The Prof G Pod with Scott Galloway - Tech Valuations and The State of The Market — with Aswath Damodaran

Episode Date: December 1, 2022

Aswath Damodaran, a professor of finance at NYU Stern, joins Scott to discuss Twitter and Meta, his outlook on the economy and valuations. He also shares his thoughts on the state of the crypto market. Follow Aswath on Twitter, @AswathDamodaran. Scott opens with his thoughts on zero-covid policies in China, Twitter and the rage machine, as well as what he’s watching on TV right now. Algebra of Happiness: Freudenfreude 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. Episode 216. 216 is the area code for cleveland ohio in 2016 leonardo dicaprio finally won his first oscar for the revenant outstanding film by the way and everyone was playing pokemon go true story titanic turns 25 this week leonardo is supposedly not interested in seeing it i never question what i'm subconsciously attracted to. Go, go, go! Welcome to the 216th episode of The Prop G-Pod. In today's episode, we speak with our colleague Aswath Damodaran. If you've been following the show long enough, you know that we are huge fans of Professor Damodaran.

He has been on the show, I think, seven or eight times. We discussed with Professor Damodaran a wide range of topics, including Twitter, his outlook on the economy, and valuations. All right, what's happening? Well, over in China, by the way, would you really want to be anywhere else in America right now? Where would you want to be exactly? I mean, other than being in Saint-Tropez. Actually, that's not that nice this time of year. I was in Morocco this weekend. Let's get back to me. It was quite warm. It was quite nice. Enjoyed it. I don't really have any insight here other than it's the closest place that's warm to

the UK right now. And we stayed at a place called the Royal Mansour, which was lovely, which was lovely, but we really didn't leave our Raya. Is that what it's called? And we just watched World Cup nonstop, which was also very rewarding. But when we did leave our Raya one hour a day, it was very pleasant out. It was very nice. Anyways, enough of that. What an ugly American goes to Morocco to watch World Cup. Worth it.

Anyways, what's happening? In China, as we were talking about, about a quarter of the nation's populace is under either partial or full lockdown. And there appears to be some relatively serious pushback. This is all coming down shortly after President Xi Jinping secured his third term leading the communist country as the Chinese head into year three of strict pandemic lockdowns and testing regimes. It's probably logical from a strictly analytical standpoint. They have a large portion of their elderly population is not vaccinated. They have one of the lowest ratio of nurses to the populace, meaning that if this thing gets out of control, you can see a lot of death. A lot of people would argue, though, that this is the wrong strategy. When the virus was not that contagious and highly lethal, a total lockdown made sense. But now that it's less lethal, the more contagious a lockdown doesn't make sense. And if you were to track or if the Dow were to track what the Hang Seng has done the last 24 months, the Dow would be sitting around 10,000 or 12,000.

So, again, see above. Where would you rather be than the United States? What's going on? Simple. I think the Chinese leadership has very closely tracked America and said, okay, these megalomaniacal Jesus-like figures that have more power than the government, see above, Bezos, Musk. But effectively, they've decided capitalism is not what they want. And we are so narcissistic. We assume that, okay, the markets should drive everything. Money is everything. And they've essentially decided no, stability is everything.

And the middle class is important. They have put entire industries out of business. Okay, Didi, you don't want to share your data with us? Well, fuck you. We'll put you out of business. Okay, industrial tutoring complex that is beginning to create income inequality and a seed advantage to wealthy people whose kids are getting to the top university, which, by the way, has less than a 1% acceptance rate in China. I think Harvard's is five. Imagine that. A university is five times as difficult to get into as Harvard. They've said, no, we're not

down for that. So they've said, capitalism, no, we see how it's panning out in the U.S., and we're not going that way. I would argue that's the wrong move. Eventually, our key to stability there is that they have to continue to bring tens of millions of people out of poverty. And without these economic juggernauts getting to run, if you will, or letting them run, I think that's threatened. The Chinese market has ticked up and then is ticking back down over these huge lockdown or these lockdown policies. The Biden administration has been very cautious to say anything about the protests as he tries to continue the thawing of the relationship when they got together. By the way, we speak a lot about the importance of people getting together, that kids need to socialize, that young people need to be in a position to

find mentors and colleagues and mates. But the power of getting together, the power of socialization was on full display of the G20. I believe just Biden shaking the hand of Xi and having them both speak to each other in a semi-alone environment with only about seven interpreters, I would imagine, is important. They see, okay, this guy's not evil. Maybe we can get along. Maybe we might even exchange cell phone numbers in case Xi gets real. We call each other. That stuff's important. It's important to get people together.

Analysts at Goldman see a 30% probability China relents the restrictions before Q2 of 2023 regarding their lockdowns. And Chinese stocks had their worst day in a month on Monday. The jobless rate in China for those age 16 to 24 is nearly 20%. Oh, my gosh. Revolution with a small r. And that's the problem or one of the many problems or risks for an autocracy. And that is about every four or eight years, we kick the current party out thinking that somehow things are going to get different or be changed. And we usually find out now everyone's kind of similar, although I will argue that the parties are do

seem to be getting more different over the last 20 years. Anyways, there is no changing parties in China. Voting this government out of office is called revolution, and it likely involves potentially millions of deaths. So this is a fascinating study in how China has decided, you know, we kind of incorrectly believed that they would follow us down this path of capitalism, which appeared to be paying huge evidence in China. I'm like, no, we've decided to go another way. What did they think in Germany?

