwinding of this bubble will have, and I think we may look back and say, we're actually already in a recession. It's just, it's rolling in a very unconventional way because leases are rolling over slowly. Private equity firms are going bankrupt slowly. You know, people are getting

no bid on businesses. As a stock market investor, though, but how do you counter the argument? We're going to go here next anyway. How do you counter the argument of what earnings are doing? These companies have been incredible. We were supposed to have

negative 7% earnings this quarter. We have all the numbers. It's minus two. There was a great quote from Bank of America, something along the lines of, never underestimate an American's company ability to retain their profit margins. Yeah. Well, I think companies, this is why I like owning companies versus a lot of other things, because companies are able to adapt. Companies have real resilience. But I just think that the party that went on in the last 10 years was so extreme.

And I think that, you know, consumers have gotten used to very low debt. They aren't really adjusting their lifestyle thinking about these higher, you know, real estate is not really transacting. So there's a lot, there's a huge spread. It froze the market. They don't have marks. A lot is frozen. Yeah. And I think there's this sense, did you ever read spread. It froze the market. They don't have marks. A lot is frozen. Yeah.

And I think there's this sense – did you ever read the book On the Beach by Neville Shute? Oh, it was just – it was the most nightmare of my childhood. But it was about a big nuclear war in the northern hemisphere. Oh, I saw the movie they made. Yeah, it's set in Australia and they know that the cloud is coming and humanity is going to go extinct. But it's sort of their last year and they're partying and they're, you know, and there's this, it's just trying to describe the effects of knowing that this cloud is coming and not being able to do anything. So I wrote this last night at 9.05 in my computer, thinking about like the state of the American investor and just Austin and everyone. So I wrote, how can the worst be over? Referring to the stock market. How can the worst be over when the worst is yet to come? And I think everybody

sort of feels that way, that things are going to get bad. And how is it possible that the stock market front ran it to the extent that it did, where it bottomed back in October, the NASDAQ was only down 35, the S&P was only down 25. How could that be it? Well, one, again, I don't think the market's the market, right? The narrowness, what, again, you're seeing is a lot of average companies have been struggling for some years, right? So you've seen this narrower and narrower group. That narrower group employs relatively few people. So going back to the Henry Ford sort of idea, if we don't – and what has kept people up is refinancing. It's like, well, I'm – That's over now.

And that is – that's going to push the other way for some time. So, I mean, I own a lot of banks. And people say, well, given you're sort of negative, how can you own banks? And my feeling is because they're prepared. They are literally prepared to go through another financial crisis. Most of them. Not to get too into the weeds about this stuff, but people are worried about higher financing costs,

but 90% of the debt of the S&P 500 is fixed long-term. At the household level, it's probably even more. Everyone's got a 30-year mortgage. Now you're locked into your house. Eventually, you might have to move, but household debt payments as a percentage of income is the lowest in 40 years. Yeah.

And it's way lower than it was 10 or 15 years ago. There's a lot that could go wrong and not come close to breaking a precedent. But every one of those homeowners that's feeling good about having locked in or every corporation, somebody is on the other side. And by the way, it's mostly not a bank. It's mostly pension plans. Shadow plans. Yeah. It's all the shadow banks. And it's so, so I, you know, my, my grandfather always said, you always sound smarter if you're bearish. So, and he's still right. And he was a hundred percent invested

or 150% invested his whole career. Is that the trick? Say I'm cautious, but be a hundred percent invested. Yes. Then you win, right? I've been doing that for 10 years. I didn't think anybody else caught on. You sound a little dumb or naive to be optimistic when the world is terrified. But I think in this case, my view is we want to own businesses that are resilient, that can get through. I don't want to own bonds. I don't want to own, because I have no idea.

Like there's a lot of, I want to have some international diversification. I want to have businesses that have gone through all different types of cycles because I don't want to optimize to some economic view. But I think that, you know, when we look through at individual companies, we're seeing a fairly steep decline

beginning to roll through. And I just think there's been a little bit of that on the beach, sort of the summer before the war. Like we all know that there is debt that has to be rolled, that cannot be rolled at prevailing rates. We know it 100% for a fact. And so commercial real estate stocks are down 80%.

Yeah. The market knows too. But the cost of capital is everywhere. But the market knows too. But, but, but it, the cost of capital is everywhere. It's not just debt. It's, it's PEs. It's what, you know, it was what people were willing to pay for earnings 10 years from now. It's, you know, I look at, you know, some of the consumer stocks at 22, 25 times earnings. Pepsi, a lot of these staples. And I just think, boy, that looks very, very risky. Oh, no, they're safe.

They're staples. Yeah, they're safe. I want to do these charts, Mike, the S&P net profit margins. So I put these charts in the doc prior to James Montier writing a mea culpa this week. So the big thing about that GMO's bear case was profit margins being a mean reverting series. I know. And that just hasn't happened.

And I think one of the reasons, so we're looking at a chart of profit margins, excluding financials, going back to the 70s. And basically for the good part of last- Are they 12 or 13 percent? For the last 20 years, it's basically been up until the right. And this isn't rocket science.

This is- It's the internet. This is Amazon.'t rocket science. This is the internet. This is Amazon. This is Apple. This is Microsoft. So these are the companies that deserve to trade at a premium that have always and will. I don't want to say will always. And in the 70s, it was all railroads.

Right. Copper smelting. Right. Copper looks pretty good. Is this a story of more efficient corporations or is it a story of the makeup of the S&P 500 or both? I'll also tie it back to AI. You know, you think about what globalization did to the U.S. worker and, of course, the massive adjustment that came as basically all of this sort of middle class was sort of put out of work. And, you know, they went one of two ways. They either

became, what does Microsoft call it, knowledge workers? Or meth. Like, it's bad. It was bad. It's bad. And we're still feeling the repercussion of that displacement. And I think AI is going to do the same thing to a lot of white-collar jobs. Like, you know, I have a son who's a lawyer. I was just interviewing some kids. I won't say the college. And I said, okay, you know, just between us in this room, how many of you are submitting work written by ChatGPT now?

