The Prof G Pod with Scott Galloway - Prof G Markets: Carta and the Secondary Market, Bitcoin ETFs, and Scott’s 2024 Investment Strategy
Episode Date: January 15, 2024Scott shares his thoughts on who stands to win and lose after the SEC’s approval of eleven bitcoin ETFs. He also discusses a scandal in the startup world and explains why there’s enormous opportun...ity in the secondary market. Finally, he breaks down his investment plans for 2024. Learn more about your ad choices. Visit podcastchoices.com/adchoices
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This week's number, 34. That's the percentage ofapan's unmarried adults over 50 who have never
dated my wife has said that if we get over a million downloads of the prop g pod she'll let
me do anal so please stop listening her cock is huge oh my god that's bad that's bad let's just
fuck it.
Welcome to Prop G Markets. Today, we're discussing the SEC's approval of the Bitcoin ETF,
a scandal in the startup world,
and my investment strategy for 2024.
That was a segue.
Here with the news is PropG Media analyst, Ed Elson.
Ed, what is the good word?
I just, you're such an old bloke.
I'm sorry.
It's gone.
You should have seen,
you should have heard me on Pivot this morning.
Or actually you won't.
They're literally like,
it's me,
Kara,
and three producers who are all women.
And they literally like,
every other minute they're like,
oh, we're editing that out.
Stop,
Scott,
we're editing that out.
We can't,
can't say that.
We can't say that.
Claire,
what do you think?
I think it's a good start to the year.
What do you think,
Claire?
No,
that's staying in.
Yes, Claire, gangster Claire that's staying in. Yes.
Claire.
Gangster Claire.
Taking risks with my career.
That's right.
Good.
Okay.
Go ahead, Ed.
What's going on?
What's going on in the market?
Let's start with the market vitals for 2023.
The S&P 500 posted a 24% gain for the year and saw its longest winning streak since 2004.
The dollar ended the year down about 2% after tumbling on potential interest rate cuts.
Bitcoin gained more than 150% as hopes for a Bitcoin ETF grew.
More on that later.
And the yield on 10-year treasuries finished 2023 back where it started despite peaking
above 5% in October.
Shifting to the headlines, here's what's been happening over the last few weeks.
Adobe abandoned its $20 billion acquisition of Figma after hitting regulatory roadblocks in
Europe and the UK. We discussed that acquisition back in 2022 on our September 26th episode.
The New York Times is suing OpenAI and Microsoft for copyright infringement.
The Times alleges millions of its articles were used to train chatbots that now compete
with the newspaper. OpenAI has said the lawsuit is, quote, without merit.
A Boeing 737 MAX lost a door-sized section mid-air during an Alaska Airlines flight.
Since then, more than 170 Boeing jets have been grounded,
and the company's stock is off more than 10% to start the year.
Activist investor Elliot has built a position of about a billion dollars in Tinder owner Match Group.
Elliot intends to improve the company's performance and boost its stock, though specific demands were not disclosed.
Match Group's stock rose by as much as 12% after the news.
And finally, the consumer price index rose 3.4% year-over-year in December.
That's higher than expected, and the most in three months.
Housing contributed to more than half of the overall increase in the CPI.
Scott, welcome back.
Any thoughts?
So we talked about Adobe Figma and the idea of the new upstart innovator disruptor being
purchased by the Death Star, Adobe, which is a great firm,
it does a great job, you can just expect that naturally over the next few years,
you'd have higher prices and a concentration of power. So one, I think it's the right decision.
What's probably most interesting about this is that the EU would constantly stamp its feet and
get angry at big tech. But the general consensus was
it doesn't matter. It's a nothing burger because they can't break up a company that's domained or
headquartered in another country. But effectively, the EU was the one that weighed in here and they
killed the acquisition because Adobe said, if we're not going to be able to operate this company
in Europe, we can't do this. And they paid, I think, a nine-figure breakup
fee. At the time the purchase agreement was announced in September, the $20 billion represented
12% of Adobe's market cap. And European regulators are effectively putting on a masterclass and
saying, look, just because you guys are either obsessed with big tech or that they have weaponized
government or that you're so old you don't understand this technology or you want to feel like you're younger again.
And being pro-big tech feels like Botox in your face.
We don't have to go that way.
And so I think this was the right thing to do.
I think it's interesting that the regulators were the one that inspired or got in the way of it. And I think the design market and the creative market benefits from having lower prices and competition here.
The Boeing crisis.
Just on Adobe, that $20 billion number, and you mentioned it's 12% of the market cap.
It feels like that was the major clue here.
