The Prof G Pod with Scott Galloway - Prof G’s Investment Strategy

Episode Date: August 26, 2021

Scott shares his investment strategy via a previously recorded Section4 live stream. Today, you’ll learn a few of Scott’s key terms including the T-Algorithm, the Benjamin Button Effect, and the Rundle. Scott then discusses the companies he’s invested in over the years, his biggest losses, and his four pillars to achieve long-term wealth. Related Reading: The Algebra of Wealth 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. Support for PropG comes from NerdWallet.

Starting your credit card search with NerdWallet? Smart. Using their tools to finally find the card that works for you? Even smarter. You can filter for the features you care about. Access the latest deals and add your top cards to a comparison table to make smarter decisions. And it's all powered by the Nerd's expert reviews of 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. Welcome to the Prop G Pod. In today's episode, we're sharing a previously recorded Section 4 live stream. Section 4 is our online higher ed startup that wants to make an MBA education accessible by offering affordable sprints taught by yours truly and professors including Adam Alter, Sarah Beckman, and Jonah Berger from NYU, the Haas School, and the Wharton School of Business. We put on all sorts of live streams. Today's is all about my investment strategy. Before we get started, a disclosure.

I get this wrong all the time. I love predictions. Like Eisenhower said, plans are useless, but planning is invaluable. I think predictions are useless, but it's fun to make them to catalyze a conversation. So I think Tesla goes below 100 bucks a share within 12 months, and I do think it gets acquired. Missed it by that much. All right. So with that, here's our investment strategy, and we're starting off with what's called the T algorithm. So let's talk a little bit about the T algorithm. I think some of the things you want to look for in companies, public market companies that you think could go from 10 billion or 20 billion to 100 billion or more is one, it's pretty obvious the instinct they're appealing to. Amazon appeals to our survival instinct. More for less is always a winning strategy because the cave

or the bear that goes into the cave with the most stuff has a better chance of emerging, appealing to your propagation. This makes you more attractive to others. It says you're part of the elite class globally, says you're a storyteller. Tesla is essentially a way of saying I'm granola, but I'm rich. Have sex with me. Wanting to feel closer to God is about luxury. A need for a super being, which has become instinct, is really what Google is. You trust Google more than any rabbi, priest, mentor, scholar, or boss. I think it's important to say right out of the gates, does this product or service immediately foot to a very basic instinct such that the adoption of it feels almost natural. Recurring revenue bundle is sort of my wrap.

I think that the future is about moving away from episodic transactional businesses where there's a lot of choice to recurring revenue businesses, which are valued at multiple of revenues versus a multiple of EBITDA. Likeability is becoming increasingly important. One thing that these CEOs have in common, whether it's Dara Khosrowshahi or Sheryl Sandberg or Tim Cook is they're very likable. And that's a huge, huge attribute in terms of your ability to attract capital. And then as the company gets bigger, save off regulators.

Probably the most important thing, especially for a B2B company is career accelerant. I think Goldman Sachs and William Morris Endeavor will always be good companies, regardless of the business they're in, because they continue to attract the best talent. And their culture is not even a consumer focus or a client focus. It's an employee focus. They pay their young people really well, give them huge opportunities for growth. There's a dark side to that, and that is that by the time you're 40, you're not really killing it. They move you out, such that they can create more upward mobility. I think a lot of small services firms that get stuck suffer from this narcissism at

the partner level where they feel that they started the business, they added the most value, they should get 98% of the compensation and income. And young people never feel as if their career is going to accelerate and they leave. Vertical integration, whether it's Apple forward integrating into stores or Amazon reverse integrating into private label, the majority of great companies are Lululemon going forward into mirror. The majority of companies that want to be over 50 or 60 or $100 billion have to be vertically integrated. Growth and margins, more of an output. Typically, you see a company talk about its growth and its leadership to attract cheap capital, to create moats such that they can flip to a margin story. Benjamin Button effect is different than network effects.