Substantially written by it. That's how I got through Trump University. Yeah, it was like 80. I never would have graduated. It was like 80%. And by the way, they run another program after it to insert errors so that their teachers won't catch them. So, you know, put double spaces and add apostrophes. And – but I can tell you all of those – you know, you think about what it was to be – you know, work on a machine line.

Well, the functional equivalent of that is all through the knowledge worker universe. You know, they're copywriters. They're editors, they're paralegals, they're lawyers. They're, you know, it is. So I think- It's the new assembly line. It's the new, it's what happened to the blue collar is, and in fact, the irony of it is I think the plumbers are in pretty good shape. And that's where you're seeing great wage expansion.

And by the way, overdue wage expansion. You know, minimum wage went from $8 to basically $18 in about three years. You can't find construction help. You can't find truck drivers. Our friend down in Richmond, we were listening to a country song that was called I Need the Work Less Than you need the work done. And so it's like, don't piss me off. And of course-

But isn't that like that irony delicious? You've got this class of people who spent the last 10 years flying around to Davos, sitting on stages and saying, all these blue collar people, these poor people. Meanwhile, who's laying off? It's Netflix, it's Amazon. Exactly. It's laying off? It's Netflix. It's Amazon.

Exactly. It's all knowledge workers being laid off. We don't have any blue-collar people being laid off. Law firms are in front of, I think, a massive wave of layoffs. I don't know about accounting and some other. But these are big earning professions. They're the backbone of the suburbs. And so think about what happened to Hartford when the insurance industry sort of got hollowed out.

I mean Hartford – Hartford, Connecticut. Hartford, Connecticut. I mean Hartford, Connecticut was an incredibly wealthy town. My understanding was it sits up high and the reason it became an insurance town was because if you insured a ship coming from Europe, you could literally stand up at the cliff and see your ship come in. Well, I don't know about that. And that's how you knew you were OK. What I know is that they employed tens of thousands of people in these huge buildings.

And basically a lot of them were clerks typing out policies, calculating. All of that got computerized and Hartford was hollowed out. And so I just think that the ramifications of all of these things, to me, don't point to a rosy 10 or 20 years for the U.S. consumer. You are trying to sound smart, aren't you? I am. I know. But it's good for – Ask me how much cash I have.

The answer is like 3%. It's good for profit because what you're describing is unfortunately very good for profit. Still, ask me how much cash I have. The answer is like 3%. It's good for profit because it's good for, what you're describing is, unfortunately, very good for profit. Might be bad for society, but it's pretty darn good for profit. What's the next one that we have?

But I think this is rational. I'm always afraid, but I'm always fully invested. Yeah. Yeah. Yeah. Okay, so the next chart is just, so I think that

that up until the right nature of profit margins tells a lot of the story about why stocks have done what they've done despite high valuations. So this is from Monty. I don't need to get too much into this, but that's when he wrote the post about how profit margins need to be inverted. The line. The line, I'm sorry.

What is that, 2013? So it's 2013 and it's a decade later and they haven't been inverted and who knows if they will. But profit margins have come down over the last several quarters until most recently, the first quarter. Next chart, please, John. It's too early to say whether or not that was the bottom, but- This is not supposed to be happening with the cost of capital having done what it's done. They should be deteriorating, and maybe they will. Well, think of the components of profit margin, right? So you've got your cost of goods sold, You've got labor. You've got taxes. You've got interest.

It's hard for me to think any of those things aren't going up a lot and won't squeeze that. And by the way, that is even true for a lot of the tech companies. They had – and so I think you can find that sort of – that needle in the haystack, I think. And I think it's what invest, I mean, we only own, you know, 40 stocks out of, you know, the thousands that are out there because, you know, our general view is it's there, there's not that many businesses that can be resilient in a tumultuous world. And if we don't get a tumultuous world, we're fine. But if we do, I think there's a lot of hopes and dreams that can get revalued fast. If that's all you got on the books is a fantasy or not a fantasy, a dream, a vision about where this business could be in 10 years. But again, I can change fast. The other side of that is that revenue is going

up by just as much. Well, that's where I wanted to go next. I'm glad you brought that up. Nominal revenues are at all times too, I think. This is the rundown of this earnings season through Friday. We have 92% of the S&P companies have reported earnings. This is from Sean. 78% saw a positive earnings surprise, but 75% saw a positive revenue surprise. The earnings decline for Q1 in the books is negative 2.5%. 6.7% was the estimation. So we were

way more bearish than the reality. The forward 12 month PE ratio for the S&P is now 18. The five year average is 18.6. The 10 year average is 17.3. So we're at an average forward PE. You've got 78% of companies beating on earnings. But so this is the thing. So, so obviously Chris, you are owning businesses and you think about investing in through that lens. Morgan, you've spoken about this a million times. It's just different. It's a mishmash of a million different objectives, goals, timeframes, all that sort of stuff. So to Josh's point about us beating low expectations, I know you don't give a shit about this in the short term, but I do. At least it's interesting. The S&P 500 is breaking out today to the highest level it's been since August, 2022. Interest rates are breaking out of their range to the upside.

You've got the debt ceiling looming. Everybody is positioned not for the upside. And so that's how you get just people off sides. And again, this corrects itself over time, but in the short term, it could lead to some outrageous behavior. Yeah. Does anyone care about the debt ceiling too outside of – We'll care for one day when there's a technical default and then the outcry will be such that they'll figure out a band-aid to slap over it. Yeah. Nobody will really give an inch. Right. And we'll have another debt ceiling fight in a year or two years.