Well, if we incorporated Putin into the great world of capitalism and became mutually dependent economically, them on our euros and us on their natural gas and oil, that we would be less likely to declare war on each other. Well, it appears that that didn't work either. So this notion of deglobalization is a very real thing over the last 12 months. And yet, Aswath will claim that regardless of attempts to separate politically, we are economically as intertwined

as ever. And he uses inflation as an example, where inflation has been within a band for anyone all over the world, except for some of these developing nations that have absolutely no economic policy or are very unstable. The majority of the modern world is seeing inflation somewhere between, call it, 8% and 12% or 13%. So we are all, as Aswath said, connected at the hip. Okay, what else is happening?

What else could we talk about? I don't know. Query me this. All right, Twitter. Twitter, we never get enough. It's the gift that keeps on giving. So let's try and look at this through a sober lens. Let's call balls and strikes. So let's call a strike, if you will. I don't know how the metaphor extends to balls and strikes.

Anyways, just go with it. What he's gotten right, the firm was incredibly inefficient. The site has not crashed. A lot of people say, well, you don't know that yet. Agreed. We don't know. There will definitely be some ramifications. But it looks as if Twitter could continue to operate at a minimal acceptable standard with 25% of the employees it had just six months ago. Now, he got that right. What did he get wrong? I think he thought I can reduce expenses 50, 60, 70% and hold on to 70, 80, 100% of the revenues and maybe juice those ad revenues with subscription. He's gotten both of those things wrong. There has been no cogent strategy to subscription. And also supposedly 50 of the 100, or it was reported that 50 of the 100 biggest advertisers on Twitter have stopped advertising and gone to zero, which

likely means the other 50 have reduced their spending, which if you believe that as a proxy for the rest of the market or the rest of advertisers on Twitter, we're talking about a 60 or 70 or 80% decline in revenues. Twitter doesn't have any other revenues. I mean, I think they sell some data. I think they have some, they had Twitter blue some revenue, but it was 90, 95, maybe 98% advertising, which means that their revenues are off 70, 80%. In addition, you have a new expense called interest payments, which are probably a quarter of a billion dollars every quarter. So what do we have?

Yeah, maybe it's being able to cut costs 50 or 60%. And you won't see that in this quarter's numbers because they still have to pay severance, so they won't recognize it for another three or six months, but you're going to see an immediate decline of 50, 60, 80% in revenues, and you're going to see this new cost line called debt interest. This company might be insolvent

in the next six to 12 months. What does that mean? This company could likely go through a prepackaged bankruptcy, meaning the debt holders, which now hold bonds worth $13 billion or were supposed to be worth $13 billion, are probably going to see those bonds start to decline in value. And you could see a reorganization. How that pans out will be really interesting because Elon Musk started buying the debt. I think there's some conflict of interest

issues that might get in the way there. I don't know how the courts handle debt. I need to do some research on that. But this is about to get even more interesting. What else has he gotten right? The rage machine continues to work. We're all talking about this shit. He puts out these anti-Semitic tropes and we're so disappointed. And by the way, by the way, we have incorrectly conflated masculinity with these ridiculous, hateful tropes, jokes. Here are my pronouns, kiss my ass. That's what Ted Cruz said. And it gets huge applause and everyone goes, oh, Ted's a dude.

He's a guy, isn't he? No, he's not. No, he's not. You know what masculinity is? Masculinity is garnering strengths and skills such that you can protect and advocate for others. Others. Whatever you think about the trans community,

whatever you think about the important conversation we should be having around gender affirmation and therapy, whatever you think about these issues, can't we all agree to be more Jesus-like, to be a little bit more empathetic, a little bit more loving and say, okay, whatever you think about this community, they have taken a lot of shit

and maybe we should show some grace. Can we be more GOP-like and decide with really difficult issues like this, we should defer to the family? We should defer to their doctors? We should defer to their personal decisions? No. Let's take a tiny community that we can demonize and let's pass laws protecting girls' sports, even though there's absolutely no instance, not a single instance, of a trans athlete trying to compete in a girls' sport at a high school level. Hello, governor of South Dakota. What a hateful, weird, perverted, strange thing to spend your time on, protecting us from demons and situations that don't exist. And the same thing is happening here. We're conflating masculinity

with terrible behavior. That was a bit of a riff. Okay, let's wrap up with an interesting move by Netflix. Netflix premiered the Knives Out sequel in theaters over the week of Thanksgiving, a month before it will be available on the platform in the U.S. This is interesting. This is interesting. Bloomberg reported that the film brought in $13 million over five days and is projected to reach $15 million in the U.S. and Canada once it completes its seven-day run. I find this fascinating. I find this fascinating. I think what they've decided is, okay, our subscriber base pays the bills. The faster we grow subscribers, the more people bid up our stock. Okay, fine. But how do we create a lot of marketing for the film? How do we create cloud