You know, two faxes are worth infinitely more than one. A million are worth more than two. But the resolution doesn't get any better. Whereas more Amazon reviews make the actual review platform more powerful. More people on Waze create more signal liquidity and greater calibration of your route. So the ability to age in reverse versus a car, tube of toothpaste, or a sugary soda, the moment you twist the cap off or drive off the lot, it declines in value anywhere between 20% and 99% in the case of toothpaste. So can you figure out

a way to create usage that enhances the value of the product for other consumers? And then the ability to outline a vision that's really compelling. I think Amazon would have gone out of business had it not been for Jeff Bezos' kind of consistent and compelling storytelling around value selection and convenience. So let's talk a little bit about investing

and I'll try and be as transparent as possible. I'm going back. I didn't really start accruing wealth until I kind of hit my late 30s. And I'd always sort of, I'd always invested, but I didn't really start to get what I'll call kind of the jump to light speed until my late 30s because I started making a lot of money and was still fairly disciplined about trying to invest a lot of it. I'd always invested from a young age, but got very serious about taking 10, 40, 60%

of my income and investing it. And I realized that's an option most people don't have, but I did have it. I've made a ton of mistakes. I put two and a half million dollars into my startup red envelope and subsequent rounds. We were supposed to go public in 1999 at a valuation of 800 million. Long story short, 10 years later, we were chapter 11 and I lost everything there. My returns there were zero, lost my entire principal.

Stern asked me to name two stocks to put into my retirement account, Oracle and Nike, which I still own. In 2009, I purchased about, I don't know, about a million bucks worth of Netflix. And in 2010, put about the same amount each into Amazon and Apple. So what happened? Kept going. I invested in a quant fund, a machine learning fund from a friend, Fenron, from Stern. That actually, I lost about 20% there over the course of two years. Ascena, I'm a big fan of retail. I like the CEO there. Invested in emerging markets fund because I wanted to diversify away from the NASDAQ. My life and my

wealth has been way too tied to the NASDAQ, and I realized what a danger that is. I did purchase some Facebook. I think the business model is incredible. And I have purchased pre-IPO shares in Airbnb and Lemonade, and I have traded in and out of Twitter. And I'll talk about some of my other losers and winners. So Ascena, I purchased and I lost about 80% in about 18 or 24 months. I thought I was buying it at a bargain price. It was a falling knife. It ended up going to zero. I think I bought it at, anyways, bottom loss 80% in about 18 months. I bought Netflix for $12 in 2010. It's trading at 550, I think. So that's the good news is the bad news is that I sold it for $10, uh, uh, about eight months later to take a tax loss and never bought back in. So I want to find a time machine so I can

go back in time, track my ass down and kill me and then kill myself. And the reason I bring that up is that you're going to make mistakes and, uh, but you can survive them if you diversify. And also again, see above, I get it wrong all the time. But I'm one of the few people in history who's actually figured out a way to make, to lose money on Netflix. Twitter for me has been a love-hate relationship. I'm addicted to Twitter.

I think it has huge potential if they moved to subscription and got a full-time CEO. This is a stock I've sort of traded. I bought it at 30, about two and a half years ago, ran to 50. I wrote a letter to the board. They ignored me. So I got out, you know, because I was angry.

And then I advised a large hedge fund who took a large position in it about a year and two months ago. And I bought back in at 32 and sold recently at an average price at about 57 or 58. So I've done well with Twitter. I traded around it.

I'm not recommending that. I think that is very hard to do. And one of the key lessons we'll take away from this. I think that is very hard to do. And one of the key lessons we'll take away from this, I think, is that if you look at the majority of my big wins, it's been stocks in great companies that I just invested and then ignored for a decade or longer. Facebook, again, one of the few people I think I figured out a way to break even here. The stock's been an unbelievable performer. I bought about 150. I think I sold around 200, but that's a terrible return given how much Facebook has gone up. I just didn't time this well. And people rightfully pointed out on social media that as much criticism as I levy against

this firm, I do think they're a menace, that I shouldn't be financing their growth. Fair enough. So I sold Oracle in my retirement account for 13 years. It's done okay, not great. It's a long time going to stock and it's done okay. Nike's done better, bought that also in 2008. Apple's done really well. I bought Apple, I think about 13 bucks a share on a split adjusted basis. So I think that's up about 10x in the last 11 years. And then of course, Amazon has been, has been great. I think I bought Amazon for about 130 bucks a share, and I think it's up around 25 or 30 X. So that has worked really well.

So kind of my thesis the last 24 months is this, you could call it a zag strategy and immunity strategy or citizenship strategy. And I want to be clear, I'm not doing this because I'm patriotic. I like to think I'm patriotic. I'm doing it because I think there's a great way to find alpha and above market returns is to go into markets that look so dominated. They're so dominated by a company that it's spinning off so many noxious fumes and externalities that there's an opportunity for a company to come in and be the antidote to that externality. So some examples, or so why do I think this is a good investment strategy? The wind in your sails is that companies are now using ESG criteria for investing. And you're

going to see more and more companies that look like good companies that have what I call a greater focus on citizenship, attract a lot of cheap capital. And you'll have the wind at your backs, if you will. I used to think this was mostly just sort of a Ben and Jerry's tie-dye, save the whales kind of bullshit rap. But it is now, if you look at just the amount of capital flows with ESG criteria, it's about a third of all capital raised has some sort of ESG component. And then companies are responding. They are trying to at least, in some of its window dressing, some of its real, incorporate some of this and start talking about stakeholders in addition to shareholders. And then three quarters of these ESG funds are beating their indices.