Or less than that, yeah. Yeah. But I think if you think about it feeling like sort of a fragile world, I think that what we're forgetting is the nature of surprises, right? So nobody predicted Ukraine. Nobody predicted COVID. Nobody – these things can happen. And I just think the sentiment right now is nervous but kind of holding. Everything seems to be OK. And what we haven't seen is sort of a panic.

We saw a panic in the banks. Like the banks just was a panic. I wanted to ask you about that. So SVB and Signature Bank, I should say former executives, were in Congress this week. And this looks pretty bad. Execs of Silicon Valley Bank are being grilled for the bank's failure. Many sold before the collapse on March. They sold their own stock.

Wait, hang on. I think a lot of this, I don't know if all of it, but a lot of this was pre-scheduled sales. Yeah. So what? Nevertheless. So what? You think people understand that? No, nevertheless.

The fact that I think there was shares sold the day before they went under. Gregory Beckham. So just optically, that's not good. Put this chart up, John. Oh, no. We don't have this chart. This doesn't matter. All right. Gregory Beckham, CEO, is the CEO

of SVB. Sold 11% of his stake on February 27th, 2023. That's a lot. Daniel Beck, the CFO, sold 32% of his stake on February 27th. Michelle Draper, the chief

marketing officer, sold 25% of her stake in February, and by March 10th, it was gone. Like, that's problematic. Yeah, that's pretty bad. That's bad. But I guess, you know, we could spend a little time on these because, I mean, talk about something that was completely predictable. It wasn't predictable that they would collapse and there would be a bank run, but it was predictable that they had taken enormous risk.

I mean, it was – we wrote a memo to our board in November sort of showcasing it happened to be First Republic, but just saying these three banks have outperformed our financial holdings by a lot, like 500 basis points a year. And we think they're taking crazy risk. And so that's why we don't own them. And so, but I think the bigger question is, why the hell did companies like Capital One go down 50%? Or, you know, why did the rest of the banks? And that's what I mean about, you don't know what the trigger will be that could cause a massive revaluation downward because people panic. It was, it made no sense. Are we going to have regional banks in 10 years? Well, yes, yes, we have to. Will they trade at three times earnings? If you're going to build a strip center in, you know, in Waterville, Maine, the idea that you're going to build a strip center in Waterville, Maine, the idea that you're going to go to J.P. Morgan to finance that, it just doesn't make sense.

You've got a local banker that knows you and you're going to go to Bar Harbor Bank and Trust or Portland or something like that or Camden. And so I think that function is really important. I think the relationship of deposits and it's – we'll see. But what I will say is that- Well, there's 4,000 of them. Do we need 4,000 of them? Well, there used to be more. And every year, the share of the top 10 has grown.

Every year of my career. And it's a standout too. You go to Canada or the UK, and there's like five banks in the whole country. Yeah, they don't have that. Yeah. But in Germany, you have, you know, you had a handful of big banks,

and then you had these like middle market banks that served local regions and were sort of mutual. So I think it will continue in just that path of consolidation. I think the big banks have better accounting. They have more capital. They have deposit inflows. They have a technology scale advantage, which really matters. They have more diversification. Have you noticed the change in rhetoric about the big banks?

Fifteen years ago, the problem was they were too complex. Fat cats. Yeah. Well, no. They were like the complexity. Yeah. Now, we don't say complexity. We say, look how sophisticated they are.

They could absorb an ailing bank in one day. I know. The thing that upsets me the most, and we'll see how it plays out or worries me the most, is that I would say the big banks since the financial crisis have comported themselves fabulously, right? COVID, they were out putting credit out. We're working with you. I completely agree. And we're going in this crisis. They're like, hey, we didn't take any of this crazy interest rate risk.

Jamie Dimon used to stand up at conferences as recently as the fall and say, you guys want another billion and a half of earnings. I can make a phone call and put it on now. I'm not going to do it because it's stupid. And so I thought we'll go, you know, it was obvious that there was risk in the system and that these guys will be rewarded. And instead there's this sort of outrage at we're sick of all the banks. And so I don't quite know how to handicap. I do think that in the 1950s, banks, you know, had gone through the crash, the depression, World War II. By the 1950s, you ever see It's a Wonderful Life? Yeah, of course. So, you know, if you're an investor, the hero of that movie was Mr. Potter. Yeah. Right? He ran a good bank.

That's right. He was – he manages liquidity. He was opportunistic. You know, the idiot brother-in-law is losing the check. And, you know, we like George Bailey. But that captured the zeitgeist of the 50s that, you know, the big bank was reliable, boring, not – risk averse. Yeah. And so what happened? Banks traded at 15 times earnings, a market

multiple. That's how long it took to get over the crash and the depression. And so our thesis on banks is, look, we went through the crash. We went through the financial crisis. We went through a massive wave of re-regulation. Then we went through COVID. Now we're going through that. But sooner or later, people are going to decide, you know, these banks are boring. They're trading at nine times earnings. The utilities index is at 22 times earnings. And by the way, the utilities are paying- You think they're going to be waiting for being boring? For being boring. Yeah.

And very boring, reliable sources of growing dividends. Do you think there's five more SVBs in First Republics or we've seen it? I, you know, I think that would have massively changed FDIC insurance if you get one or two more. Yeah. Well, there is no such thing anymore. What do you mean? FDIC insurance is— But if they make it explicit, everyone's covered.

They will have to, though. But would that stop a bank run? Everybody— I actually do think I remember seeing that in Washington Mutual in 2008, that the majority of the deposits that were pulled were FDIC insured. You can still get a panic even among insured deposits. You can. I feel like if there was another shoe to drop with the regionals,

I mean, hopefully this doesn't age poorly, but it probably would have dropped by now. Yeah. I was looking at a schedule. But I thought that too with First Republic. Like it had its collapse and then it just kind of meandered for two months and then it went out of business.