Because at the time they made that bid, the company's loss valuation was $10
billion. And at the time it was making $450 million a year. So that's 45 times sales. So I
think the question that probably the regulators are asking them were asking themselves is like,
what is this premium that Adobe was willing to place on Figma and why were they willing to pay
it? And in my view, it's like it's
a monopoly premium. I think that's exactly right. I think if they had both the kind of subscription
based creative, you know, kind of creative tools with relationships with the biggest companies in
the world, and then they own the upstart disruptor innovator that everyone is excited about that has
better future functionality, they kind of own it.
I love that the EU here has stepped in and gotten in the way of an acquisition or a merger.
Yeah, it's an acquisition, not a merger.
That just shouldn't have happened.
It would have been bad for consumers.
So let's talk about Boeing.
It makes for a great headline.
I would argue that Boeing is probably a good buy right
now because while I think their primary business is commercial jet manufacturer,
they're a big defense contractor. I do think it's a well-run company. Nobody was hurt. And,
my guess is more people were killed by EVs yesterday. It's just it's very dramatic to see the side of a plane bust open.
And the 737 plays such a critical role.
The 737 is really the workhorse of the skies.
And so there's a real vested interest on the part of airlines and manufacturers and parts manufacturers to get 737s back in the air.
But the thing about it is, speaking of a
concentration, the commercial jet manufacturing business is really a duopoly. It's Airbus and
it's Boeing. So I think Boeing is going to be fine. Its stock is down. I mean, what happened
here? A teenage passenger had his shirt sucked off his body. That sounds like a pretty good TikTok. I hope someone was filming that shit.
But I don't know why the idea of a piece of the fuselage just coming off randomly like mid-flight,
I find that funny. I don't know why. I imagine it was terrifying.
I mean, you're really not expecting that. It's like you're sitting in the aisle seat and you hear a sound and you look over and all you see is terrain because there's no longer a fuselage.
I mean, how do you even process that?
How do you?
I'm glad no one was hurt.
You have to laugh it off.
No one was hurt.
You got to think that those people might have a wee bit of a fear of flying for a while.
It's just not easy.
Imagine how many drinks those people are going to order the next time they get on a flight.
By the way, if you have a fear of flying, I find that Bloody Marys, there's something about tomato
juice and vodka that helps in any situation, but I find it really helps. I had a bit of a fear of
flying for a couple of years. No idea why I don't have it anymore.
But yeah, I think Boeing,
I think Boeing is going to be fine.
And I think this makes for... I mean, to be fair,
it is the third crisis in five years for them.
And the previous two,
and the first one was in 2018,
when the MAX 8 crashed
and it killed like almost 200 people.
And then the other one was in 2019, when another MAX 8 crashed and it killed like almost 200 people and then the other one was in 2019
when another max 8 crashed and it killed close to the same amount so i mean
there's been some serious damage and lives have been lost in the past i guess the question is like
does the image of the fuselage falling off is that enough for buyers of the commercial aircraft, i.e. the airlines,
to say, we don't really trust Boeing anymore, this is the third crisis in five years,
and we're going to switch to someone else? And as you point that it's probably their only other
option is Airbus. The purchase cycle for these things is so intense and long. I mean, if you're
selling an Airbus, if you're a salesperson for Boeing or Airbus, you're literally talking to
people 10 years before they take delivery of the aircraft. These are such enormous purchases. They're so complicated. And the 737 is so intrinsically rooted in airlines businesses from their operations, their parts, everything, even the jetways that are calibrated for a certain type of aircraft. So I think everybody has a
vested interest in getting these things back in the air. The loss of life from the 737 Maxes that
crashed is tragic. But the question I would have back is like, how many people died in General
Motors cars this past week? And what's interesting is that it's all relative and it's based on expectation.
And one of the gangster moves of business in the FAA and Boeing was early on, they created a set
of safety standards that were just unparalleled in the world of transportation. When you think
about it, flying, technically, to skirt along the atmosphere and near the speed of sound,
technically, you'd think, if you didn't know anything would be more dangerous than driving 30 miles an hour around your town. But guess what? It is a fraction
is dangerous. It's exponentially more dangerous to drive to the airport than it is to fly 3,000
miles once you get there. And so our expectations have been sort of zero tolerance for air travel. And there have been entire years
where there has not been a single commercial airline disaster. And that is such a remarkable
victory. And it makes flying just the whole concept. I mean, I don't know about you,
but occasionally I'm up in the air and I'm looking out the window. I'm like,
what the fuck? How does this thing? It's crazy. How is this thing even up here? And I start
freaking out and I start ordering more drinks. And like, this just makes no sense. And the fact that 98% of the public is willing to get in this steel tube with recirculated oxygen and skirt along the atmosphere and feel fairly relaxed is just a remarkable achievement. So I think this will go away hopefully as fast as it popped up. Let's talk about New York Times and the AI lawsuit.
I think that thing's crazy and worth talking about.
What are your thoughts on it?