Some of that might be a technical trade because so much money is flowing into the sector, not because of the underlying performance. And I do think that immunities are kicking in around some of the biggest companies. I think people are fed up, whether it's Lena Kahn and Tim Wu going to the Biden administration, whether it's FINRA issuing a $70 million fine against Robinhood. Even in social media, Pinterest and Snap are more benign. They're less noxious than Twitter or Facebook, and they are outperforming them because I think people and advertisers and employees like the idea of going to a company that has the upside of technology without some of the calories of weaponizing our election, depressing our teens, yada, yada, yada.

So some of my private investments, and this is a lesson that if you ever have access to kind of asymmetric upside, you should absolutely leverage it. And I want to acknowledge that most people don't have the access I have, but I will purposely pursue a company that I think is the antibody or the vaccine to a company that's spinning off externalities. One of those companies is OpenWeb. I invested. It's an inside ventures-backed company out of Israel. And basically, it's a SaaS platform that manages the comment section for big media companies ranging from the Wall Street Journal to Yahoo. And the idea is that a lot of articles will have two or 300 comments and Twitter is

basically a large comment feed. And the comments get very ugly, mostly because the bigger platforms like ugly comments because they incent rage and more dialogue, which means more Nissan ads. But a lot of the traditional media companies just don't have the technology to solve this comments problem. So they are trying to figure out a way to make the comment section less toxic, less coarse. And as a result, advertisers like it more. And the media company is able to monetize their comment section because it's not seen as a sewer or exhaust. We're seeing attempts to kind of clean up. This information does, in fact, help. One account off of Twitter reduced two thirds of election misinformation. This is something that there's a huge need for because I think Tom Sawyer said,

a lie will circle the earth before the truth has a chance to put on its shoes. People are attracted to the novel. Unfortunately, it's infected our news stations as it's more interesting to sensationalize and provoke conspiracy theory because they're just more interesting. And OpenWeb attempts to assess the toxicity of something and the value of something and then make a trade-off on how worthwhile the comment is. It's okay to be angry or combative as long as you're adding value and coming with facts. It's okay to be wrong. But if you're both not adding any value and just being toxic, that is considered a low-value comment and is deprioritized. I've invested in public. I invested here about a year and a half ago.

I think Robinhood, I'm going to use an academic term, I think they are mendacious fucks. I think they do not care. They have no regard for the consumers and they're comfortable putting in place dark psychological techniques and selling order flow, which in a sense, just keep the person coming back and trading no matter what, even though 85% of day traders, somewhere between 80 and 95% of day traders lose money. Public does not sell their order flow. They have an interesting business model. It's tipping 40% women, much more disclosure, much more about investing versus what I would call trading. And it's not even trading on Robinhood. I think it's gambling. I say that, which probably

means the stock will double today. It is a good business. But I do think there's an opportunity for many of the benefits of online trading. They're bringing more people of color in. Young people are starting to get into investing. There's wonderful things about these apps, but I think there's real externalities. And I think a company like Public is addressing those externalities. So another company I'm investing in is Neva, which is a subscription-based search engine. If you think about social media, it's the nicotine. It's not good for you, but it's not bad for you. The shit that gives you cancer, the tobacco of media is the ad, the ad model, because slowly but surely it becomes about just engaging you and

taking you to other places versus focusing on what content and, and what construct is best for you. And if subscription can just get 1% of the $150 billion market of which 93% is controlled by Google, I think this company will be a $10 or $20 billion market cap company. And I had the opportunity to invest alongside some great investors in the public markets. Neva is a subscription-based search engine. It used to be clear where the ads were, the ads supported. Now, basically, the first two pages of a search query return

are all ads or paid for. And so they don't disclose that because it would be obvious that Google is now pretty much pay for play. Coming up after the break, if I was a 25-year-old and just an economic animal, I would be trying to position myself at the intersection of technology and healthcare. That is where the great dispersion will take place. Stay with us. Support for this show comes from Constant Contact. You know what's not easy? Marketing. And when you're starting your small business, while you're so focused on the day-to-day, the personnel, and the finances, marketing is the last thing on your mind. But if customers don't know about you,