What was going on in those two months? But the customer base. Silent bank run. It was still going on. It was still going. But it usually doesn't happen. It's usually thriving on Thursday and dead Friday. You usually don't have a two month. Can we throw this up? So I was looking at Antidi Ameritrade at the cash-free vehicle interest rates.

And from a dollar range of $0 to $5,000 all the way up to a million, and they have all these different tiers of what they pay you on the cash. And it doesn't change. It's 35 basis points across the board. It's like you could deposit, you could have $3 million in cash,

and guess what, buddy? 35 basis points. What is this? Are the banks being greedy? Do they know human nature? It's inertia. People just aren't moving. Like, yeah, people are going to move.

They're going to move. But not everybody is going to move. I think the argument for us at First Republic – and I wouldn't talk about it if it was still trading because I don't think you need to be throwing gasoline on the fire. We said for us. Were you on the board? No, no, no. For us, it's investors in banks but not in First Republic. Were you on the board?

No, no, no. For us, it's investors in banks, but not in First Republic. So what we sort of said is they— Look, if we had a bank together that we created, and we took five-year deposits in CDs, five-year CD, and we put it in five-year treasuries, according to all this hype Twitter feed on the Internet, we're bankrupt.

We have no equity. We put up $10 of equity, $90 of deposits. Now the deposit, and we put it all into five-year treasuries. The treasuries are down. That wipes out our equity. That bank is totally reliable, secure. You don't have to worry. But so the only thing that matters is if your assets and liabilities are mismatched.

And so at a bank, you use TD, we all use First Republic. There was a presumption that people with $2 million, $3 million deposits don't give a damn about earning 35 basis points when they could be earning four and a half. And we thought that is a strange hypothesis that's never been tested. Like we would assume I would move, you would move, we would all move. So there was this idea of the lazy affluent. Well, they don't move for 1%, but they'll move for 5%. But if you go to Wells Fargo or something and you say, look, I've got, you know, $700 in a checking account earning 30 basis points. Am I going to really move that into a money market? And of course not. So you start thinking what really matters is the combination of how big

is the spread and how likely is the customer going to move a small amount versus a large amount. So that sort of core funding. And how quickly do your assets roll over so that you can move up that, that march up that curve? If your assets are all locked in on 10-year mortgages, you're screwed because you thought that 10-year mortgage was going to refinance in seven years. You know what it ain't. It's going to, a person's going to die with that mortgage. And so, but on the other hand, Capital One, you know, Capital One pays higher interest rates.

It's all the old TD, no, what was it called? It was ING Direct. ING Direct. So they get, you know, all their, a lot of their deposits online. They pay higher interest rates. They have a longer dated asset book, but they're roughly matched. Like basically the life of the deposits equals. So we'll say, okay, we'll pay you 350.

You know, Bank of New York, 100% of their deposits are super interest rate sensitive. So all of their assets are super interest rate sensitive. So all of their assets are deposits at the Fed. So there's not a one size fits all. What I hate about this sort of Twitter panic is this idea, oh, mark to market, they have no equity. Well, mark the liabilities, mark the deposits to market. And if it's Bank of New York, you're right. Those are one day deposits. Yeah, the only asset they actually have is the confidence of their depositors. But so the selling— And the service is that they—you know, the deposit—you're right, it's confidence, but it's also convenience.

What do you think about calls to ban short selling specifically in financial stocks because of that confidence factor? Meaning— They did the same thing in 08 and stocks still fell 90 percent. But if I spread a bullshit rumor about Intel or Pepsi, like the stock might fall, but I probably can't bankrupt. No matter how influential I am, Elon Musk probably couldn't bankrupt Pepsi with a series of tweets about – Well, and it's credit default swaps. You can do that though with a financial – you can bankrupt if enough people believe what you're saying and repeat it. So from that standpoint, I feel as though financials maybe could be set aside. I also feel like SVB was so interesting because virtually every deposit holder is from the same social group.

Also a Twitter asshole. But they all live in the same neighborhood. It's actually amazing. I don't think you could do that with Wells Fargo because everyone's in a different social group. If one person yells fire, like no one else is listening to it. So I think what happened with a lot of the banks

that had nothing to do with this Capital One, for example, was a rational overreaction. If you're a shareholder, it kind of made sense to panic a little bit. I'm not saying that that was the right behavior, but it was, how about this? It was understandable why some people sold companies that they probably shouldn't have

or panic if you're going to panic be the first to panic I think there were calm rational people who pulled their money out of SPV their deposits out of SPV

if you see other people panicking and the bank relies on their their feeling about it like it makes sense for you to panic totally

what do you mean with the stocks and I would say the wild card you should say no you're crazy to panic out if deposits are pouring into your institution. Your institution is becoming more valuable. And this is the classic example of when people are panicking, this is a classic value investor's dream.

The business is getting more valuable. But there is a wild card in banking that's not just the confidence thing. It's also that how will the regulators respond? Because the regulators can't punish the dead banks, right? So they've got to go to the live ones. And so you think about after the financial crisis, you know, J.P. Morgan behaved very well. Wells Fargo had behaved very well. And yet they paid enormous fines.

They paid enormous, you know, they had. Right. J.P. Morgan paid the Bear Stearns lawsuits. Exactly. Because there was no Bear Stearns. The Wamu, Wachovia, all of those got paid by the companies that had behaved well. And so I think the rational reason that some people sold bank stocks in this crisis was not any concern that the banks were financially vulnerable. It's that they were regulatorily

vulnerable. That the regulators could come and say, you know what? Why you guys are getting all these deposit inflows. You're dancing on the corpses of these beautiful local community banks. How dare you? We're going to, you know, insist that the government takes 30% of your equity.