Well, so I don't know if you know this, but I was on the board of the New York Times.
Bingo!
We need a sound effect every time.
There you go.
Every time I say that, it should be a drinking game every time I remind people I was on the board of the New York Times.
Yeah. Actually, please, if you're listening to this, please take a shot every time Scott say that, it should be a drinking game. Every time I remind people I was on the board of the New York Times. Yeah.
Actually, please, if you're listening to this, please take a shot every time Scott says that.
So no joke, in the second board meeting, I said, all right, I'm not going to say anything in the first board meeting.
And the second board meeting, the chairman, Arthur Sulzberger, says, what are your thoughts?
What do you think?
And he goes to Mike.
We should immediately call all the major publishers and form a rights group, a consortium, and we should turn off Google.
And I basically got laughed out of the room because they thought, oh, they're going to send us a ton of traffic and we're going to do ads.
And it was pure idolatry of innovators and us pretending that we were younger than we were.
And that was the time to have done it. could have all bound together and then pitched all of the content from Condé Nast,
Pearson, News Corp, New York Times, Washington Post
as one unified group
and somebody would have bid a lot of money.
This is that moment for AI,
specifically the Washington Post, New York Times,
and they're making the same mistake again,
and that is they're going about it alone.
Reuters just cut a deal.
The New York Times is thinking
they should do their own deal.
And the New York Times now, like then, is incredibly arrogant and doesn't recognize that they alone are much less powerful and important than these AI folks, that it needs to be almost everybody speaking with one voice.
And somebody, it might be an anthropic that is trying to catch up to open AI, might say, we're raising money to a $30 billion market cap. Dear consortium,
if you give us all of this amazing content to feed into our LLMs, Penguin Portfolio and Random
House, Axel Springer, all of them, right? We will give you 3%, 5% of our shares. We'll give you a
billion or a billion and a half dollars for a three, four, five-year exclusive. They need to
get real cheddar. And the problem is none of them want to cooperate or coordinate. They all have an
outsized sense of their own importance. And I worry the same thing's going to happen again,
where they're going to atomize it. So I think this is a unique moment in time,
and I hope they don't fuck it up again. Any thoughts on Elliott and Match?
Well, Elliott now arguably has the best brand in activist investing, because right on the
announcement, the stock's up 12%. And I think they do a great job. I think Jesse Cohn does a
great job. And they embody what is the key approach to activist investing and also to be
learned a lot in terms of negotiating. And that is when I was an activist investor, my counsel
was a guy named Stuart Stein at Hogan & Hartson and now it's Hogan Lavellas. And this guy was just, is brilliant.
And he used to advise me on how to handle these things, write the letters or I would draft them,
he would edit them. And he said something that has always stuck me. He said, you always want
every campaign and every communication when you're talking to the company, you want to be two things.
You want to be forceful yet dignified. You never want to make it emotional.
You never want to make it personal or win-lose, but you want to stay your objectives very clearly
what you want, be very forceful, but be dignified. And that, I think, Elliot reeks of that. They're
not writing poison letters. I know some of their targets. I've talked to some people they've
taken stakes in, including AT&T.
And generally speaking, the CEOs like those guys.
Having said that, if they don't do what they want, they're not afraid to nominate directors.
So the market clearly has a lot of respect for them.
Whenever they do something, I think I wish I'd thought of that.
Because the match group, it's done okay, but the whole market cap for what is kind of the leader in what is the way people meet now
is $11 billion. So it's, it strikes me that there's opportunity here and, you know, I think
they're going to do really well. I think they're the investors in Elliot. And I think in this
situation, they're going to make money. What do you think? Yeah, just to add on, I think the other thing that you got to recognize with
Match Group, which I don't think people talk about enough, it's kind of like the least discussed
monopoly in business because Match Group owns basically every major dating app apart from
Bumble and Grindr. It owns Tinder, it owns Hinge,
it owns OkCupid, Match.com,
and then if you put all of its assets together,
it makes up around 60% of the American dating app market.
So I would bet Elliot looks at this and sees it's trading at like three and a half times sales
compared to Bumble, which is at two.
So it's higher, but still comparable.
In addition, it's offering competitive pricing,
like a Tinder subscription costs five bucks a month
and Bumble's at something like 10.
I could imagine one strategy they would employ
is just let's just raise the rent.
Like we have a virtual monopoly on this space.
We have more pricing power than anyone in the industry.
So all we have to do is jack up prices and make sure that we don't get broken up.
I mean, what you just said is really powerful. 60% of the online dating market. I mean,
when you think about if half of people are meeting up, relationships are important.
Young people are stupid in the sense that they'll spend a lot of money on high margin products,
right? Thanks. And they also like to switch a lot.
They're not very loyal.
A cursory view, you'd think, well, this thing is undermanaged.