the rest of it doesn't really matter. Luckily, there's Constant Contact. Constant Contact's award-winning marketing platform can help your businesses stand out, stay top of mind, and see big results. Sell more, raise more, and build more genuine relationships with your audience through a suite of digital marketing tools made to fast-track your growth. With Constant Contact, you can get email marketing that helps you create and send the perfect email to every customer, and create, promote, and manage your events with ease, all in one place. Get all the automation, integration, and reporting tools that get your marketing running seamlessly, all backed by Constant Contact's expert live customer support. Ready, set, grow. Go to constantcontact.ca and start your free trial today. Go to constantcontact.ca for your free trial. Constantcontact.ca 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.

So the other big theme I'm thinking about in terms of investment strategy is what I refer to as dispersion, which is a fancy way of saying decentralization. And that is we have companies using technology to leapfrog or reshape the traditional supply chain such that they can get to the end consumer faster with lower friction. So the result of the benefit is the creator gets greater margin, gets to capture more, you know, OnlyFans gets 80% of the revenue they produce. And then the consumer gets content, product, services at a lower cost with less friction. And I think that's happening across some of our biggest industries, including mine. So three big shifts in our economy, modern economy, globalization, basically the competitive advantage of nations, digitization, the internet, and now dispersion, where we're seeing Wonder Woman 1984 come right to our home screens and disperse, if you will, or leapfrog the traditional

box office route. And I think that's happening across our biggest industries. So the dispersion of HQ and dispersion of hospitality, there used to be sole purpose real estate with a building that had only one use and staff and a reservation system called a hotel. And Airbnb has said, well, we'll just skip that infrastructure and go to this existing infrastructure, these existing assets called apartments and let people give them a platform to rent it out. It's an incredible business. And then the dispersion of headquarters. People basically are saying, I'm going to work it out. It's an incredible business. And then the dispersion of headquarters. People basically are saying, I'm going to work from home. And even if all companies are Apple and say, come back to the office three days a week, that's a net destruction of 40% of the

$8 to $12 trillion asset class that is commercial real estate. And I think all of that capital is going to flow into residential. The result is people are dramatically upskilling, is that the word, upgrading their home because that ratty carpet or the house seems especially small when you're spending 60% of your waking hours there during the week versus 20%. This creates tremendous reallocation of capital that's flowing into real estate. And I think it plays well to better, which is writing mortgages and trying to take out humans such that there's less systemic racism, less costs. And then they split the savings with the consumer in terms of lower interest rates and with the mortgage counselor who gets better pay. Mortgage counselors, it's a very high turnover job and

better has much stronger retention because they make more money because they're more efficient because of technology. And people feel less intimidated applying for a mortgage online. And this company is literally a rocket ship. So we're seeing travel ramp up, especially leisure travel. And this is the analysis we did that got me very excited about investing in Airbnb. And that was it's the strongest brand in the history of hospitality. If you look at searches, people don't say, I got an Expedia in Madison. They say, I got an Airbnb.

And it is, if you do searches, there are more searches for a city and then Airbnb than all the other hotel chains combined. This has allowed them to exit the stranglehold of Google. They have a lower CAC, really high margins using arbitraging other people's assets. I just think there's incredible business. And they also treat their hosts and their guests, and they've had some problems, but I think that Brian Chesky's heart is in the right place and they have made real investments in trying to think about all stakeholders. Education. There's a dispersion or a leapfrogging of universities and corrupt

admissions departments and faculties who are drunk on exclusivity and only want to let in one in 10 people that apply. I think that is total bullshit and not American. When I applied to UCLA, there was a 70% admittance rate, true story, and I had to apply twice to get in. Now the admissions rate is 9%. And the result is we can no longer take chances on unremarkable people such as myself and give them remarkable opportunities. And I think that is about as un-American as I can imagine. And we're leading the charge into becoming the enforcer, the caste system here in the U.S. But with COVID and a variety of other features, including tuition increases that are just useless, there's an opportunity to leapfrog campuses and admissions and get some sort of informal certification, Google certificates,

intellectual property, similar to what we're doing at Section 4, at a fraction of the cost. So I think there's a dispersion of education. I have invested in two firms. I've invested a lot of my personal money and time in Section 4. We've raised $37 million in general catalyst. We're probably going to do another round in the next, call it 90 days. Higher ed had more investment in Q1 of 2021 than it had in 2020, which was a record year. And then Multiverse is a UK company that's helping train people for tech jobs that are non-tech. So how do you become in finance for a tech company? And it's vocational training. It's got contracts with government agencies, but vocational training, I think,

is going to be an enormous opportunity for investors because people are waking up to the fact that two-thirds of our children will not end up with a traditional four-year degree. Ridiculous price increases. My course in the fall, 280 kids, it's 7K per person. Think about that. Every student pays $7,000 just to take my course, 280 kids, $1.96 million. That's $163,000 a night.

