The Prof G Pod with Scott Galloway - Prof G Markets: Robinhood’s Retirement Accounts and Disney’s Next Move — with Aswath Damodaran

Episode Date: December 12, 2022

This week on Prof G Markets, Scott shares his thoughts on why Robinhood is starting to offer retirement accounts. Then Aswath Damodaran, a professor of finance at NYU Stern, joins Scott for a Lightning Round on Apple, Amazon, Bob Iger, Chinese stocks, and opportunities in the markets. Finally, we hear a prediction for Disney in 2023.  Show Notes: Robinhood Bob Iger Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

Support for this show comes from Constant Contact. If you struggle just to get your customers to notice you, Constant Contact has what you need to grab their attention. Constant Contact's award-winning marketing platform offers all the automation, integration, and reporting tools that get your marketing running seamlessly, all backed by their expert live customer support. It's time to get going and growing with Constant Contact today.

Ready, set, grow. Go to ConstantContact.ca and start your free trial today. Go to ConstantContact.ca for your free trial. ConstantContact.ca Support for PropG comes from NerdWallet. Starting your slash learn more to over 400 credit cards. Head over to nerdwallet.com forward slash learn more to find smarter credit cards, savings accounts, mortgage rates, and more. NerdWallet. Finance smarter. NerdWallet Compare Incorporated.

NMLS 1617539. This week's number, six. That's the number of people who showed up to the EU's $400,000 party in the metaverse. What should they have done? Given Hunter Biden $300,000 and a ticket to Vegas and just see how things unfolded. Welcome to Prop G Markets. Today, we're discussing Robinhood's retirement accounts and a lightning round featuring our colleague Aswath Damodaran. Aswath is perhaps one of the clearest blue flame thinkers we know. You'll hear his thoughts on Apple and Amazon's valuations,

the Chinese markets, and where to look for investment opportunities and more. Here with the news is Prof G Media Analyst, Ed Elson. Ed, how are you? I'm great. How are you feeling after your big day yesterday? My big day? You mean my colonoscopy? That's right. So I asked Dr. Joseph, my gastroenterologist, gastro? My gastro, that's what they call them, I guess. I went in, nurses all around, they're giving me the Michael Jackson drug. And for the first time, I felt like I empathized with Michael Jackson. Like I sort of understood him just for a brief moment. He used that drug. I think it for 11 years to sleep, and I could actually see doing it. It is a really good sleep. But before I nodded off into Never Never Land with Michael Jackson, I said to him, I said, before you enter me, will you scream surrender, Dorothy, and pull my hair back? And there was a pause, and then they all busted out laughing. I am a huge hit at Liberty Gastroenterology.

So anyways, they love me there. But anyways. How many of those tweets were you like drugged up on yesterday? Definitely one of them. I could tell. Yeah, no, definitely one of them. But my offer stands. I've said anyone who schedules a colonoscopy and tags me on Twitter, I will donate $250 to Charity Water. At the end

of the year, I try and raise some money for them or I try and come up with an interesting way to virtue signal and give money to Charity Water. So, $250. This is, unfortunately, it's the third leading cause of cancer death. Chadwick Boseman, Kirstie Alley, Eartha Kitt. Who knew Eartha Kitt died of colon cancer? But anyways, it's a very curable form of cancer. And we have this fantastic preventive measure called colonoscopies. Anyways, I'm a big fan of these things. Looking forward to it. Yeah, there you go.

Another reason to get older. All right, what's going on with the markets? Let's start with our weekly review of market vitals. The S&P 500 declined through most of the week. The dollar fell against other major currencies. Bitcoin was relatively flat at around $17,000. And the yield on 10-year treasuries continued to fall. Shifting to the headlines. London became the world's biggest center for fintech investment this year, after receiving the world's biggest center for fintech investment this year after receiving $9.5 billion in fintech venture capital. That was more than New York and San Francisco. Coinbase CEO Brian Armstrong said the company's revenue will be cut in half this

year. The crypto exchange continues to struggle with the collapse of FTX and falling trading activity. The price of oil reached its lowest level this year at less than $75 a barrel, erasing much of 2022's gains. Russia's invasion of Ukraine briefly sent oil prices up to $140 a barrel in March. China announced a rollback on its zero-COVID policy, loosening some restrictions such as mass testing and mandatory quarantines after the approach prompted protests across the country. And finally, the Trump organization was found guilty on 17 counts of criminal tax fraud and falsifying business records.