cover for it? And by the way, maybe clock, two, three, $800 million in revenues. I know. Let's release it. Let's give it the big burst. There's so few movies now that are tentpole movies that can get butts in seats on a Saturday or three or four Saturdays in a row, that why not take the tentpole-like or the franchise-like movies or the movies with franchise-like possibility. Put them in the theaters, get a lot of awareness. The majority of us won't go see it in the theater, but we hear about it because it's in the theater. And for whatever reason, Variety and the New York Times are obsessed with reporting domestic box office receipts, even though they're only about

$7 or $9 billion a year versus $120 billion for the video game industry. For some reason, we've decided this industry is really important. By the way, that industry is absolutely going away. I shouldn't say that. It's going to decline. We're still going to go to the movies, just the way we still go to Magic Mountain. Do we still go to Magic Mountain? Just the same way we still go to the mall, just not as much. This is a melting ice cube, but it gets a lot of awareness. You see lists everywhere. What are the top 10 grossing films of the year? What's the top grossing film this last weekend? It creates a lot of awareness. And if you don't see it in the theaters, well, I don't mind waiting two weeks. I'll watch

one of 200 other shows. By the way, let's take a break to talk a little bit about the dog's scripting, original scripted programming recommendations. One, something I'm in the midst of, The St the staircase. Outstanding. What else has the dog enjoyed? Oh my God, see Blackbird. Wow. Wow. The guy who plays the serial murderer, let's just stop everything right now and give him all awards. He was in another wonderful movie called I, Tonya. I should know enough to know his name, but I don't, but he's outstanding, and he's a lock, in my opinion, for best supporting actor. What else have I enjoyed? I made some recommendations

this morning. If you want a little piece of candy and you haven't seen it, watch Killing Eve. It's basically European porn. They pick a city, and they just dress it up with fashion. Sandra Oh is excellent in it. She plays sort of the foil there, and it's really well done. I've been sort of losing steam around some of the Star Wars spinoffs. I think they've gone a bridge too far with Obi-Wan. But anyways, my kids still love it. And there was something else I was really enjoying. Oh, I'm re-watching Breaking Bad. Anyways, enough of my original scripted dramas. That should keep you busy for a while. Outstanding, but seriously, The Staircase and Blackbird, if you haven't seen either of those

things. Also, best of last year, if you haven't seen it. If you haven't seen it, best original scripted drama of last year, hands down, Dope Sick. Amazing, amazing, amazing. Anyways, Netflix has about a quarter of a billion subscribers. Total revenue during Q3 was around 8 billion, a 6% increase year over year. What do we have? What do we have? We have the best time in history to be into edibles and have a great couch. I mean, what happens there? Apple and Amazon survive because they have the deepest pockets in the world. Netflix obviously survives. Disney+, yeah, they have an incredible bank. What happens to Peacock? What happens to Hulu? Shit, who knows? I think they go away or I think they get consolidated or sucked up into something else.

This is an environment or an ecosystem where they are spending more than they are making. Something like $2,000 a year per household is spent on original streaming content. Think about that. Think about that. What does that mean? What does that mean? That's not your cable bill. That's not technology. That is literally the content that comes in over the cable wires. These companies are spending $2,000 per household to bring you euphoria, right? To bring you Bridgerton. I mean, that's just crazy. That is just unsustainable.

And what are we seeing? What are we seeing? Why did everyone abandon Twitter? Why have the advertisers abandoned Twitter? One, see above Elon Musk's racist tweets, but also, also, every advertiser looking for an excuse to reduce their spending. Why? Because their options around spending are increasing. Pretty soon, Hulu,

Netflix, Amazon Prime, Apple are all going to start knocking on P&G, Unilever, and Ford's door saying, hey, we have other options for you to run ads. You don't think LVMH and BMW are going to want to run ads against Euphoria. Oh, my God. And by the way, they're not going to increase their advertising budgets. They're just going to take it from somewhere else. And everyone is looking for an excuse to pull their advertising revenue from a platform. And Elon is giving them excuses seven days a week. We'll be right back for our conversation with 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. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. 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. Welcome back. Here's our conversation with Aswath Damodaran, a professor of finance at NYU Stern School of Business. Aswath, where does this podcast find you? In San Diego. Looking out of my window, I see the Pacific Ocean. It's a sunny day, so no complaints here.

So I was saying off mic that you're sort of my secret weapon, and I'm not exaggerating. Every 48 hours, somebody calls me or emails me and says, can you introduce us to Aswath Damodaran? We'd like him on our board, or we would like his advice, or we'd like him on our podcast. And I'm almost sort of reticent to give up, to provide the intro. But anyways, Aswath, it's good to have you back. I think you're the first five or six time guest on the pod. Tell me what we should be thinking about or what is underreported and your thoughts on it in the markets. I think inflation has clearly been the big story this year, but hidden behind the inflation story is a story about risk capital.