I don't think that's sustainable. The only other product I could find at a similar price point with 99 points of gross margin, I've returned all my compensation for the last 10 years so I can continue to bite the hand that doesn't feed me, is a knockout pharmaceutical that cures imminent

death from a muscular genetic disease that results in imminent death. So save your life or brand strategy. Those are the only things I could find at that price point and those margins. That is not sustainable. My next kind of area of dispersion, I think the biggest opportunity, if I was a 25-year-old and just an economic animal, I would be trying to position myself at the intersection of technology and healthcare. That is where the great dispersion will take place. Largest industry in the world, U.S. healthcare, 18% of our economy. And every year, the outcomes get worse. Mortality, rates go up, life expectancy goes down. I mean, it's just it's a shitty product that's expensive, kind of like living in San Francisco. San Francisco is a product. And then we're seeing an opportunity to skip the traditional infrastructure or leapfrog it. Think about it. 98, 99 percent of people have contracted the novel coronavirus will have never entered a doctor's office, much less a hospital, because healthcare, we figured out a way to disperse some of that healthcare to people's smartphones and smart speakers. Incredible increase in costs. And not

only that, I think it's actually the time tax that is the real cost around healthcare. And that is a mother who's managing her child's diabetes. And let's be honest, it's always the mom, spends 12 weeks of her year managing that child's health care. So if you think about the opportunity to streamline the delivery or disperse the delivery of health care and give that mother eight or 10 weeks a year back, think about the self-care, the time with family, time to make money, and that's just an unbelievable unlock. There's a lot of insurance companies and organizations in the middle that benefit from the delay and obfuscation and bureaucracy.

Insurance is a great business. And by the way, I don't have health insurance. And people say, oh, that makes you irresponsible. No, it doesn't. The primary reason you have health insurance is to avoid financial ruin from a disaster, like a big hit. And the reality is I can afford that. And my health insurance was costing for me and my family, because I think of myself as a master of the universe. And I was like,

get out and give me the best. It was $58,000 a year. And I found we were still paying 50% out of pocket because we wanted to go to different doctors. And the health insurance industrial complex will do a very good job of making it difficult for you to get reimbursements because they're hoping for breakage. So the incentives are totally fucked up. So in the last four years, since I went naked without insurance, I've saved a quarter of a million dollars, which will buy me a lot of healthcare. I also don't have a property insurance and I'm in a position where I don't need to get mortgages. So of course the insurance industry has lobbied some States to demand you get insurance because wind and flooding insurance in Florida is crazy expensive. And I'm like, unless this house gets blown away every seven years, we're better off

going naked. Anyway, point is, there are vested and trenched interests in the supply chain. And I think we need to think creatively around how we get rid of some of those things. And health care is the best example. If you want to talk about an acceleration or dispersion, less than 1% of visits, doctors' visits were done digitally pre-pandemic. Now it's almost a third. So we are dispersing. They estimate that two-thirds of the $3 trillion health care industry can be delivered digitally. So you can't get an appendicitis on your smartphone, but you can get the pre-op consultation. You can do the physical

therapy. You can order the right products. You can get the right painkillers delivered to your house, all digitally, as opposed to going in and out of the doctor's office. There's just tremendous unlocking opportunity here. When you think about the amount of time you spend going to, getting referrals, waiting in a waiting room, filling out paper versus the actual healthcare delivery, I mean, this is just a grossly inefficient industry that's this large. I'm an investor in 98.6, which is text-based primary healthcare. And what's fascinating about this is people will text and say, these are my symptoms. Use some limited AI to point you to the right practitioner.