At issue was the company's practice of paying for employees' personal expenses, including apartment rentals, car leases, and even private school tuition for their children. Trump himself was not charged, but the Manhattan district attorney says the investigation is ongoing. Scott, what is actually illegal about paying for employee expenses? It's pretty squishy, and one of the advantages of having a small business or having your own business, quite frankly, is that you just get to expense a lot. I was just going to push back tuition. That seems, I mean, you're talking about a gray, squishy line here. That seems way

over the gray, squishy line. Yeah. Tuition for someone's kid seems a little, that does seem over the line. And I'm sure he's guilty. The issue is everyone will go to jail except him. I mean, Michael Cohen went to prison. What was Michael Cohen doing? He was doing the president's bidding. That brings up a host of issues. Specifically, the IRS is underfunded, and it's very difficult to enforce regulations unless they're making a statement.

When they went after Kim Kardashian for her endorsement of a cryptocurrency. There's probably a lot of people that have done something similar, but they wanted it to send a signal, so they go after high-profile people. I'm glad it happened because I think former President Donald Trump is a stain on the fabric of America that'll take decades to starch out. But I think this is very political. For the first time, the commission-free online stock trading company Robinhood is offering retirement accounts. The company will offer IRAs and Roth IRAs and also said it would pay a 1% match on all contributions made through the program.

In other words, for every $100 you deposit, Robinhood will add an extra dollar. Scott, do you think this is a good idea by Robinhood? Well, Robinhood needs to find something here. They were getting about two-thirds of the revenue from commissions on options and cryptocurrencies. So they were saying, hey, it's hysteria. Young people who are more risk aggressive have some extra money in their pocket because of stimulus payments. They built a shitty business that wasn't sustainable. And as a result, the stock is off 90%. My prediction is it goes down another 90%. So they need to actually find something that's enduring. And retirement accounts

are sticky capital. If you put $1,000 into a retirement account, Ed, it's likely that that $1,000 will stay in that account for a long time. So look, this is a good idea. Them offering 1% is just a discount. They're just saying, we raised a lot of money, so let's try and buy retirement funds and go out and say for $99, we'll give you $100 worth of retirement. This is just pure discounting. We'll see if it works. If you can set yourself up as the retirement account for young people,

such as yourself, that are about to come into their prime income earning years, it's probably a good idea. The problem with this is there's nothing differentiated here. It's not very difficult for another financial services company, whether it's Charles Schwab or TD Ameritrade or, you know, name your brokerage to offer the same type of discounting. There's nothing enduring here. I think what they're trying to do is take advantage of the fact that they have several million accounts and offer a new product. On the whole, it's probably a good idea. How much of this do you think is branding? I mean, you're talking about how they were sort of known as this risk-aggressive, not investing, but trading app. And this is now

sort of leaning into, no, we're a safe place to store your assets and for people to buy and hold. Do you think a lot of that is branding or do you think this is purely financially motivated? I don't think it was a brand move. I think it's essentially their business is collapsing. They took advantage of a bunch of drunk... it was 10 p.m. at 11, the strip club in Miami, and it was the crypto convention on a Friday night and, you know, roll out the champagne and the cocaine and people are spending like drunken sailors. That doesn't last. That's not an enduring business. We all know we should save for retirement. But how many of us actually do it? This week, ProfG Media's Mia Silverio took to the street

to ask people how they're preparing for retirement. Do you know what a 401k is? Yes. Do you have one? Yes. Do you contribute to it? Yes. What are your views on your retirement, like financial planning wise?