And what I mean by risk capital is, and I think the world is composed of safety capital and risk capital. Safety capital is the money that gets invested in treasuries and high dividend paying stocks, old time value investing companies. Risk capital is what's invested in the riskiest parts of every market. Now, young, you know, the VCs, it's the startups which are angel financing.

It's in the public equity market. It's young companies that are losing money with lots of potential in real estate. It's the most levered, riskiest real estate, even in the crypto space. If you think about, you know, cryptos as today's collectibles, they're untested collectibles. So for almost 12 years now, risk capital has been free and easy. It's allowed people to raise money as private companies.

It's pushed up the prices of the riskiest assets. And I think personally, and this is just my view, it's become too easy and too accessible. It became too easy for companies to go out and raise capital. It became too easy for companies who are money losing to keep scaling up without making profits. And I think the story of the year is that finally we're seeing risk capital move to the sidelines, not just for a short period, but perhaps for the longer term. And that's going to have consequences, not just for what we see next year, but perhaps for the rest of this decade. You really were the first to sort of call, I remember, and I wish I'd invested behind this, but you said, I think it was 12 or 15 months ago,

that when a company feels it needs to change its name, it means the context around it is so ugly that it's a negative looking forward indicator. And you were talking about Meta. Any thoughts on what has happened at Meta over the last year? It's amazing how quickly trust has dissipated in the company. I mean, when you take these tech companies, a lot of the value and pricing that you see in markets is built on trusting management to do the right things. Again, for a period, they were trusted to do everything. The Googles, the Facebooks, the founder worship that lay behind people pushing up prices is Mark Zuckerberg.

He's a smart guy. You figure out a way. And even as short as a year and a half ago, when it hit a trillion dollars, you could argue that people were trusting Facebook to somehow find a way. Shows you how quickly trust changes though. 18 months later, you look at Facebook, it's almost like people trust them to do nothing. In fact, I recently valued the MetaBet, which is basically Facebook has been open about the fact that they're going to invest about a hundred billion dollars in the metaverse. So I decided to, I'm not even sure what that means or what business they're going after. And I think

they've been very remiss in even filling in the details. So I recently priced out what the market is expecting that metaverse investment to add to Facebook's value. My estimate is that the market is estimating that the metaverse investment that Facebook is making is worth minus 86 billion. In effect, they're acting as if Facebook is opening a hole in the ground, throwing $100 billion down, and we'll get nothing. We're not even talking about making enough earnings, but they will get nothing from it. That's remarkable. I mean, I think that's almost an extraordinary loss of trust. And I think in a sense, Facebook has lost the script. There's no story holding the company together again. People don't trust the company. And worst

of all, we've given up any power to change the way the company is run by the way we've allowed corporate governance to be structured in the company. And let's talk a little bit more about big tech. It strikes me that Twitter, what's going on at Twitter and the slowdown in their revenues has given them extraordinary cloud cover to lay off tens of thousands of people. Is this, A, what are your thoughts on the layoffs? And B, could they be setting themselves up for record profits? Because, you know, the expenses here should be dramatically decreased. I think it depends on how much advertising drops off. There's so much opacity around exactly what's happening at Twitter. We have no idea. We know that big advertisers have pulled

back, but we don't know how much advertising will drop. But you're right. If you take away 80% of your expenses, which is what, I mean, it's labor costs. If not in this quarter, because you're right, if you take away 80% of your expenses, which is what, I mean, it's labor costs, if not in this quarter, because you're still going to get the 90 days, I think in much of the world, they still have to pay many of these people they've laid off for 60 days and 90 days. In the quarter after, you should see a dramatic drop off in expenses. But while that might set them up for profits, without a new business model, this is not going anywhere. You can't make back a $44 billion investment by making Twitter a leaner advertising machine. So in a sense, it's almost like a work in process. You're seeing a company try different things out. And I should take the word company out.

Elon must try different things out in public, hoping that something works because you need to make a lot of money to get $44 billion back. And I don't see a leaner machine alone doing enough to get them there. Hasn't he already emulated the entire equity investment here? I mean, isn't the $33 billion in equity already gone? Well, I think the advertising business is on its way to some endgame that is either much smaller or non-existent. The subscription business is a non-starter. The $8 doesn't seem to be going anywhere. So I'm not sure what that new business model is that Twitter hopes to accomplish here. But I'll probably give it some time before I make a final judgment.

