The Prof G Pod with Scott Galloway - Bonus Episode: Prof G's Code Conference Presentation

Episode Date: October 17, 2021

Today, you’ll hear snippets from Scott's presentation at the Code conference, which took place at the Beverly Hilton Hotel in Los Angeles in September. Scott cover's the over and underhyped sectors and innovations that are shaping our economy.  Learn more about your ad choices. Visit podcastchoices.com/adchoices

Join Capital Group CEO Mike Gitlin on the Capital Ideas Podcast. In unscripted conversations with investment professionals, you'll hear real stories about successes and lessons learned, informed by decades of experience. It's your look inside one of the world's most experienced active investment managers. Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. Welcome to a bonus episode of the Prop G Pod.

You're welcome. Oh, my God. What a thrill. Today, you'll hear. You're welcome. Oh, my God. What a thrill. Today, you'll hear snippets from my presentation at the Code Conference, which took place at the Beverly Hilton Hotel in Los Angeles. This was my first time on stage in about 18 months, and it felt good, but I also felt nauseous.

I was very nervous. My team, unfortunately, we put together these decks. They take forever, and I was almost in the last minute decided to go to an older presentation because I hadn't done a new presentation in a while. And I got very nervous. Our team spent a lot of time thinking about how the COVID-19 pandemic has brought an unprecedented acceleration in business education and technology. And the purpose of this presentation was to highlight the products and trends that are receiving too much versus too little attention and investment. Put in other words, what are the overhyped and the underhyped sectors and innovations that are shaping our economy? So with that, let's bust into this bonus episode. First up, my favorite

disclosure, followed by how decades can happen in days, and one of my favorite topics, higher ed. I've said publicly, I think investing in Snapchat is like driving drunk. I think it's something no responsible person should do. You are handing your money over to a 27-year-old with no rights in the stock, three classes of stock. So I added this slide because I see CNBC's outside. I hauled my ass to Wall Street every Wednesday for about five years. And then one Wednesday, they just didn't call me. And then the next Wednesday, they said we had a scheduling conflict. No one called me. No one said. So immediately, I went to, OK, why have I been canceled from CNBC? And I immediately

went to conspiracy theory. And what I realized last night is, actually, I may just suck. I predicted, this is when I predicted Snap was like driving drunk or investing. And I was right for a little while. And now it's gone to 90 bucks a share. My most famous call is I said that Tesla was going to get cut in half when it was at $70 a share. And I was right for a hot minute. Now it's at 740. So in sum, the real disclosures,

I get this wrong all the time. Okay. Decades and days. There are decades where nothing happens. And then there are weeks where decades happen. Originally attributed to Vladimir Lenin. That's not true. It was MP member George Galloway, but Lenin's more gangster, so I've been saying it's Lenin. So COVID hit and we turned to God. No, we turned to Google. And it's interesting, the searches. My favorite is how to keep kids busy. But we immediately started loading up on news. Social media became more and more addictive. The biggest bet right now is whether the CCP is going to just wrap the knuckles of TikTok or its Chinese champions, or if it's going to cut off their hands. If it doesn't cut off their hands,

I believe TikTok will be one of the three most valuable companies in the world within five years. Big tech has added the GDP of Germany since COVID broke out. We all know it's great. They've operated great. They've done a great job. This has been terrible for America. If Walmart stock had gone down 40% and Amazon stock had gone down 60% instead of up 40 and up 60, we wouldn't be wearing masks right now. This would be in our rear view mirror because when someone walked into Walmart or a Walmart without a mask, we would tase them first and then ask questions later. The dirty secret of this pandemic is the shareholder class is living its best life. It means more time with Netflix, more time with family, and your wealth has exploded. So stop, stop.

It hurts so good. There hasn't been a full-throated capitalist response to this virus. And the result is death, disease, and disability because we've decided that we need to bail out everything. And now that this pandemic has largely been outsourced to people of color and seniors, we've decided to use it as cloud cover to create stimulus that pours money into the market and explodes the wealth of the already wealthy. Silver lining, by the way, I'm going to tell LA stories in silver lining. I grew up about three

miles from here. So I'm going to try and incorporate some silver linings and also not to be just totally Debbie Downer and also some LA stories. So there is some silver linings. A lot of this has turned to innovation. There's been incredible, there's some plants that are pyrolithic that only germinate during a fire. The architecture in London, incredible Renaissance after the great fires in London.

Post-World War II, we turned enemies into allies with the visionary investment. A lot of wonderful things can come out of crisis and we're seeing a ton of innovation. New business applications are soaring, record levels of funding going into new businesses. Valuations subsequently have exploded in the private markets. But just to put this in perspective, you can take every unicorn in the world that's a private company over a billion dollars. Take them all and they're still not as big or Apple is almost as big. And Apple, of course, is worth more than the 100 biggest companies in the UK. So basically, Apple has become kind of its own G7 economy.