I feel like it's never going to happen. I don't contribute enough and I'll be working forever. Do you know what a 401k is? We're from Canada so we may not be able to help very much. I know it's a savings plan in the US but... No, I ain't retiring no time soon, actually. I think I just offended someone who was older when I asked her about retirement. Oh dear. Do you know what a 401k is? Sort of.

Do you know what an IRA is? A Roth IRA? Not really. Oh good, have you started saving for retirement? Have I? Yeah, how old are you? Like 22. Just like, no. Just like, yeah.

We'll be right back after the break with a lightning round featuring NYU's Aswath Damodaran. 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. Hey, it's Scott Galloway. And on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions. What should you use it for? What tools are right for you? Thank you. So tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts. We're back with ProfitG Markets.

Scott, we're going to listen to your conversation with Aswath in a moment. But first, what have you personally learned from Aswath, specifically about how to value a company? So Aswath is very unemotional. That's the thing I love about him is he can look at a company. First off, anyone who wants to learn how Aswath values a company can go to his YouTube channel. It's one of the most viewed YouTube channels in the world for financial advice. And one of the more interesting things he's been talking about recently is that, and it's really struck me, is what happens when baby boomers can't come to grips with the fact that they're no longer teenagers.

And what he means by that is that what you're seeing in the growth market is all of these cloud-based companies and all of these big tech high growth companies are no longer growing, but they refuse to believe that they're aging. And they refuse to return money to shareholders in dividends or in stock buybacks because they believe that they should continue to invest, they continue hiring, even when it's well beyond the fact that, okay, no matter how much Botox you pump into your face, you got to get over it. Every company ages.

He also talks about companies that are overpunished or overrewarded. I think Meta is going to outperform the markets next year because it has been overpunished, that everybody's assuming not only will Meta lose every dollar they're investing in the metaverse, and that's probably accurate, but they have decided to punish the rest of the business, which is still an amazing business. So I like Aswath because he's kind of like a just the facts, ma'am kind of guy. And he's, I think if I've learned anything about him, it's to be unemotional. And I find that my emotions or my affection for a company or my disdain for it unduly affect my confirmation bias. I want to find reasons that Metastock is going to go down. And after listening to him, I realized it's probably going to go up in 2023. Okay, with that, here is our lightning round with Aswath Damodaran, the Kirshner Family Chair in Finance Education and Professor of Finance at NYU's Stern School of Business, where he teaches corporate finance and valuation. What are your thoughts on Apple's valuation right now? You know, I own Apple because I think it is the most valuable franchise in the world in the iPhone.

But the terrifying thing for me in Apple is I'm buying a smartphone company. I'm not buying a smartphone company that has an ecosystem that it can use to make money through the App Store. But it lives or dies with a smartphone. It has the most valuable franchise, but it's also the most concentrated in one product. So that's a plus and minus of Apple. Very valuable franchise, incredibly profitable, but all focused on that one franchise. The thing I find most impressive about Apple is the fact that they've had the discipline not to invest $200 billion in cash. They can buy Netflix, they can buy Disney, to not do any of that. I mean, imagine the number of investment bankers and consultants lined up around one infinity loop saying, hey, we've got exactly what you want. And I think that discipline is what Tim Cook has brought to the company that I think has made Apple the most valuable company

in the world. Thoughts on Iger's return to Disney and Disney's valuation? It's chaos. I mean, I trace this back to the board of directors at Disney allowing Iger, And in fact, it was both sides were complicit in this because he was supposed to leave in 2014 or 15 when he decided to stay on, the bench cleared. So by the time you get to 2020, there was nobody on the bench, which is one reason Bob Chaput became their parent because really there was nobody who's left

to take over the company. I mean, Alan Berkman is amazing, but he doesn't want to be CEO of Disney. He wants to be a content guy. He wants to be in the movie business. So I think that by doing what he did in 2015 and the board going along with it, I just set the stage for what we have today, which is a person ill-suited to run Disney coming in as CEO and essentially over the next two years managing to go to war with his own company on almost every dimension. And because there's no bench, they had to go back to Iger. So I'd be worried in 2023 that Iger is convinced to stay on another two years because they're not quite ready yet. So for the moment, people are celebrating the return of Iger.