We have monopoly-like share in what is an increasingly important market in a category that has a lot of emotion.
And emotion is Latin for margin, right? People don't
have a lot of emotion around cleaning products or toilet paper. They have a lot of emotion
around the shoes they wear. And so one is low margin, one is high margin. And anything,
you know, I hear when I hear young people such as yourself, they kind of identify, they'll say, oh, I'm on the league.
What's the new one?
Era or Ara or?
Raya.
Raya.
Shit.
And they say it as if almost in the same breath where they say they went to school.
Well, the league is literally, you have to go to an Ivy League to get on the league.
Well, that's it.
It's literally the same.
Yeah. ivy league to get on the league well that's it it's literally the same yeah or it's like saying
it's like saying that you're uh from an incredibly privileged background and really haven't earned
any of your any of your achievements i.e you went to princeton and the fact that match has been able
to aggregate 60 of the market without having lena khan run around with her hair on fire and try and
break them up i like this a lot. I would even say after
a 10 or 12 percent, whatever it is, bump that this is a good play. And I think they're going
to do really well here. We'll be right back after the break with a look at the SEC's approval of the
Bitcoin ETF. We're back with Profit Markets.
As we discussed last month, the SEC has been reviewing 11 applications to issue Bitcoin ETFs on US exchanges.
Last week, the SEC approved all of them. The decision allows more everyday investors
to invest in Bitcoin through standard brokerage accounts instead of crypto exchanges. Bitcoin was
volatile in the hours after the announcement, spiking and then dropping dramatically.
This wasn't without its standard crypto drama, though. On Tuesday, two days before the approval,
the SEC's official Twitter or X account was hacked and announced that the ETFs had been
approved. Bitcoin then soared to a 19-month high before Gary Gensler revealed the announcement was
false and it fell back down 6%. According to X, the hacker obtained access to a phone number tied
to the account and the SEC had not enabled two-factor authentication. So Scott, we'll discuss
what this approval means for the
markets in a moment, but I first wanted to get your take on the hacking scandal. What does this
say about X? What does it say about online security and about government communications at large?
Well, immediately, I think X tried to position it as a failure of the SEC. It said if they'd
only follow two-factor authentication.
My viewpoint is this poses a question in that should any government agency that can move markets,
including the SEC, have an account on Twitter? Or should they only be going through more secure
channels? I thought what was most interesting about this, just speaking about the Bitcoin now
has this spot ETF market, markets have been approved by the SEC,
is that there's a lot of big winners here. I think crypto and specifically Bitcoin
get some legitimacy. The SEC has kind of said, blessed it and said that it's a legitimate asset.
People who trade Bitcoin are going to see much lower fees because immediately the biggest players
are going to come in and they're going to try and incorporate or attract a new customer set, kind of young crypto folks.
The question is, who is the biggest loser? And I would argue that the biggest loser
is Coinbase. And the analogy I would use is that Coinbase is the AOL of this generation. And that
is, in the 90s, you really didn't know how to access the web. I had no, I mean, people just didn't know how to get on the World Wide Web. But people had inserted a floppy disk that they got on their cereal box from AOL, and it was friendly and had a good user interface.
Welcome, you've got mail. web. And I think that's what Coinbase was for crypto. And that is, I think if you ask 90% of
people that didn't already own Bitcoin, how do you actually buy it? I don't think they knew.
So in the first place they would figure it out was, well, if I go on Coinbase, this large public
company run by good management, they seem legitimate, they seem a lot less sketchy
than FTX or these other guys, it appears to be a safe on-ramp
into the worldwide web of crypto.
Now, when all of a sudden you can buy it through Schwab
and JP Morgan and Vanguard and Fidelity,
Coinbase is no longer the best on-ramp into Bitcoin.
There's going to be a much more credible on-ramp.
So having said that-
To be fair, sorry, just to be fair, Coinbase is a co-issuer of several of those ETFs.
I think it's-
I think eight of the 11.
Yeah, eight of the 11, exactly.
But the problem is the dislocation in the market created, I would bet,
really healthy margins around trading in crypto. And those margins are about to get starched out
as the bigger volume, low cost players come into the market, like a Schwab or who have you.
And in addition, just generally speaking, Coinbase did $3 billion in revenues, and it has
a $30 billion market cap. I mean, relative to other financial exchanges, it's just, in my view,
it is insanely overvalued. So I think it's a good company. It'll probably benefit a little bit from
this, but it's got new competitors. A lot of the margins will get starched out and this company is
wildly overvalued. So I think quote unquote the biggest loser here over the long term will be Coinbase.
Carter, which makes popular cap table management software,
is in hot water for how it tried to grow a new line of business,
its secondary markets platform.