Yeah, like senators and congresspeople love community banks. Yeah. So here's the opposite. This is First Citizens, which bought SVB. And that's a regional love community banks. Yeah. So here's the opposite. This is First Citizens, which bought SVB. And that's a regional. Yeah. And that's a regional, by the way.

Yeah. Was there something explicit, do you think, in the FDIC making sure that the first rescue wasn't J.P. Morgan? The SVB rescue was like a Midwestern. It had to be. First Citizens, is it New England? Don't you think optically it couldn't be J.B. Morgan? It couldn't be, right? No.

I think one of the hard things about the banks is it's a little like China that somehow both Republicans and Democrats feel comfortable bashing it. Usually they split. But here it's sort of the Republicans are saying, oh, we don't like these elitist institutions. Wall Street banks. And the Democrats are saying, oh, we love our little community bank. So that creates a vulnerability that I think is real. I think it's worth investing through because you're getting paid for it with the enormous discount that they trade at and with the idea that for a lot of these banks, this interest rate environment means their earnings are going up. Their deposits are flowing in. So their market share is growing. They have relatively little credit risk because

all of that commercial real estate was regulated out of their portfolios after the financial crisis. So I think they'll be beneficiaries through this. I wanted to ask you about something. I think they'll be beneficiaries through this. I wanted to ask you about something. I don't know if it's philanthropic, but maybe it's just like a societal organization question. Connecticut just passed this thing for baby bonds. Every financial blogger who writes about behavioral finance would agree. This is probably good.

The big debate is more like how you fund it. Here's what Connecticut wants to do. Set up a $3,200 trust for every eligible baby born after July 1st. To be eligible, the household income you're born into is less than $65,000. Okay? Okay. They think it will cost $600 million over the first dozen years and then another $165 million in interest payments. How's the trust funded? Is there cash going in or it's just another IOU?

The debate is not should we do this because Connecticut has some of the worst disparity between rich and poor and they know they have to do something. The debate is like, what are we funding this out of? By the way, also, this is not really that important, but it was sort of unclear as to whether this money

goes to everyone because here's the quote. And then they can cash out at 18, you said? It's going to be used for when they turn 18, they could either go to college or start a business

or buy a house in the state of Connecticut. Yeah. But it said, Connecticut Baby Bonds has the potential to transform the future of our state

by providing opportunity and economic resources to the next generation of young Connecticut residents regardless of the financial circumstances of their families. So I think – Well, that's the point. Like you talk about being born on third base. I was born into the middle class. Like the idea is not equality for everyone. It's equality of opportunity.

It shouldn't count that much against you if your parents struggled in there. So I think everybody, Republican or Democrat, agrees to that concept that the world would be a better place if there were more opportunity and we didn't have people born literally with no shot. The question is how you fund it. The treasurer's office estimates by investing the money, The treasurer's office estimates by investing the money, the accounts will grow to $11,000 or as much as $24,000 depending on when the recipients access them. An estimated 15,000 babies born each year are eligible. So the question is for a state like Connecticut, for $600 million, if you're the politician that says yes to this right now, you don't benefit politically because this money won't be spent for two decades and you'll be out of office. Yeah. Can a state – like can a state politician think that long in advance and get behind something like this?

And if they do, is it worth the $600 million? Oh, God. It would be so glorious. But the but that I'm saying is that that cash, there needs to be cash that goes into an account. It can't be an IOU, right? And this is what the superannuation schemes like Australia, Norway, you know, that's what they've done. You know, Norway has $260,000 or something for every man, woman, and child invested in global stocks. It's the oil wealth.

Yeah, yeah. That's it. They bought Bitcoin. global stocks. It's the oil wealth. Yeah, yeah. That's it. They bought Bitcoin. Australia says, we're going to hold back, you know, 6% or 7% of your paycheck, just

like we do here for Social Security, except they hold that back in cash and they give you a certain amount of control over it, like a 401k plan. You have to put it in, you know, various approved funds, but you can choose. If Connecticut is really talking about funding an actual trust versus another IOU where it's just debt, then I would say it's a fabulous thing. And it's not a trust. It's like for the person. It's like you know you have it. You can count on it as a parent that that's coming to the baby.

I love the idea. I think a lot of people would. But in terms of funding it politically, it might be tough because money has got to come from somewhere. You know this will get done though if they say, oh, and BlackRock is going to do the investing. Like, you know, they'll find a way to get it done. But isn't it kind of like the creation of the land bank, you know, the land grant universities? I mean, think of what the UVA has done for the state of Virginia. I mean, our friend Tom Gaynor went there to go to college and never left and has helped create enormous wealth for the state of Virginia. I mean, our friend Tom Gaynor went there to go to college and never left and has helped create enormous wealth for the state of Virginia. So that provided opportunity both for students

that lived in Virginia, but it also became a recruiting tool to bring families, talented people from out of state who fell in love with Virginia. So, you know, we do, we, can we do one more? Uh, So can we do one more? We work. This should have been killed in the crib, and it almost was. They tried to go public. $40 billion, I think, was the valuation. They're shooting for $100.

Shooting for $100. Sure, why not? By the way, here's what's interesting. If not for the S1, it would have happened, I think. This is January 2019. Yeah. January 2019, $47 billion valuation is what SoftBank paid in January.

But Lindsay made the point, that should have been the top. It was the beginning. Yeah. It should have been the end. I know it was the beginning. Anyway. You could say that about like the Netscape IPO in 94 or whatever, that that should, but But this crashed. And Netscape got a happy ending. AOL bought it. The WeWork debacle could have in an alternate universe been the top.

All right. So anyway, they did it as a SPAC. They said, oh, all right. No IPO, no problem. We'll do the SPAC. This week it had a really bad week. It dropped 25%. The CEO is leaving.