But if I were, the people who should be really worried are the people who lent money on this deal because they're going to be left holding the bag. And guess what? I feel absolutely no sympathy for them because they do this over and over and over again. Is lend money on these heavily levered transactions

where they let equity investors run the company and they say, oh my God, I never saw this coming. But my understanding is the debt is about 12 of the 45. You think that 12 is a risk? You think that this company could recognize an enterprise decline in value of 75% plus and that the debt might be a risk? It could very well because you decide to liquidate the company. What are you going to get, right? In a sense, getting the cash flows to cover the debt payments is going to

be problematic. I wouldn't be surprised if some of the lenders ended up becoming equity investors in a failing enterprise because that's the only exit that might be available to them. It's a take it or leave it proposition because what assets are you going to go after? Yeah, that's what I've been trying to figure out is if you believe the reports are that 50 of the 100 biggest advertisers have stopped advertising, which probably means the other 50 have decreased the advertising. And if the top 100 are a proxy for the other advertisers, you're looking at a 70 or 80% decline in advertising revenues. And I just don't think you can cut costs fast enough. Then you look at the additional, what feels like, what, a quarter of $250 million, a quarter in expenses they didn't previously have because of the additional debt.

Don't all roads lead or a lot of roads lead to a prepackaged bankruptcy filing here? Well, it's in the interest of the lenders to keep lengthening the game here because if they force the company into liquidation, there's nothing there. So that's why the number to really watch... You really think there's nothing there? I would just push back on that. There's some IP, there's a quarter of a billion users. You don't think someone, you don't think Apollo or I don't know who owns the debt would say, yeah, we'll take a run at this. Well, for six or seven billion or whatever the debt gets marked down opacity, we don't know exactly what's happening there. But if the number of users stays at 250 million, 300 million, whatever the number is, I have a feeling that some of that advertising will come back, maybe from companies that did not advertise that much on Twitter.

They'll be advertising to a different market, a different audience. I think the real challenge here is if you see a meltdown in number of users, which might be happening under the surface. Again, we have no way of knowing because we don't know how many people are leaving, whether they stay. Because it's not just the number of users, it's the intensity of use. Right now, I think there's still a lot of people coming on just because of curiosity value. I've often described Twitter as the equivalent of a car accident on a highway that people slow down to take a look at. And right now, you've got the car accident to end all car accidents, basically a 10-car pileup, and people are slowing down. But once that passes, the question is, how many people will stay on Twitter?

So the second-order impact here, you're right, it is a car accident. It's impossible to look away, but a company that's worth, I don't know, 10, 20x times what Twitter is or was worth is Tesla. What do you think are the knock-on effects here at Tesla, and what is the most recent valuation you've done on Tesla? And is the company overvalued, undervalued? Last year, I valued in November of 2021, when Tesla hit $1.32 trillion, I think was its estimated value. I valued at about $500 billion, and it was built on a really big story of Tesla becoming the largest automaker in the world,

having margins somewhere between a tech company and an auto company. And I said, look, this is the best I can do. I can't get about $500 to $600 billion. That's assuming that management was running Tesla the way it needs to be run. A year later, the stock prices dropped. But the bigger concern for me from a valuation perspective is who's running the company? What's happening here? Now, because for as long as Tesla has been around, it's a personality driven company. The line between Tesla and Elon Musk has been a fuzzy one. And now that I see Musk on Twitter all the time, my question is, who's running Tesla?

Who's making the big decisions? Maybe there's a management team we've never heard of that can do a competent job. But unless somebody high profile steps up at Tesla and saying, I'm managing the store here, I'm a little concerned about direction at the company because to get to its value, this company needs to execute a huge number of things along the way. And I'm not sure there's anybody in the company who can carry off that execution. But you're right. The bigger value destruction here is not what's happened at Twitter, but what's happening at Tesla and SpaceX and the whole range of Musk

enterprises where people have attached value to these companies based on what they think about Elon Musk. And what they think about Elon Musk. And what they think about Elon Musk itself might have changed over the last few months. And they also worry about, is he paying attention to those companies? So you've lost a half a trillion dollars in market cap at Tesla. How much of that is because of the Twitter experiment? I don't know, but some of it clearly is. I look at Tesla as being the most overvalued company in the world over $100 billion. Still, where do I have that wrong? What's the bull case for Tesla right now? Because I think there's a plausible pathway, and it's a plausible pathway, not a probable one,

where the bulk of the world goes to electric cars, and at which point Tesla finds a way to dominate that market. So that is the plausible pathway to get to a half a trillion is for that to happen. They'd have to sell almost 5 million cars a year for that to happen, which would make them larger than Volkswagen and Toyota right now. So that plausible pathway exists, but it's a very narrow pathway. It's a pathway where they have to focus on getting, I mean, they have the advantage of being not the first mover, the mover with the most recognition in the electric car business. Because you look at the traditional automakers

of a prom, the problem they face is their names actually get in the way of people buying their cars. I mean, my daughter-in-law is going to get a Chevy Volt, and I think the Chevy Volt is actually an excellent electric car. The problem is the word Chevy in its name has kind of acted as an impediment for it to ever take off because people say, well, that's a Chevrolet. I don't know whether I want to buy an electric car from GM. So I think that the traditional automakers have had trouble getting traction because of their history and their status as old-time automakers. The new automakers have all been so flighty in terms of how they've set up strategy that other than NIO, I don't think any of them have created the foundation to build this longstanding

business. So Tesla's almost had by default the central role in the electric car business. But they could very easily lose that role if they get distracted. And that's the concern is they have a window of about two or three years where they can establish themselves as the electric car company. And that's the only way they get to that plausible pathway. But if they don't do that, they let other people preempt them or become recognized brand names, they very quickly are going to see a drop off in value.