A Carter salesperson used confidential customer information from its cap table business
to make sales calls for the secondary markets business. This sparked outrage in the startup community, which counts
on Carter to protect highly sensitive information about investors and their stakes. Now, as a result,
Carter is exiting the secondary markets business. Now, before we get into this story, just some
quick definitions. First off, what is a cap table? It's basically a list of a company's owners with
all the data on their ownership and their ownership stake. And second definition, secondary markets.
Broadly speaking, this is any market where you buy assets from someone who isn't the original
issuer of said asset. The Nasdaq, for example, is a secondary market. You buy and sell from other
investors instead of buying directly from the company issuing the stock. In this case, though, we're talking specifically about private companies.
Carter was essentially trying to build the NASDAQ of private markets before it got shut down.
Okay, Scott, many are saying this is the end of Carter, which is one of the most well-known
names in the startup community. But the fact that Carter was willing to put its core cap
table business at risk to get into the secondary market shows just how much demand there may be for that market. So what
do you make of what happened here with Carter? And more broadly, what are the implications for
the secondary markets? I think Carter is going to be around. I think a lot of people have gone
through the rigmarole of setting up on Carter. I believe it tracks stakes and does a good job of,
I think, distributing equity when there's a liquidity event. But the fact that some salesperson
used that information to start calling people and saying, would you be interested in selling
some of your stake or adding to it? Obviously, that's a violation of trust, but I don't think
it puts the company out of business. It may put them out of the secondary business, but the secondary market, I think, is only going to get bigger because when you don't have an IPO market, and that means there's a lot of companies out there that investors either don't have access to buying shares in or the shareholders don't have access to liquidity, it just creates demand or a void that is filled by these secondary players.
So it strikes me that there isn't one that's sort of bigger. I do think it's an opportunity
or more efficient. I wonder why JP Morgan and Goldman aren't in this game. I get called a lot
by a company called Setter, which I think is a Canadian company. And is there one called Forge?
I get called by these folks a lot who read that I'm on the board of something or a shareholder of something.
And I used to get calls to say, do you want to sell shares in Public, which I'm a shareholder in, or Multiverse, which I'm a shareholder in, or Ledger, because the demand for the new cool stuff was really hot a couple years ago.
And to be clear, these are all private companies.
Private companies, yeah. And now I get calls saying, do you want to add to your stake?
Which means that there's more sellers than buyers right now.
And I think the reason why is that these markets are fairly inefficient.
And what you have is a lot of sellers who are anchoring off the old numbers and have said, well, if I can still sell my shares at a market cap of $2 billion,
not realizing the company's worth $200 million now, or probably, I'd like to. So they return
the call and say, if you can get me this, I'll sell. And they're now calling people and saying,
do you want to add your stake? And then what happens to me is I hear the number and I'm like,
these people are smoking crack. The company is just no longer worth that. I mean,
there's just very little liquidity and price discovery right now. But
this is a market that I think will just grow, especially if the IPO market continues to seize
up. And I mean, things have changed so dramatically. Back when I was an entrepreneur, you just weren't
allowed to sell your shares in a secondary sale. It just was very much frowned upon.
Yeah. Take us through why that's so frowned upon,
because it's such a strange concept that you build a company and then you think that the
founder can do whatever they want with the shares. But as you say, it's, yeah, take us through why
it's bad practice to do that for founders. So generally speaking, the kind of the gestalt
or the zeitgeist in the startup community was that startup founders were crazy. And that while you sort of needed us, once the company became real, you know,
air quotes, you needed to bring in John Scully or someone with gray hair from General Electric
who had big boy pants to manage the company once it was real. So you kicked out the founders of
Cisco. You kicked out Steve Jobs. You kicked out Scott Galloway. Yeah,
that happened too. But basically, we were seen as reckless and crazy. And there was probably some truth to that. And then two people changed everything. Specifically, Steve Jobs came back
when the company, whatever it was, was at 10 billion and grew it to 300 billion when he died
and revolutionized the company and made
it arguably the most important company in history, taking it back from the gray hair who was running
Pepsi, which was a fucking disaster. And then Bill Gates took a company from A to Z. He took a company
from startup to, I believe, almost a trillion dollars. No one had ever done that before.
So all of a sudden, the VCs switch from founders being a necessary evil that will eventually hand over the reins to some gray
hair that the VC picks to the secret sauce. And it swung entirely the other way, that people were
willing to put up with frat bro-like behavior or totally, they're willing to put up with an Adam
Newman. They're willing to put up with the Travis Kalanick parties. They're willing to put up with an Adam Neumann. They're willing to put up with the Travis Kalanick parties. They're willing to put up with Elon Musk's antics. Then it became
a regular accepted function of the markets where senior management got to sell shares
into the secondary market to try and get their first home. Before it was just considered sort
of verboten and there was this general
bullshit dogma in the market, mostly fomented by VCs who were often selling as fast as they could
on their own, that as entrepreneurs, we were sending the wrong signal to the marketplace.