The chair – I don't know. Everyone's leaving that was connected to it. John, do we have this chart? This is WeWork as a SPAC. You could see it comes out December 2021. Of course it did. Well, that was the time. It was worth $8 billion or $9 billion at the top.

Now $500 million and falling. I think they raised $15 billion or something, right? Somebody says the worst startup investment. 97% loss. So worst investment of all time, first startup. I think SoftBank lost 12 billion. So let me read this. They burned 5.6 billion between 2020 and 2022.

They burned 343 million in the first quarter of this year alone. Their burn is going up, not down. And when they came public, they said they would generate profits, adjusted EBITDA of 500 million in 2022. It was community adjusted EBITDA. They actually lost half a billion instead,

but they still did 3.2 billion in revenue. The problem is they just lost money on every dollar of that. We were talking about Peter Lynch earlier and why the book was dangerous. Oh, SoftBank lost 12 billion, that. This is, we were talking about Peter Lynch earlier and how, why the book was dangerous. Oh, SoftBank lost 12 billion and the journal said it's the worst investment of all time. The worst startup investment of all time. But Peter Lynch being like, buy what you know. If it's a good product, it'll make a good business. I bought Peloton.

And I think, I think the hallmark of the tech bubble was a lot of really great products invented and almost no great businesses came out of it. So we work as an amazing product. If you use it, it's amazing. Peloton, amazing product. If you're a user. They're all terrible businesses. If you're using the product.

And that's your interest rates. And that's why the Peter Lynch assumption, which may have been true in the 80s when he wrote this book, that every great product was going to turn into a great business. Well, you know why? Because those businesses were not funded

with infinity losses. Right, right. So I think in that era, it was right, but that's what came out of this. But he also says that he's being taken out of context by the buy what you know. Nowhere in his books does he say, buy what you know. No, the story in the book was like his wife going to a grocery store

and pointing out a product, and then he did research. It wasn't just blindly buying what you know. Fair, but that's what it's been turned into. I think the WeWork is a perfect example of the difference between a great product and a great business. And there are so many of them that came out. There were so many great products. Are you hiring any PMs from SoftBank? No, but I will say something even worse about WeWork is that it's not just that WeWork was a bad business and destroyed it. WeWork made good businesses bad because if you owned an office building, you're like, oh, Jesus, we got to put in free or we're going to lose our tenants.

And so it's not, it was the free capital that WeWork got destroyed businesses that were absolutely bulletproof for years because they're like, well, how are we going to compete with that? We've got to start discounting. I'm so glad you said that. That's a good point. I think Robinhood destroyed the brokerage business. And Netflix destroyed Disney. And now Robinhood's an $8 stock, but Charles Schwab is a $50 stock. And it's almost unprofitable to do brokerage business now. I guess the consumers won.

They had to turn into a bank or chose to turn into a bank. I guess the consumers win, but nobody feels like they're winning. So that the consumers won. Which is why they had to turn into a bank or chose to turn into a bank. I guess the consumers win, but like I don't nobody feels like they're winning. So that's the problem. Who did we, we had Bernstein ask the question. Which Bernstein? William Bernstein asked the question. We had

dinner. We had dinner at a steakhouse and we had like Zweig and William Bernstein and. Housel. You were there. That's when I told you how to promote your first book. Did you listen? I don't remember you saying that. No, it didn't work. I guess you didn't want an eminence apparently.

No, no, no. You said, I'm not sure I'm going to promote it. I said, leak a sex tape. You remember? Did you do it? Next book. Next book. Okay.

All right. So Bernstein- Now that you say that, I do remember that. You did say that. I did say that. Bernstein loved that. No, Bernstein said, what happens to society if there's no cost of capital ever again?

I forgot about that. And thank God that future was curtailed where it was. Because to your point, like WeWork made owning office building, I mean, the pandemic made it worse than that. But still, like all of a sudden, everyone has to compete with free. But guess what?

There's this quote. I read this quote recently. It was from the early 2000s. And the quote was, AT&T laid off 50,000 workers chasing WorldCom's phantom profits. Yeah. Like, WorldCom was creating fake profits.

And AT&T's like, we have to match them. How do we match them? Lay off all these workers. So that's when, like, a bad business can push a good business to do terrible things. Streaming is a perfect example. Look what Paramount did and Warner Brothers and Disney chasing Netflix. They all did.

Well, and ESPN announced they're going to do a direct stream of their service. I read today just on the way over here. And I was thinking, you know, the thing about ESPN's model is they got paid a subscription fee for everybody who had cable. And you could not charge enough to just the users that watched ESPN. And so it was a little bit like in the newspaper ad days. I used to say, so, okay, newspapers lose their ads. Just raise the subscription price. But if you're making $4 on your ads, you can't raise the paper price to $4.

It was like there was no way out. So even if you're worried that the worst is yet to come in the economy, and I agree with you, on balance though, it's still probably bullish that there is an interest rate again. Oh, yeah. Oh, they're better. There's a cost of capital more important than that. I think it would be great if for the next five or ten years, interest rates average 5%. That would be great. It will probably limit the amount of SPACs. Yes.

And I think we would all be okay with that. We would all be okay with that. Yes. Do you know how Elon Musk talks about how, you know, Hitchhiker's Guide to the Galaxy was the most important book he read? You know, he used to talk about because they, you know, you invert, you realize that asking the question is sometimes more important than the answer. Yeah.

But there's a scene in that book that he's never mentioned but reminds me of this, this hapless sort of our descendants crash land on earth. And this visitor says, well, everybody seems so happy. And the guy says, well, we told them that leaves are money. And so they all suddenly feel very rich. And they're walking around with leaves stuffed in their pockets. And they all feel rich.

And you realize, well, of course, this is going to end badly. But for the moment, everybody feels rich because all those leaves are money. That was 2021. And we literally did that. Did you have fun on the show today, guys? Yes, that was good. Yes?