But there is, I think, there is a tech aspect to their automobile business, which is what's allowed them to earn higher margins than the rest of the auto business. The question is how long that'll hold up. So let's revisit a company we were just talking about, Meta. It feels to me that Meta might be in the category of unfairly punished. I think so. I think so. In fact, I did buy it last week after I did, because here's what I did. I said, let's take a worst case scenario. Let's take a scenario where they keep spending money on the metaverse like they are spending money in R&D like they never have. I mean, if you look at their R&D spending, it's almost doubled over the last four or five years. I don't know where the money is going or what they're spending it on. They're spending insane

amounts of money in R&D and metaverse. Let's assume it's all wasted. I call this my doomsday scenario. Let's also assume their advertising business is essentially a finite life business, that technology will fade, that they can keep making money in a sense, assume no growth. So if you take their advertising business, assume no growth, and they keep spending money on the metaverse and everything else and get nothing from it, I get the value per share pretty close to where it is, the $90 to $100 per share. So you're basically getting 20 years of advertising cash flows with no growth at today's price. Anything they can do over and above that is icing on the cake. So for Tesla, you get very little upside. The case of Facebook,

all you need is some sense of direction in the company that they can make money back on the metaverse. A storyline that investors can latch onto and results that start backing it up for you to make money. So I do think that meta is undervalued right now. I think it's not just

a good buy. It's a good buy with significant upside if it can get investors to start trusting it even a little bit. And that's why I was willing to make a bet on Meta last week when I valued it. But I think that there's clearly a signal from the market, we don't trust you. We need change here. It'd be interesting to see if Mark Zuckerberg reacts to that or whether he keeps plowing on saying, no, eventually I'll find a way and people are going to trust me. But isn't that, to that point, wouldn't that be the easiest way for the stock to go up 40, 60, 80%? That is, he wakes up from this fever dream and says, I'm going to give, I'm going to cancel some of that

$100 billion incremental investment. Wouldn't that be the path to a significant pop in the stock? Either that, or he brings in a co-CEO and saying, look, you know, I think I've become, I've had too much tunnel vision. I need somebody else to come in and give us at least an opening that somebody will take a look at this $ hundred billion and tell us that, because right now we're taking it entirely on his word. I mean, I started looking for Facebook documents that would justify what exactly they were planning to do in the metaverse. Because after all, the metaverse is a space, it's not a business. So tell me what your business is. It's more advertising. Is it subscription business? Is it a transaction business? Is it an ecosystem business like Apple where you're going to charge people who are in the Facebook metaverse?

They've given us absolutely no indication of it. So either be more transparent about what you're doing and why you're doing it or scale back a hundred billion until people trust you with that investment. But I think the opening that markets are looking for is that it's not one man's vision that's driving all this with nobody operating as a check on him. And right now, that's a fear markets have, that this is Zuckerberg's dream that nobody around him is able to tell him. I mean, he could be the smartest guy in the face of the earth, but he's a human being with an ego. And if he somehow is latched on to a dream and spending $100 billion in a dream that has no basis and nobody is waking him up, then we're all going

to pay the price. So if he can just show an indication that he's open to other people coming in and checking his dream out. I think it'll do wonders for the stock. Yeah, I think you're speaking rationally. I mean, you reference corporate governance, and I don't think corporate governance gets enough honest discussion or credit. And that is, we might flirt with an autocracy, but then we vote, our democracy holds, our institutions hold, and we decide, you know, the whole autocracy thing was not what we were looking for. Whereas in the corporate world, where governance is supposed to mimic real governance, you might have Mark Zuckerberg for another 40 years. You might have

an individual running Twitter who decides that anti-Semitic tweets are okay. Isn't that the problem that we have these dual-class shareholder? I mean, we have a 38-year-old, Mark Zuckerberg, who's already worth $20 or $30 billion, doesn't have to listen to anybody, and might think, you know what, I'll take the risk and prove everyone wrong. I don't have incentives to do the rational thing as you've outlined. Don't we have essentially Kremlin-style governance in some of our most important companies? We get the corporate governance we deserve. And we created this environment 20 years ago when we let Google open the door. I mean, I blame Google for the whole

process. Actually, I shouldn't blame Google. I blame the investors who bought Google's. I mean, the New York Times had a dual classclass shareholder, it was initially media companies, right? Google was the first tech. Media companies have always done this, but they were grandfathered in. Ford had two classes of shares, but it was grandfathered in. In fact, in the last century, the reason we didn't have dual-class shares

is because the New York Stock Exchange said, if you're a new company, you couldn't have dual-class shares and be listed on the exchange. But then the exchanges started competing with each other. And the NASDAQ decided that one way it could get market share was by saying, hey, you can have whatever classes of shares you want. And guess what? It succeeded for them beyond their wildest dreams because the tech companies took that

pathway. But I think we created an environment where essentially we let, again, this founder worship, this notion that these brilliant people who create companies, they'll stay brilliant forever. Ivolent dictator at some point in time was viewed as a benevolent dictator. It's as, you know, your ego gets to your head and that's exactly what we're finding out, not just at Facebook, but I think we'll find it out at Google and other companies

because the only time you really figure this out is when they're tested. It's when things are going well, you don't notice that you've given up power. It's when they're tested that you realize that nobody's listening to me and you recognize why they're not listening to you. They don't care what you think.