So then that shifted, and in order to get into deals, VCs would say to the entrepreneur,
you can sell shares. And now it's pretty much an accepted
structure that once a company gets to kind of call it $100 million plus in valuation,
that the CEO is able and the senior management are able to sell some shares. Now, I did the same
thing. At L2 in 2014, General Callis came in and said, we want to invest. And I said, fine. And
they said, we'll invest 10 million bucks. And I said, great. And then they came in and said, we want to invest. And I said, fine. And they said, we'll invest 10 million bucks. And I said, great. And then they came back and said, we really like this deal. We'd like to
invest more. And I'm like, I don't need more than 10 million bucks. And they said, okay, well,
we'll invest 17 and existing shareholders can sell $7 million worth of stock. And what I did,
and I'm virtue signaling here, was I said, anybody who's been here longer than a year
can sell up to X percent of their equity. So
everybody got to sell up to the same amount as a percentage of their holdings. Because what I
thought was terrible is typically what happens is the CEO has a good relationship with the VCs.
He or she gets to sell a shit ton of stock and de-risk. But a lot of times, the rest of the
employee base isn't given that opportunity, and that's total bullshit.
But you're seeing as a regular function of the markets now that when there's a hot company, the way a VC gets into the deal is by offering them the opportunity, senior managers, to get some liquidity.
Yeah, I mean, what you're describing here is, with this private secondary market, is kind of this, like, it almost sounds like a black market.
Like, the idea that you're, there's no real
centralized platform where you're supposed to be trading on. You're literally fielding calls from
people like it's the 70s. Plus, it's extremely illiquid because there are so few buyers and
sellers, partly because, well, almost entirely because you have to be an accredited investor
to trade private stock, i.e. you have to be already rich.
And as you say, it's generally considered bad form to sell your stock, bad form for the employees,
for the investors, and especially for the founders who are expected to be putting all their chips on the success of the company. At the same time, you're also saying that that's changing now,
that it's becoming a more liquid market. People are more amenable
to founders selling their stock. More people want to get involved in the private markets.
It's growing faster than the public markets. All of this, to me, signals that Carter had the right
idea here. I mean, from the business side, this is a $7.5 billion company that makes around $350 million a year.
So that's 20 times sales, not absurd, but not great. It still has a lot of work to do to grow into its valuation. And it seems unlikely that just managing more cap tables is a reasonable
path forward to achieve that. So then you look at this secondary markets business, it's like,
this feels like this is such a good idea.
There's a market for it.
There's growing interest.
The existing infrastructure is clunky.
It's ineffective.
And Carter is sitting on this gold mine of all this proprietary data.
They know all of the ownership structures
of all of the top startups in America.
And they could come and they could change the whole system
with more efficiency and lower costs.
I mean, they were charging a 2% transaction fee. And I think what you told me is that when these guys
call you up, they say, hey, do you want to sell the stock? By the way, I'm going to take 7%.
And it feels like what's happened here is they've, some employee at the company was an idiot and made
some very bad calls. They bungled a PR crisis. And now they decided that
the only way out of this crisis is to sacrifice this massive opportunity for hundreds of millions
of dollars in ARR and the potential to possibly change the industry and change liquidity as we
know it in the private markets. So, I mean, I'd just like to get your take on this. Like,
do you agree? Isn't this a massive missed opportunity?
The secondary market, the opportunity you've outlined, is enormous.
Because to your point, and I'll use a specific example, I invested in public.
I invested a million bucks.
And I think about two years later, Setter or one of them called me and said, would you
be interested in selling your stake?
And I said, well, what can I get for it?
And the company was doing great.
The market was wide hot.
And I think they said, we can get you like eight or nine million bucks for your steak.
And I'm like, okay, I want 10.
And they said, it's going to be a 7% fee.
I was greedy.
The deal didn't happen.
And those shares are worth a lot less now because the market has
pulled back dramatically given that I think Robinhood's kind of seen as the proxy for value
in the space. And that stock is kind of trading a cash plus right now. So I wish I'd done the deal.
But the thing that really turned me off doing the deal was, wait, you want 7%? I mean, Schwab takes, I don't know, a 10th of a percent. And I'm
like, you want 7%? And it's because this market is so illiquid and people are smiling and dialing.
But that just signals to me that there's got to be someone who's going to pop up
and offer this as a marketplace. We'll be right back after the break with a look at
Scott's investment strategy for 2024.
We're back with Profit Markets. For our third segment, Scott, we want to start the year by
checking in on your investment strategy for 2024. You mentioned on last week's episode that you're looking to get out of tech and transition into credit. How is that going? kind of the magnificent seven of which I own two of the seven. I think I own Amazon and Apple.