But I think there's a long-term issue here of who's going to run Disney after Iger leaves. What are your thoughts on Amazon? I think, you know, Amazon has gone through these cycles over its 25-year history. I think that it's almost like people go from never questioning Amazon to questioning them on every dimension. So right now, the big issue is, will they ever make money again? If you look at every business

other than the cloud business, because all of a sudden, people magically discover that the margins outside of the cloud business are about half the margins that everybody else gains in that business. I've looked at how that business has changed over the last 25 years. They used to lose money. They've at least started to make money on

Amazon Prime, net of the shipping costs. So I think they're moving in the right direction. They're not moving at the speed I'd like them to. So I think Amazon is cheap at their $800, $900 billion market gap. They're a company that knows how to load up bad earnings report with all the bad news. So in many ways, what you saw in their earnings report was they're dumping everything that they wanted to reveal to the markets into one earnings report, say, hey, respond to this, guys, because it allows us to bring expectations down. I mean, maybe I'm attributing too much power to them, but they're masterful at bringing expectations down and then beating them in future periods.

Chinese stocks. What do you think of Alibaba and Tencent? Do you think there's opportunity there? If you're willing to have Beijing in your room as part of the story. I mean, that's the reality with Chinese companies is Beijing is always part of your story. And the problem with Beijing being part of your story is it's completely unpredictable and it can make good stories bad overnight. So, I mean, I think Alibaba and Tencent look incredibly cheap on any traditional metric, but the reality is if Beijing decides that they're not cheap enough, it could make them even cheaper. So I think for a long time, we actually gave premiums to Chinese stocks because we thought the government was in the room with them. Didi was given a premium valuation because the assumption was, hey, the Chinese government

is on their side. They can keep Uber out. And they were right. They did keep Uber out. But now the Chinese government is in the room. They seem to have a different agenda than Didi has about what the future should bring. And all of a sudden, investors are waking up to it. So, I mean, it is a reality that you have to accept.

And if you are okay with Beijing being part of your story, and you think that eventually Beijing is going to find a way to make the story a good one, then by all means, invest in Chinese companies. But if you're uncomfortable with governments throwing their weight around and altering your story, stay away from Chinese companies, no matter how cheap they look. What does look cheap to you? Where do you see opportunity in the market right now? Big tech, because I have a feeling that big tech is being marked on way too much. I understand why people are down on it. Don't put your money in any one of them,

because any one of them, disaster could strike. But a portfolio of young tech companies, which have hit hard times, I think that the upside that you might get in that portfolio is a good one. So I think there's a lot of potential in tech, especially that has been marked down a lot over the last year. U.S. stocks have held up surprisingly well, given how much risk premiums and risk free rates have gone up this year. I mean, I think that my implicit cost of equity for U.S. stocks has increased by the most I've ever computed in a single year. In the 40 years that I've been tracking that number,

it's gone up from about 5.5% to almost 9% during the course of this year. And if you told me at the start of this year that your required return on equities is going to go from 5.5% to 9%, what do you think will happen to stocks? My answer would have been about a 30% drop in stock prices, and we haven't seen that. So in many ways, I think stocks have been resilient given what's been happening in the macro environment. Feels like for the first time, bondholders are getting some return or getting rewarded a little bit around some of the risks that they've taken. In terms of the market's moves and interest rates over the last 12 or 24 months, how should people be thinking about their portfolio allocation?