I was just here for moral support for Chris. I was a little nervous at being my first time. Wait a minute. You have a podcast. How's it going? So if people want to hear more of Morgan, let's tell them how they can do that. I have a podcast now.

I had been thinking about it for years. Now, what is it called? I haven't really named it yet. So I call it the Morgan Housel Podcast. I'll change the name eventually. Yeah, it's like the Dave Matthews Band. Oh, you know what would be a cool name for a podcast? The Joe Rogan Show.

You should maybe do that. But I've been thinking about it for years because that's naturally what people, like we do. And Patrick O'Shaughnessy called me up two months ago and he just said, what is it going to take for me to convince you? And to get you on Colossus. And it was,

that may have been part of it too. Yeah. But I recorded the first episode an hour after that call. It was like the kick in the ass. Now you're doing mostly COVID conspiracy theories. It's mostly COVID conspiracy stuff. How's that going?

No, it's cool. I still don't know if it'll last. But what do you do? You're doing your stuff, which is what people want to hear from you. Yeah, it's mostly riffing off of old blog posts that I wrote. But most people have not read them. Right, because I think the overlap of audience,

of people who read blog posts versus listen to podcasts, is actually not that big. So if I'm just repeating what I already wrote, it's actually, I think that's actually a great way to do it. And also the stuff that you write about, as Chris mentioned, it's like timeless stuff. It's timeless. It always matters.

The audio book of Psychology of Money outsells the physical book two to one. Wow. Which I never in a million years, because I don't listen to audio books. You have a good voice though. Thank you. That's a good presentation. But I never in a million years would I have thought that because I read audio books. You have a good voice though. You have a good presentation. But I never

in a million years would I thought that because I read physical books. So I was just kind of blind to the fact that way more people prefer to listen. And you and I were talking about this earlier. You just did a not to brag. I read physical books. Do you? I only read the classics. No, go on. I'm listening. I never read any of these. You and I were talking about earlier about how people multitask now more than they used to. So they don't sit down for an hour and read a book.

They listen to an audio book while they're doing the dishes. I can't single task anymore. I'm incapable. I get it. And that's probably what social media does. I cannot do it. You can't just sit down

and you've talked about this too. It's the same for me. If you try to read, sit down and read a book, you got to put your phone in another room or every other page. Also, you can't have children in your house and sit next to them reading a book. No.

It's almost like it should be illegal. Like your kid's impression of you should not be, my dad is more engrossed in this piece of cardboard than having a catch with me or kicking a soccer ball with me or asking me how my day was. You really can't do that. Charlie Munger used to say that his children thought he was a book with legs. Right. So listen, so that was his choice.

Like with all due respect to anyone that is like trying to read three books a month with kids in their house, I have to tell you, I think you're going to regret it. It's a hard thing. Yeah. I would actually say that it's a bad, I say this, I think it's actually a better thing than looking at your phone 75 times. That I agree with. If it's the choice of book or a phone,

let your kids see you reading a book. I agree with that. Because at least they're getting a story and, and they learn in stories. They think it's stories, but boy, I, you know,

that, that idea of the parents always checking their phone when they're with their kids. This might be completely wrong, but is there any logic to, if your kids see you reading, they're going to be more likely to read themselves? No, they're going to be like, nerd.

Well, one thing about Patrick, and he tells a story about Jim, his father, anytime Patrick O'Shaughnessy had a question, his dad would point to the bookshelf. And he must have had a huge bookshelf. Look it up. It's pre-internet, I guess, or early in, but he said, there are the books, go find the answer. And obviously Patrick is a superstar, probably in no small

part because of that type of upbringing. So I don't want people to think I'm anti-book. I'm just saying. Philistine here, I had no idea. You will have plenty of time to read a million books when your kids are out in the world as their own people. That's good advice.

At least that's why I stopped reading. But if you're listening to podcasts while you're doing dishes, going for a run, commuting. Oh, no, no. Now I listen to podcasts while my kids try to talk to me. It's way better. All right. We're going to do favorites,

and we're going to let you guys get out of here. And this was so much fun. I could have stayed in this room for another two hours. Like, truthfully, you know, I don't know if you guys feel that way. I feel like we just started. I feel like we just started. We barely got to anything. Favorites is where we tell the audience about a book or a podcast or a movie or something

that they might have missed. I'll start as an example. As an example. Michael really likes Succession, the show on HBO. Citadel, the market maker. I just am enthralled by them. No, there's a show on Amazon Prime called Citadel. I haven't watched it yet. Pitch it. What is it about?

I'm going to. Hedge fund? It's spy, CIA, espionage, Jason Bourne. There's memory loss. And I just found out that it's only six episodes, which in my mind, you get like a 25% premium for that. I want to be in and out. There's almost no reason for a show to be eight to 10 episodes. Anything they can do in eight could

be done better in six. So sit it all on Amazon. It's good. It's good enough. Sopranos used to do like 20 episode seasons. Yeah. Who has time for that these days? All right. What do you got? I'm a big Ken Burns fan. And I learned a month ago that there's one I had never, a documentary he wrote that I'd never heard of. It's called Horatio's Drive. And I think it's one of his best, but no one has ever made no, made no, in 1903 is a guy named Horatio Nelson, who was at a bar in San Francisco with his friends. Cars were brand new. It was still like this, like, oh, have you heard about cars? It's like, no, no one was using them. There were really no roads. And Horatio Nelson said, I'll bet you $100 I can drive from San Francisco to New York. I bet you I can do it.