And they've both had really, really good years. And I'm at a stage now where I'm trying to practice what I preach. And that is, I don't want to be too concentrated in any one stock.
And I'm very concentrated in these three. And I'm also overly concentrated in tech.
And if you look at the tech multiples right now, they look eerily similar
to 99 and 07. It would just be hard to argue these aren't strong valuations.
So given kind of the stage of life I'm at, 49, I want to start to de-risk a little bit. And for
the first time in a long time, you're getting paid, as we've mentioned, for the risk you take
in credit. And you don't take quite the risk, right? Because
if you're sort of senior in the cap structure, it's unlikely you're going to lose 60% or 70%.
Famous last words. It probably means I don't understand credit. But I have been trading out.
I have been selling down a little bit of my stake in Airbnb, Amazon, and Apple. And I'm going to take the hit in terms of taxes. And I
have been looking at putting some money in distressed credit funds because I don't want
to be as actively involved in looking at these things or tracking them. But I have some friends
in the business and they'll diversify for me, manage all my headaches so I can just sit around
and do this shit with you. But I am deconcentrating out of tech
and trying to get into distressed credit.
I think there's going to be a lot of money made
if you have capital in 2024
and some of the stuff that's kind of,
I don't know, semi-broken, if you will,
that's been hit really hard.
Have you made any calculations to determine
whether it's worth taking that tax hit?
Because I think that's
probably what's on a lot of people's minds right now is they're looking at their Amazon, their
Apple, holy shit, all-time highs. But do I want to take the tax hit right now? A few things here.
When I bought Apple and Amazon, it was after 2008, I had gotten run over by the great financial
recession. I didn't have a lot of money left,
but I had some and I took it and I divided it into three stocks. I divided it into Netflix,
Amazon, and Apple. Netflix went down 10% and I wanted the tax loss. So I sold it. And since then,
I never bought back in. And since then, I think it's up 60x. So I want to find a time machine,
go back in time and kill me before I kill myself. So that was very upsetting. I held on to my Amazon
and Apple stock and they're up respectively about 30 and 40x. And I didn't have a lot of money back
then, but when something goes up 30 or 40x, it turns into a lot of money. And I've
sold along the way when I bought a house and stuff like that, so I'm not going to get 30 or 40x, but
Apple and Amazon have been very, very good to me. But I'm selling them now and I'm taking the tax
hit because I don't want to say they're fully valued, but they just feel rich to me. Now,
the thing here from somewhat of your, is what this represents is the
greatest intergenerational theft in history.
And that is, in 2008, when we had the Great Financial Recession, we bailed out the banks,
but we allowed the economy and other stocks to fall.
And Amazon and Apple got hammered, as they should have been. And that happens. The
markets are cyclical. Now, your opportunity to buy into a depressed market was in 2020,
when we had a pandemic. But instead, the government said, I know a million people dying
would be tragic. But what would be profoundly tragic is if the
NASDAQ went down and rich people got less rich.
So they flooded the market with $7 trillion in not only your money, but on your kids'
money and your credit card and your future to bail me out and to ensure that my stock
stayed high.
So you have never had the opportunity as you come into your prime earning years to buy Amazon or Apple at seven bucks a share, which is the opportunity I got as I was
coming into my prime income earning years in the earlier part of the millennium. So this was the
greatest intergenerational theft in history. And because we have decided that we're a nimvious
rejectionist society that just wants to put more money in the pockets of seniors because our government is run by ridiculously old people, younger people haven't had a chance to take advantage of market cyclicality and buy in cheap. You should have had that opportunity two years ago. And instead we said, no, Scott needs to stay rich.
So young people in their 20s and 30s, fuck you.
Fuck you.
I got mine.
You get yours.
That was nothing but exceptional theft between generations.
What should young people be getting into then?
You're getting into distressed credit.
Young people can't because we're not legally allowed to, because the rule is that to be an accredited investor and trade these private
investments and get into private credit and distressed credit, you have to have a net worth
of a million dollars or you need to be making $200,000 a year. That may change when the Equal
Opportunity for Investors Act may pass in the Senate. That's a whole other discussion. But either way, currently, young people can't play that game that you're in.
So the general advice I would give to any young person, and we talk about this,
we have a book coming out called The Algebra of Wealth. And I do believe there is
an algorithm or an equation. The first is focus, find something you're good at,
work your ass off to become great at it. Aspire to be in the top 10, ideally the top 1% of something that has a 90 plus percent
employment rate.
That means don't open a restaurant, be a DJ or be an actor or decide you want to be a
professional athlete or a model.
Or a podcaster.
Whatever it might be.
But fortunately, you're drafting off of the tails of someone who is much more credible
than you.
Anyway, so-
I hit the big dog.
That's right.