A doctor comes on who values flexibility and can work from home and says, OK, what's going on? Sounds like a UTI. I'm going to give you a script. It'll be there in two hours. A third of the people that reach out to 98.6 are doing so while they're in a meeting. That is not only economically a huge opportunity, it's an enormous opportunity societally. And that is, if you think about it, it's probably 100 million Americans who manage their health

care through the emergency room. And that is they're either intimidated or economically precluded from accessing primary health care. So dispersing health care out onto our phones and our smart speakers and into our homes, I think, offers an enormous unlock to take healthcare from being a defensive emergency disease-related industry to an offensive on-your-toes healthcare-related industry. So I'm very excited about healthcare. We've seen a dramatic lowering of regulations and increasing investment in the space, pulling the future forward, if you will.

Also, I think there's going to be an enormous boom in decentralized fitness, not the sweat industrial complex. I think SoulCycle and Equinox are going to struggle, but Peloton is a great example of the sweat industrial complex being leapfrogged and training at home on apps. And I think that's going to get renewed focus. One thing we don't like to talk about is the obesity problem in the US. It is an epidemic. It's a big part of the reason why we had, you know, with 5% of the population, we've had something like 17% of the infections and 19% of the deaths.

I don't know the latest numbers now that India and Brazil are catching up really fast. But we tend to have politicized almost everything in our country. We have politicized obesity. And that is, we don't want to have a data-driven conversation around how unhealthy this is. People say, you know, I found my truth. Well, that might be true, but it's also very unhealthy. And I'm not suggesting everybody needs to be ripped and I'm not about body shaming, but we also just need to acknowledge that biology is not politically correct. We've also, on the far right, they politicize masking, which makes absolutely no sense to me. So on the far left, we don't want

to have an honest conversation. And on the far right, we want to deny science. None of this makes any sense. So I've invested in a weight loss product that is very much about counseling and good nutrition and trying to keep people up on it, involved, recognizing that most diets don't work. So it's sort of an approach to a healthy lifestyle called measured. And I've also am investing in the other big dispersion and that's the dispersion of trust

from central banks to crypto. I don't have the confidence to buy a coin. I don't understand enough about it. So I've decided to invest in the picks and the shovels. And I've invested in a company called Ledger, which is a private company out of Paris that creates a cold or manufactures a cold storage hardware wallet called the Ledger Nano X, which by dollar volume has about, I think, 14 or 17% of crypto stored on it, because if you have anything that's hot or connected, it's at risk. So cold storage is something that people have gravitated towards.

It's sort of the apple of, I think, of crypto wallets. The decentralization of the dispersion of finance away from the traditional players is creating extraordinary wealth. I mean, look at PayPal. PayPal is worth almost as much as Morgan Stanley and Goldman Sachs combined. That is just staggering. And PayPal has 28 times the patents filed last year of Goldman Sachs. Obviously, crypto, very exciting. And 14% are held on ledger hardware wallets. And then I've invested in the dispersion of quick service restaurants. I think about a third of restaurants are going to go away. And the ones that survive will be able to invest in technology and disperse food out to

you. So I order a tremendous amount of food using kind of almost like a ghost kitchen-like concept with smaller footprint places like Dig or Chipotle. And Panera is doing an amazing job. Now, more than 50% of Panera's food is sold digitally. What do I mean by that? It starts digitally. Buy online, pick up in store, curbside pickup, catering where you order off your app. And also, they have a great recurring revenue bundle with their limitless coffee. So I like the kind of the dispersion of food even out to your smartphone, out to digital mediums. And I really like the management team there. Again, a private company.

I serve on the board there and on the board of OpenWeb. We'll be right back. 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? And what privacy issues should you ultimately watch out for? And to help us out, we are joined by Kylie Robeson,

the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life. So tune into AI Basics, how and when to use AI. A special series from Pivot sponsored by AWS, wherever you get your podcasts. connections across AI-powered email, SMS, and more, making every moment count.

Over 100,000 brands trust Klaviyo's unified data and marketing platform to build smarter digital relationships with their customers during Black Friday, Cyber Monday, and beyond. Make every moment count with Klaviyo. Learn more at klaviyo.com slash BFCM. would look at for investing or your own human capital. The reason Apple has gone from a PE of 12 to 38 is it's gone from zero to 20% of recurring revenue that's recurring. The reason why I think it'll be a $200 stock is they will start including this and iPads and AirPod Maxes in a recurring revenue. They'll say 75, 100, 150 bucks a month based on your product weight class. And we'll just send you the newest product 60 days before anybody else.