So we got very excited about all this new money pouring into the market, stimulation, a lot of people home with their phones, a lot of time on their hands, and a lot of incremental capital and human capital has gone into investing in mobile ads. And this is at the same time when we lost more people in one month than we lost in all of the recent conflicts and wars. And if you pull that out, you could take every war that America has participated in. And as of now, we have lost more American souls. Now, people will say it's not apples to apples because it was younger people that we lost in this war, a greater percentage of the population. But we've never, hopefully, this is the kind of seminal event or tragedy of our lifetime. So I'm fascinated with Daniel Kahneman's work around

slow and fast thinking. It's very difficult to process what's going on. And so we go to our system one kind of fast thinking. We're a friend or foe, fight or flight, and we make quick decisions. And we either decide something is very good or very bad and there's not a lot of room or time for nuance. And that's the subject of this presentation or the construct through which I'm trying to filter these views. And that is, I think we look at things as either being very good and we overhype them or very bad and we underhype them. When I say underhype, they don't get the attention they receive or the valuation they receive. And overhype is they're capturing too much of our human capital and attention and are probably overvalued. Okay, so the first thing is, I think one of the biggest threats in something that's been overhyped is exceptionally, purposely, artificially constrained supply of the results

and exceptionally low admission rates at what has become the enforcer of the caste system, and that's higher education. Me and my colleagues have become so drunk on self-aggrandizement and arrogance that we take pride in turning away 60, 70, 90, 95% of applicants so we can feel more important about ourselves. America is not about exceptionalism. America is about acceptance. And we have totally lost the script across higher ed that no longer see ourselves as public servants, but as a fucking Hermes bag. It is a very negative forward-looking indicator of where we are when the only two cohorts that get into the most transformative experience in the United States, which is a college degree in terms of income,

opportunities, health. And we decide that the two cohorts that should have access to it are one, the children of rich kids. You're 77 times more likely to get into an elite university if you're a top 1% income earning household child. There are now 33 of the top 100 schools have more people from the top 1% income earning households than the bottom 60%. Or you're freakishly remarkable. And I would argue, and I can prove to you mathematically, while we'd like to believe all our children are freakishly remarkable,

I can prove to you that 99% of our kids are not in the top 1%. Spring used to be a time of joy and nervousness. It's morphed to a time of despair, where good kids are now turning to their family and say, I've been arbitraged down to a second tier school because the top 100 are drunk on luxury, but I have to pay a tier one price. Families are faced with terrible decisions. Do I go into debt to pay a Mercedes price for a Hyundai product? That's not what we're supposed to be doing.

We used to be about acceptance, opportunity, and academics. We've become about exceptionalism, the enforcers of the caste system, and prestige. I do think there's some silver linings here. And the first is that I think you're going to see the brand equity of public institutions soar mostly because the rankings are changing. And for the first time, we had a public university. My honorable motto for graduate school was rank number one, because Forbes has decided to include access in their ranking.

And whereas Pell Grants used to cover 80% of tuition, they only cover 30% now. But they've decided that access is an important feature. And the University of California, Berkeley will graduate more kids from low-income households this year than the entire Ivy League combined. Some silver linings. Go Bears, right? Coursera and Google. I'm, as soon as a critic of big tech,

I think what Google is doing in terms of certificates is wonderful. And I would acknowledge college isn't for everyone. We need to create more on-ramps to great middle-class lives. And I think tech is doing that. The most interesting thing in higher college isn't for everyone. We need to create more on-ramps to great middle-class lives. And I think tech is doing that. The most interesting thing in higher education didn't happen in higher ed. It happened at Apple and Tesla and other firms that have decided they're going to create

on-ramps and ways to evaluate people on their skills as opposed to their certification and are allocating a certain percentage of their entry-level jobs to non-college grads. That's probably the most important thing that's happened in higher ed. We're taking one quick break, and when we're back, you'll hear about the over- and under-hyped parts of health tech, fintech, and the space sector. The Capital Ideas Podcast now features a series hosted by Capital Group CEO, Mike Gitlin. Through the words and experiences of investment professionals, you'll discover what differentiates

their investment approach, what learnings have shifted their career trajectories, and how do they find their next great idea? Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. Healthcare. I think this is the most disruptible industry and will create more shareholder value than any industry in history over the next 10 years. U.S. healthcare, 17% of our GDP,