So you're right. We've created corporate dictatorships where there is no challenge. That is, you know, I mean, we saw this even before the text with Viacom, when Sumner Redstone was viewed as this genius. And we said, you know what, who cares that Viacom has two classes of shares? 30 years later, when he had dementia and his daughter took over, we realized why we should have cared in the first place. But we don't seem to learn this lesson. We seem to kind of relive

history over and over again, giving up too much power to management, essentially in perpetuity, and then wondering why we gave up that power. Do you think we may have hit peak founder worship? I keep saying that. And then we find another founder to decide that, okay, he doesn't need to shower or put on pants when he comes to a conference. And this $37 billion evaluation based on him levering up a quasi-fake currency called FT, it seems like we keep going deeper and deeper into the Mariana Trench here, looking for this, you know, lost, looking for Atlantis. Have we reached peak founder in the private markets with Sam Bankman Freed? Is this, do you think we're at a turning point here?

Because every time I say that, it gets worse. For the moment is how I'd answer this, because it's almost, I think it's built, it's almost built into human beings that we want messiahs. We want, we don't want democracies where we save our own fate. We want messiahs to save us. And in a sense, founder worship will always be with us. And all we can do is create systems where at some point in time, we want to challenge founders, we can. And increasingly, we're creating systems that becomes more and more difficult to do. So what I think we need to do is work on the systems because the founder worship more difficult to do. So what I think we need to do is work on the systems because the founder worship is going to come back. For a few years, people

are going to say never again. But I've discovered that never again just means not for the next few years. And then another founder comes up and they create a company. And all of a sudden, we're back in the cycle again. I've seen the cycle already three times in my lifetime. And I wouldn't be surprised if I see it a fourth time. So I think we need to create systems that will not stop founder worship, but protect us when founder worship falls apart. referenced the dual-class shareholder companies used to have trouble getting public. There was so much money on the line with Google that people kind of ignored it or put their hands over their ears and eyes and said, fine, Google can be dual-class shareholder structure. But I see, I'm thinking about into that void. There's been a void of systems or systemic regulation, whatever you want to call it. Into that void has stepped other parties. I mean, in a weird way, Taylor Swift might be the closest thing to breaking up Live Nation and Ticketmaster, not the DOJ. And then I look at Tim Cook. He's become the de facto regulator. He's the one that kneecapped Meta,

and it looks like there's gearing up to be a fight between him and Musk. He might be the one that takes down Twitter. So I'd love to use that as a backdoor means into, A, I'd love to get your sense of Apple, its valuation, and Tim Cook's role in, if you will, serving as a de facto regulator. I think in a sense, we've outsourced regulation and laws to the biggest companies, the CEOs of companies. I mean, it has always been my issue with ESG in the first place, is ESG, in a sense, takes things that were in the hands of legislatures and governments

and put it in the hands of some of the most powerful CEOs and investment fund managers in the world. I've told people, look, I'm a JPMorgan Chase shareholder. I like Jamie Diamond, but I don't want him deciding good or bad and what's virtuous and what's not. I don't like Larry Fink, but I definitely don't want Larry Fink deciding on goodness or badness or anything in between. But of a larger issue, which is, should we be turning these big decisions over to corporate CEOs? For the moment, if you don't like Elon Musk,

you might think that Tim Cook is on your side. But remember, Tim Cook is the CEO of a company. He has fiduciary responsibilities to his shareholders. You cannot put this responsibility in the hands of even CEOs that you think are trustworthy. I think you're right. We need to bring back some of this where it belongs we work for, who we put in power, pushing for changes and laws and regulations that essentially cut across all businesses, not just businesses that we can pressure to change. But I think this has been going on for a while, and I would trace it back. 2008 had a very insidious effect on all of us. And one of the things I think 2008 created

was a complete loss of trust in governments and regulators for good reason, right? They screwed up in 2008. But the net effect of that is we've said we can't trust governments and regulators and laws. So instead, we're going to trust big corporations to make these decisions for us. And God help us. I don't

think that is a trade-off that's going to work well for us in the long term. So I'm agreeing with you, but I think part of this is coming from a loss of trust. It's not easy to fix. You see this in the body politic where nobody trusts any centralized authority. In fact, we talked about crypto. Crypto was born out of this lack of trust. And guess where it's got us? It's got us to a space where we trust people like SBF instead of a central bank saying, you know, central banks are not trustworthy. They're controlled by governments. Instead, we get scammed by people that we think we can trust because they're really smart people who know their technology. We'll be right back.