One of the biggest mistakes we make in marketing is believing that choice is a good thing. It's not. It's a tax. Sheena Iyengar, my colleague in the marketing department at Columbia, has this great quote that I parrot all the time, and that is, consumers don't want more choice. They want to be more confident in the choices presented. And that's what I think a recurring revenue bundle does. So I would say to young people, go to a company that has a recurring revenue dynamic or is moving to it. The other thing you want to do is in a business, you want to tap into one of our flaws, many flaws as a species. And that is we don't, we can't register the passage of time. Oh, I'm going to join Equinox. It's 220 bucks a month. I work out four times a

week. That's 16 times a month. That's 15 bucks. What a deal. No, I don't. I'm traveling all the fucking time and I don't work out as much as I'd like to think. Maybe two to four times a month, I'm paying 55 bucks to hang out with people who are hotter than me wearing Lululemon. Not a good deal. Not a good deal. But we don't, you want to have a business model that ties itself to the clock because your consumer will overestimate the amount of usage and costs they impose on you. So you always want to move, if you can, to a business and to, I think, an investment strategy around that ties the business to the clock in terms of what it charges consumers. In terms of portfolio diversification, 40% of my capital is in public investments,

40% is in privates. I'm moving more to privates, mostly because I'm getting access to privates. And one of the things I think you also have to take into mind in terms of investments is not only how much capital, financial capital you're allocating, but how much time you're allocating. I coach a lot of young men. And one of the first things I do is I ask to see their phone and I pull up their app usage. And I'm like, well, okay, you're on Coinbase three hours a day. Like, well, I'm learning. I'm like, okay, what have you learned? Tell me about Ethereum versus Bitcoin. And they're full of shit. They really haven't learned that much. What they're getting is dopa. And I'm like, well, how much money have you made? What are your

returns? And people are very good at talking about, you know, they're big heads, but they don't want to acknowledge over time, they really aren't making, you know, as much money have you made? What are your returns? And people are very good at talking about, you know, they're big, they're big heads, but they don't want to acknowledge over time. They really aren't making, you know, as much money as they thought or had hoped, or that's been my experience. So I try to invest in things. One of the criteria I got is how much time is it going to take? I check my stocks four to six times a day. That's real time. That's probably 15 to 20 minutes a day, a hundred minutes, you know, a hundred minutes a week, 5, a day. That's real time. That's probably 15 to 20 minutes a day, 100 minutes, you know, 100 minutes a week, 5,000 minutes, that's 100 hours. I could be doing something else, 100 hours.

You know, that's a pretty good time in Vegas. Anyway, it's a long weekend in Vegas with the dog. I don't know, where was I going with that? Oh, it's not healthy to be spending a ton of time checking your phone to look at the price of shit. So I want to spend less time doing that. And privates are great. I can talk to the CEO once every month or three months, add some value. I get access and I find it less stressful because I don't have a scorecard every day. And about 20% of my assets are in real estate. I think real estate is a fantastic place to generate wealth slowly

because it's very tax advantaged. It's one of the few assets you can depreciate as it appreciates, you get to write off interest. Why? Because old people, old homes, own homes, young people rent, and everything we do in this society is about a transfer of wealth from young people to old people. Another talk show. And then you want to invest early. I started buying stocks at the age of 13 and I've had some big wins. I've had some big losses, but the thing that has always been the, you know, the wing, the air beneath my wings

has been a compound interest. And that is, I've been fairly disciplined about saving money and then investing it and then ignoring it sometimes for decades. And if you, you know, anyone under the age of 30, okay, let's hope you're the bomb and you get a big head, but just in case, start putting money away and ignoring it and look at it in 10, 20, 30, or 40 years, because there just is nothing more powerful than compound interest and time. And it'll go faster than you think.

So my algorithm, and this is what my next book is about, and I'm going to do entire sections on each of those things, is, is there an algorithm or an algebra for creating wealth? And I think there is, loosely speaking, and if you string together these best practices. The first is focus. And that is a lot of people get angry themselves or they mistake a lack of talent for focus. What do I mean by that? Your job as a young person is not to find your passion because passion usually connotes, I want to coach a soccer team or be a DJ, but to find something you're good at and then invest the requisite perseverance,

certification, training, bullshit, navigating corporations, putting up with injustices to become great at it, such that you can make good money at it. Something you're good at, something you don't hate, something people will pay you for. That is usually not being a DJ or opening a nightclub. And then you might think, well, as long as I make a shit ton of money, I'm going to be fine. No, actually, the key to wealth is not how much you make, it's how much you save. And I'm starting to think a lot more about stoicism. And that is, you know, through up until the age of 28, I drove a 1984 Honda Accord. Until two years ago, I lived in faculty housing and paid $1,700 a month in rent with two kids