Well, new bondholders are really being rewarded. Old bondholders are being hammered. I mean, I think this has been perhaps the worst year for government bond and corporate bondholders in a long time. Because as interest rates have gone up, prices of bonds have collapsed by levels I don't think I've seen in a really long time. But I think, finally, if you're lending money, if you're investing for the first time in bonds, you're getting a rate of return. You look and say, I could live with that. For the longest time, I looked at bond rates and said,

I'm not investing at a 1% coupon rate for the next 30 years. I mean, it doesn't make any sense to me. In hindsight, you look and say, why did we ever settle for that? And I'm surprised that more companies didn't borrow more, to be quite honest, lock in those rates for the long term. Surprising number of companies have short-term borrowing that they took at the low rates, which actually gives them very little benefit because when that debt gets rolled over, you either have to replace with equity or with much higher rates. But I think the same thing can be said about individuals who didn't lock in 30-year mortgage rates at 1.5%, 1.7%, because that might have been the best financial decision you could

have made in hindsight over the last four, five, six years. But I think that we're getting back to a steady state. I think that the last decade was the aberration because in a sense, 2011 through 2020, if you look at it relative to financial market history, was the strangest decade that you could have lived through as an investor, as a lender. So rather than think of things as being unusual now,

really, this is a return to normalcy. A 7% mortgage rate might strike you as insanely high if you're 25 or 30 years old. But I look at a 7% mortgage rate and said, hey, that's what I borrowed at 30 years ago. So I think we're returning back to some degree of normalcy with interest rates. And that's a healthy thing, in my view. For more from Aswath, check out the December 1st episode of the Prof G Pod, where he and Scott talked about Twitter, Meta, and the economic outlook. For now, let's take a look at the week ahead.

We'll see inflation data for November on Tuesday, and the Fed will deliver its last interest rate hike of the year on Wednesday. The only question is whether it will be 50 basis points or the fifth 75 basis point hike in a row. Scott, do you have any predictions for us? So my prediction is that Disney is going to make a big acquisition in the first half of 2023. I think Bob Iger at the age of, I think, 71 has just come back. I have no idea why he decided to come back. He sort of rang the bell at the high. And I think the ad-supported media ecosystem is under attack and he needs to do something kind of big and bold. And also, he has the license and credibility to do it.

He didn't come back to just sort of manage the company slowly downward. And I think there's an outside chance that he acquires, makes a big acquisition like Roblox. And my thinking here is that just as they've made a lot of really deft acquisitions where they could suck the IP or the characters, whether it's the Mandalorian or Woody and Buzz Lightyear, and those are Lucasfilm and Pixar acquisitions respectively. I think if they were to acquire Roblox, which has seen its stock like every other company get hammered pretty severely, it's now got about, I think, an $18 billion market cap, they could push Disney Parks to Roblox. They could create the Disneyverse. 50% or more than half of kids in the US under the age of 18 are on Roblox. And I think the idea of taking the parks and some of that imagination and joy and characters out to

or disperse it out to the Roblox community, if you will, would be an interesting idea. And I think Disney has about $160 or $180 billion market cap. They'd have to pay $25. So it'd be a 10% or 15% dilution, which would be a huge acquisition, but it wouldn't be a bet-the-ranch acquisition. And if Disney were to say, all right, we're the leader in intellectual property and media for kids and family, and we have this unbelievable parks business, and we've also moved the parks business into, quote-unquote, the Disneyverse via Roblox. I like that type of acquisition. Anyways, my prediction is that Disney is going to make a pretty big acquisition in the first half of 2023.

That's all for this episode. Our producers are Claire Miller and Jason Staver. Special thanks to Catherine Dillon, Ed Elson, Mia Silverio, and the PropG Media team. If you like what you heard, please follow, download, and subscribe. Thank you for listening to PropG Markets from the Vox Media Podcast Network. We will catch you next week. What software do you use at work?

The answer to that question is probably more complicated than you want it to be. The average U.S. 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. Support for the show comes from Alex Partners. Did you know that almost 90% of executives see potential for growth from digital disruption? With 37% seeing significant or extremely high positive impact on revenue growth. In Alex Partners 2024 Digital Disruption Report, you can learn the best path to turning that disruption into growth for your business. With a focus on clarity, direction, and effective implementation, Alex Partners provides essential support when decisive leadership is crucial.

You can discover insights like these by reading Alex Partners' latest technology industry insights, available at www.alexpartners.com. That's www.alixpartners.com slash V-O-X. In the face of disruption, businesses trust Alex Partners to get straight to the point and deliver results when it really matters.