So find your focus. Find something you're good at,
commit to being great at it.
Two, stoicism.
I think you're pretty good at this.
It is really tempting when you're young
and you're mating years to throw out your feathers,
buy the nice car, buy bottle service,
take fat vacations to Tulum,
try and live like a stoic.
Try and be really, try and live like a stoic, try and be really,
try and gamify to just commit to saving money every month. I mean, being rich isn't a function
of how much you make. It's how much you save. Simply put, you want to make more than you spend.
And that's really hard in a capitalist economy where for just 50 bucks, you can upgrade from
economy to economy comfort. I mean, there's just so many amazing ways to spend money. I don't want to underestimate how hard that is,
but try and live like a stoic. And your job in your 20s is to save and deploy an army of capital
such that you can start letting time take over. Now, in terms of what stocks or what sectors to
go into, take a third of it and buy individual stocks or individual things because it's fun
and you'll learn about it.
But take two thirds of your money
and don't try and find the needle in the haystack
because the reality is your co-host, Ed,
like everyone else, has no fucking idea.
We don't know.
None of us know.
So you don't want to buy the needle in the haystack.
You want to buy the haystack.
You want to go into ETFs and low-cost index funds
and you want to every month put more money in. You want a dollar cost average in and low-cost index funds, and you want to every month put more money
in. You want a dollar cost average in, and then you want to ignore them. So that's diversification.
And then finally, you want to try and embrace the confidence our species doesn't have,
and that is appreciate how fast time will go. You will wake up at, and I know this is horrific,
and you will find that you are 49 like me, and you will say, oh my God, I can't believe how fast that went.
And while I picked one stock that might have done really well or one stock that didn't
do so well, the fact that I just bought SPY or bought the whole market or invested a third
in European index funds, low cost, that if I just do six, seven, ideally 10% a year,
which is what the market's done since 2008,
you're gonna wake up at my age and you're gonna be rich.
That's the good news.
The good news is I know how to get you rich.
The bad news is the answer is slowly.
So when people say, what should you get into?
Sure, have some fun.
I have some ideas, but the bottom line is nobody knows.
So what do you get into?
You get into everything.
You get into everything because the market's natural trajectory over the long term is up. And what
do young people have on their side? What is their core competence? They have a shit ton of time
ahead of them that will go really fast. So if you are smarter than I was at your age and you
managed to save 500, 1,000, maybe at some point as you get into your income earning years, 2,000
bucks a month, I can guarantee you by the time you are my age, if you diversify and you let time take over and
you don't trade, you are going to be financially secure. Because while I lecture everybody,
my attitude when I was your age is I don't need to save. I'm going to buy a BMW 318i
and put my swim goggles on the rear view mirror, even though I didn't swim because it signaled to
people that I was somehow an athlete and that they should sleep with me. No, you did not. Are you serious?
I should have had a vanity plate that said douchebag. Anyways, I a hundred percent did that.
And I lived in a fat apartment in the Hollywood Hills. The once a year I managed to convince
someone to come home with me, they'd be impressed with my glass brick wall. I mean, literally
first word douche,
last word bag. Oh, I love it. Because my attitude was, I don't need to save. I'm such a baller. I'm so good at what I do that eventually one of my companies is going to get sold or go public.
And that happened to me. But between divorce and not planning and not diversifying,
I ended up in a very scary spot in my 40s. Now, things have worked out really well for me then, but you do not want to be where I was at 40.
And you don't need to be
because you have found your focus.
I'm not sure what that is,
just attaching your cart to my horse.
Two, double down on it.
Stay loyal to the dog.
Three, spend less than you make,
deploy your army of capital around a diversified set of assets, and let time take over. And everything else will work out. And then the most important financial decision you can make is spend a little bit of money on that monopoly called match and find a great partner. Find a great partner. That's actually the best financial decision you can ever make is to find, not only find a good partner, but to work on yourself such that you're a great partner. That's actually the best financial decision you can ever make, is to find, not only find a good partner, but to work on yourself such that you're a great partner. Charles Schwab and US Bank. And we'll also see Birkenstock's first earnings report
since it went public last year. Do you have any predictions for us, Prof G?
It's just a bad idea to talk about stocks, but I can't help myself. Coinbase is the AOL of crypto.
I think this thing is sub 100 bucks in three months when people realize that there's just
about to be a ton more on ramps. It's overvalued.
Good company, good management, dramatically overvalued.
And it's about to be rationalized, if you will.
This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Catherine Dillon and Jason Stabbers.
Mia Silverio is our research lead and Drew Burrows is our technical director.
Thank you for listening to Property Markets from the Vox Media Podcast Network.
Join us on Wednesday for office hours, and we'll be back with a fresh take on markets every Monday. Lifetimes
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In kind Reunion You held me in kind reunion
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