$3.5 trillion. Four out of five people aren't satisfied with it. And there's a lot of exciting things. Pre-pandemic, less than 1% were virtual visits to the doctor's office. Now it's a third. It's estimated that two-thirds of all healthcare spending could be digitized. You can't get an appendectomy on your iPhone, but you can get the consultation, you can get the drugs prescribed, you can get the physical therapy. The idea of the opportunity to push healthcare out onto our phones represents an enormous opportunity to take healthcare from a defensive state on our heels to an offensive health-driven industry on our toes. Funding is following. We're seeing a tremendous amount of deals done. I think this is going to be an amazing unlock. A mom who manages her child's diabetes, and let's be honest, it's almost always the mom,

spends five months of her year managing that child's healthcare. And most of it is in time that's wasted, transportation, waiting, dealing with insurance companies. So this might be an incredible unlock that pushes preventive care and primary care out to 100 million Americans that really don't have access to it. FinTech. So I think overhyped is online trading platforms. So the number of options as a percentage of market has exploded because people see pictures of other people making money. And some online trading platforms have done a great job of convincing you that all you need to do is trade more because that's how they make money by selling order flow to get rich. But the reality is day trading somewhere between 80 and 95% of day traders lose

money, and their average loss is 36% of their capital that year. They're also inexperienced. You could look at this as half-full, that this is about bringing a new cohort into investing. There's some very good things here. For the first time, this same proportion of people of color who own stocks has caught up with whites. So there's some very good things about this. The question is, are we setting up an entire generation of inexperienced investors who've never known anything but a bull market to get hurt very badly and lose all confidence in the market? When I look at Robinhood, 40% of their revenues this quarter came from cryptocurrency, and

60% of that was from Dogecoin. So you have a company that's as valuable as Barclays, more valuable than one of the biggest banks in Spain, bigger than Deutsche Bank. And it's got 25% of its revenues this quarter from Dogecoin, trading Dogecoin. I think that firm is very vulnerable. What's underhyped is online banking. I think that's going to be a much bigger industry, much more sustainable. If you think about operating systems, every company is trying to establish the operating system for media, for search, for your dating, for your media life. The operating system for our financial lives have largely, loosely speaking, been branches and ATMs. And people want new types of operating systems.

And a lot of the traditional banks are focused on their legacy assets and are shutting down these legacy assets like crazy. 25% of America is still unbanked because they're seen as an unprofitable segment. So the innovators see huge opportunity and are coming in and trying to capture the 1.7 billion people in the world who are unbanked. Huge opportunity in Latin America where the majority of people are unbanked. And a Walla firm I'm tracking closely in Argentina, one in four people under the age of 25 are now banking with Walla on their phones. They've just launched in Mexico and are getting adoption there. Overhyped space tourism. The Morning Network

spent more time covering the launch of Jeff Bezos' rocket than they did on climate crisis in all of 2020. This Virgin Galactic, in my opinion, is in a word ridiculous. It is both supply and demand constrained, and the company's being valued at $11 million for people on the waiting list. This was an incredible branding event. The whole world saw this, and they built a staggering waiting list of 600 people. A good Starbucks can serve 600 people in three hours. Aston Martin gets $2 million valuation for every car it sells. I think space exploration is the equivalent of space execution.

I don't think sending people to Mars is anything but a death sentence. And also space travel is dangerous. We don't like to talk about it because it's scary or you're seeing us having bad juju or bad optimism. But the reality is it's more dangerous than almost any other activity you can think of. I want to acknowledge there hasn't been a launch-based fatality in over a decade, but this industry could be over in a flash. Underhyped? Space hauling, actually putting stuff into space.

We're going to go from 3,000 satellites to over 50 in just 10 years. And the companies that can haul that stuff into space are going to go from 3,000 satellites to over 50 in just 10 years. And the companies that can haul that stuff into space are going to do really well. I thought the, for all mankind, ridiculous trip, 86 kilometers, we sent three people to a rock circling our planet 50 years ago, not knowing it, and then got them home safely at a period when a third of American homes didn't have indoor plumbing. And yet, for all mankind, when we send a rocket up for a few minutes to basically double the height of a Citation 10 or such in a Dallas plane flying home last night, and we think it's for all mankind. Ridiculous. I will say this, I think

SpaceX is blowing all the others out of the water in terms of the number of satellites and also the cost of lifting every kilogram into space. We also need to save more time where I think one of the most underhyped parts of the world of Elon is actually the least talked about and that is the Boring Company. A lot of our time is spent on very short commutes. New York to LaGuardia is only nine miles, but it takes anywhere from an hour to two hours during the weekday. And I think this opportunity to save time or save time bringing stuff to you is exceptionally underhyped right now. If you look at the amount of time it takes in major metros, death of cities has been hugely over-exaggerated. Two-thirds of economic growth is still going to happen in cities. They're already recovering, but our ability to save time in cities, getting out, getting in and getting our stuff in

is going to be huge. All right. That's a wrap on the dog's first presentation or new presentation on stage in 18 months. Can you teach a dog new tricks? Don't know. But I do know the dog needs to go out more because he's peeing 11 or 12 times a day. Too much information. Too much information. Anyways, thanks for listening. What software do you use at work? The answer to that question is probably more complicated than you want it to be.

The average US company deploys more than 100 apps, and ideas about the work we do can be radically changed by the tools we use to do it. So what is enterprise software anyway? What is productivity software? How will AI affect both? And how are these tools changing the way we use our computers to make stuff, communicate, and plan for the future? In this three-part special series, Decoder is surveying the IT landscape presented by AWS. Check it out wherever you get your podcasts.