because I thought it was a great deal and have always tried to live below my means. And it is really difficult because the dog likes to party and everything is telling you to spend more money. Upgrade from coach to premium economy, to comfort economy, to business class, to first class, to, hey, a bunch of dudes where let's split a jet to go to Vegas. All of these feel like investments in yourself. You only live once. No, it's not. The consumer economy is outstanding at convincing you why it is a good idea to spend money. You want a rebellion if you're a young person and you have a rebellious streak, which I think is great and you want to protest something. The food industrial complex wants you to be fat. Social media wants you to

hate everyone else. Robin Hood wants you to believe that everyone's richer than you and you just need to trade more. If you want a protest, rebel against those things. Porn sites want you to spend too much time watching porn. Twitter wants you to respond to everybody who you perceive slights. Rebel against these things. Be empathetic, be kind, be forgiving, be disciplined. And also, also from day one, start saving money. Start saving money and investing it. And just a little bit, just a little bit, as a young person combined with stoicism,

living below your means are really the pillars. That's kind of the A and B, the chocolate and peanut butter of creating wealth. And then the thing that protects you that's your Kevlar is diversification. So I've had my own companies go bankrupt. I lost several million dollars in red envelope. I bought Netflix at 12 and sold it at 10. I had a Senna go from X to 0.1 X. I lost 80%. But I've never put more than 10, maybe 20% of my capital in any one asset at any one time. And as I've gotten older, I've tried to diversify actual asset classes. If you day trade, 85% of you will lose money. If you were to buy 10 stocks in the S&P 500 and hold those stocks for at least 20 years, no one has ever lost money in the history of the

markets. So diversification lets you take a bullet to the chest, red envelope, buying and selling Netflix, Ascenta. And it hurts. Those still hurt, but they don't kill you. They don't kill you. And my Kevlar and financial security has been a big component of the fact that I can take a bullet on any one of these things and I'm still going to be fine. the fact that I can take a bullet on any one of these things and I'm still going to be fine. You do not need to be a hero. You don't. You don't. If you're fortunate enough to have a large position concentrated in a private company, as soon as you can, do a secondary and start diversifying. And the problem is the media will publicize a small group of people, the wealthiest people in the world, Bill Gates, Mark Zuckerberg, all made their money, Jeff Bezos, through extraordinary

concentration. Assume you are not Jeff Bezos. Just assume that is not going to happen to you. If it does, call me and tell me I was wrong. But I do know how you can get rich. I do know how you can get rich, and that is slowly. Okay. So it's, it's what Warren Buffett said. It's time in the market, not timing the market. The more you trade, the more you lose. If you love trading fine, but recognize you're gambling. Gambling's great, but just recognize you're gambling and that's consumption, not investing. You don't need to be a hero. You, what you need to be is one of those boring dudes or gals that lives below your means and lives in a shitty apartment so you can put money

with a robo advisor or into an etf because guess what you're going to wake up at 40 and 50 and you're going to be able to enjoy more time with your kids more flexibility and a lot less stress america becomes more like america day. And that is we believe in winners and losers. And the primary arbiter of whether you are a winner or loser in America is spilling the bills, splashing the cash. It is about money here in America. Your health care, your access to health care, your self-esteem, whether people laugh at your jokes and your selection set of mates will all be tightly correlated to how much money you have. I'm not saying that's the right thing, but that is the American thing. And you want to start checking that box early and often. Our producers are

Caroline Shagrin and Drew Burrows. Claire Miller is our assistant producer. If you like what you heard, please follow, download, and subscribe. Thank you for listening to The Prop G Show from the Vox Media Podcast Network. We'll catch you next week on Monday and Thursday. Excuse me for a minute while I drink my protein powder as I am heading to CrossFit. The CrossFit Games, that is. By the way, how do you know someone who's CrossFit? They tell you. They tell you. I'm a vegan and also own crypto. None of that is true. So I won't know what to tell people first. Anyway, some good humor there. 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.alexpartners.com. In the face of disruption, businesses trust Alex Partners to get straight to the point and deliver results when it really matters. Support for this podcast comes from Klaviyo. You know that feeling when your favorite brand really gets you.

Deliver that feeling to your customers every time. Klaviyo turns your customer data into real-time connections across AI-powered email, SMS, and more, making every moment count. Over 100,000 brands trust Klaviyo's unified data and marketing platform to build smarter digital relationships with their customers during Black Friday, Cyber Monday, and beyond. Make every moment count with Klaviyo. Learn more at klaviyo.com slash BFCM.