And his friend put down $100 and said, deal, let's do this. And he did it and took him over a year to do it. And the documentary, it's crazy. Like an hour outside of San Francisco, his tire pops and he has to cable the car company and have him send a spare tire by train. And he just sits there for, and the whole, the whole journey across the country is that it takes him over a year to drive across, across the country, but he does it. Pre, pre maps, pre roads, everything. And pre maps, the amount of time that he would have to backtrack sometimes for a week because he was, he just got lost in the middle of nowhere. He's in the middle of Nebraska on some horse and buggy trail

and he gets lost and has to turn around. It's an amazing story and it's a hilarious story. It's him and his dog. How do you watch it? What streaming service is it on? So this is another thing. On Prime Video, for $2 a month, you can have every PPS documentary,

which there are thousands of them that are so good. It's $2 a month. That was a good one too. Very cool. You don't want to mute your computer? Yeah, it's not my computer. You know what it is? My phone audio is going through my computer.

What is happening? I don't know. I'm sorry. Phone audio through the computer. I blame John and Duncan. By the way, you know who else drove across country in the 20s was Eisenhower. And it was part of his inspiration for creating the interstate highway system is he couldn't believe you get from one state and there's no certain connectivity and this – anyway.

Well, if not for the interstate highway system, we wouldn't have had the bank robbers in the 30s, which then you needed to create the FBI for. Do you have a favorite for us? Well, I mean I will shamelessly plug every one of Morgan's books. But if you force me to go outside of my comfort zone, the only other book I've read recently that I found very useful but not – it's a different type of book. It was a book called Americana, and it was recommended to me. I think it may have been by Charlie Munger, but I can't remember for sure, but somebody had recommended it. I ordered a book called Americana from Amazon.

I read it, beautiful reviews, a Nigerian immigrant, and she's a hairdresser, and she goes back to Nigerian. And I went back to the person that had recommended it. I said, it was a beautiful book, but I'm surprised it didn't seem like your style. And he said, well, what do you mean? It's a history of American capitalism. I said, oh, I brought the wrong one. So this is Americana. I think it does not have an H on the end. The guy, author is named Boo Shravanasan. And each chapter is the history of a single industry that was part of the formation and creation of where we are today. So it starts with the Mayflower Compact. It ends with the internet, and it does semiconductors, highways, canals, cottages. And what makes it so good is each chapter stands on its own, and each chapter

also talks about who financed it and how. Like, did people get rich on it? Was it a government program? Often the inventor got nothing or sold it out cheap. I'd love to read that. So it's a fabulous, fabulous book. And he's a very interesting, articulate guy. So I'm going to use my favorite to just play something very quickly. Is one of market share and margins and profitability and things like that. and margins and profitability and things like that.

My philosophy is kind of very simple, and that is that I've been on the Forbes 400, I think, since it started. And if you look at the list of people on the Forbes 400 and you illuminate the people who inherited the money, everybody else went left when conventional wisdom said go right. So Fred Smith was a kid at Harvard and he'd inherited $14 million and he'd written his doctorate thesis

on a concept called Federal Express. And he invested $7 million and got the company started. And then the guys who managed it went back to him for the second $7 million. And he got to find out how much he really believed and how much he wasn't paying attention to all the people who said, interesting idea, but it'll never work. And the rest is history. So you know who that is?

Sam Zell. Very good. He's got a pretty distinctive voice, right? You heard the news. Well, this is not completely out of the way. I thought it was. This is going to be awkward. So we want to say – wait, what?

Sam Zell, 81 years – 81? Yeah. Okay. Sam Zell, 81 years old. 81? Yeah. Okay. Sam Zell, 81 years old, legendary investor, passed away today. Today's Thursday. Did you ever meet Sam? Oh, yeah. Yeah?

A number of times. What's the best Sam story that I haven't heard? Let's start over. Did you ever meet Sam Zell? I met Sam Zell at a bunch of conferences over the years and I just loved that he was always iconoclastic. Hey, did he tell any great woodcutter stories? All right. So, so I just thought what was really interesting about Sam is he's the one guy, not the one guy, but like think about how many people in an asset class, almost like he's become synonymous with an asset

class. He was the founder and chairman of equity office properties. He sold at the top. Like he did the thing that almost no prominent investor who came to become synonymous with their asset class was able to do. And in 07, when the whole globe was clamoring for office properties in Manhattan. He sold it to BlackRock. And I think they like what they got out of the deal. Probably not the timing, but he did it. I mean, that's pretty impressive stuff. And always so independent in his thinking

and so exuberant in his life and his storytelling. Yeah. And he has a lot of great, really memorable lines. So for my favorite, I'm going to recommend people Google this. Trent Griffin collected some of Sam Zell's greatest hits, things he said, things he's talked about. It's a blog post and it's called A Dozen Things I've Learned from Sam Zell

About Investing and Business. So you can find that via Google and highly recommend spending 10 minutes reading that. Okay. We had so much fun. We're going to wrap it up here. I want to thank Duncan,

John, Sean, Nicole, Rob, everyone behind the scenes who does so much to make the show happen each week. Special, special thanks

to our guests, Chris Davis, Morgan Housel. You guys are, where do you want people to follow you, if at all? Twitter? I'm still on Twitter. I know you're not, but I'm still on Twitter. Are you at Morgan Housel. You guys are, where do you want people to follow you, if at all? Twitter? I'm still on Twitter. I know you're not, but I'm still on Twitter. Are you at Morgan Housel on Twitter?

Yep. And Chris, you're on TikTok? TikTok, mostly. Is that the one where you swipe? I'm not so current on this. You guys are awesome. This has been such a treat. Thank you guys so much. And to the viewers, if you like what you heard, make sure you leave us a review.

A rating goes a long way. We have to trick the algorithms into believing this is actually a good show. So please help us out. Everyone have a great weekend. We'll talk to you soon. So are you warmed up? Like you wanted to? All right.

I guess I couldn't. Couldn't, couldn't. Let's start recording. Let's start recording