Hello, I'm Esther Perel, psychotherapist and host of the podcast, Where Should We Begin? Which delves into the multiple layers of relationships, mostly romantic. But in this special series, I focus on our relationships with our colleagues, business partners, and managers. Listen in as I talk to co-workers facing their own challenges with one another and get the real work done. Tune into How's Work, a special series from Where Should We Begin, sponsored by Klaviyo. 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. Any thoughts on what's happened in the crypto market? Are we getting towards the bottom of

the de-levering or is it just going to get worse from here? You know what? I think the crypto market needs to be cleansed of its strongest advocates. To me, the weakest link in the crypto market are all the people who speak up for crypto because they tell the most awful stories about why I should be investing in crypto. I mean, starting with it's scarce, therefore it should go up. That's an incredibly lazy rationale for investing in something that it's scarce. So I think this is long overdue because I think people have been investing on a hope and a prayer in this market because there's been no tangible movement among cryptos in actually filling needs that we might need in markets as a currency that you use in transactions, as a collectible that

holds up value. So I think there's going to be a lot of cleaning up here. Whether it goes to zero or not, I don't know. But I think we're going to test lows that we didn't think we would test. Now, because, you know, Bitcoin has been priced through its entire lifetime. And when you price something, there's no upper bound or lower bound for the price. We've tested the upper bounds, $50,000, $60,000, $70,000 for Bitcoin. We could test the lower bounds, which is zero. So you don't buy Cathie Wood's statement that crypto comes out of this or Bitcoin comes out of this smelling like a rose and she has a price target of $1 million in 2030? I'm not sure whether Cathie says these things because it gets her attention or whether she truly believes them.

Because either way, I worry. Because if she actually believes them, I think that, you know, the definition of insanity is you do the same thing over and over again, expecting a different outcome. She seems to try this out in every single one of her investments. But I think a lot of this is it gets her attention,

which doesn't seem to hurt her because there are still people who invest in art in spite of its track record. She's had inflows. She's had capital inflows this year. And so maybe as a sales pitch, maybe it's good to be hyperbolic in your forecast and throw out these numbers that are outlandishly high, because people pick up on it. It gets picked up not just in CNBC, but in social media. And that doesn't seem to hurt business. So this might be a question

for our colleague, David Yermack. but I look at FTX and I wonder, okay, why wouldn't the same thing eventually play out with Binance? Have you looked at Binance? Yeah, I can't come up with a good reason why not. You've got these self-regulated, you know, essentially they're playing the role of either exchanges or banks with no regulation on them. You're just taking them at trust. And I think that's a very dangerous commodity to base your investing in.

So I don't know enough about Binance to claim that it's going to go the same route as FTX. But I worry about the lack of transparency in every single one of these entities. And with the lack of transparency, I'm setting myself for all kinds of surprises down the road, which are potentially going to be negative surprises. So you've been teaching for the better part of four decades now. Is that right, Aswath? Any thoughts around if somebody...

And there's so many new channels. and by the way, your YouTube channel, you basically put all of your lectures online. Any thoughts on what skills or how skills have morphed if you want to make a living in finance or investing? I think first, I think you have to be cross-disciplinary. I think that the best thinkers in finance happen to be people who remember history, understand psychology, are good at statistics, can work with data.

So I would say be less of a specialist and more of a generalist because I think there are too many specialists. Finance is full of people who have tunnel vision, who can understand one thing really well, but nothing else. And second, be adaptable, because no matter how good you are at what you do, things are going to change while you're doing it. So I think they're both skills we've somehow managed to lose over the last 40 years because we've created an army of specialists were rigid thinkers. And I blame the way we teach things in class, but I also blame the way that when they go out, their work is structured.

And I think we need more Renaissance thinkers, people who can think out of the box, think across disciplines, be willing to change. And I think the one quality that I would not want in a portfolio manager or an investor right now is arrogance. Anybody who claims to have the answer to anything, I think, is either lying or being delusional, because we're at a point in time where we really don't know the answers too much. And all we can do is figure out the answers for the next three minutes and hope that we learn enough in those

three minutes to kind of adapt and move along. Switching gears as we wrap up here, Aswath, how old are your kids? My oldest is 32. My youngest is 23. Any thoughts on parenting? Yeah, they're born with a personality. All you can do is kind of, you know, make small changes in their path. We have discovered that, you know, none of us has the power to change the way our kids actually make big decisions. All we can do is kind of model out

how you make decisions and kind of make small changes in that. And if there's one thing that I hope I've got my kids to do is keep their options open. Don't lock and load. Don't have this thing of, if I have conviction, I've decided to do something for the rest of my life.

Be willing to admit you're wrong and kind of move on when you make a mistake because sunk costs, the sunk cost phenomenon where you think I've spent seven years doing this, I've got to do this for the rest of my life is what gets us into so much trouble. Any thoughts on being a good husband or a good partner? I'm working on it every day. Some days I'm better than others. So I think that listening to your spouse and I'm not very good at catching emotional cues.

I've never been that good. So I've worked hard on the things I do badly, but it's a work in progress. And you're, in addition, I mean, your talent speaks for itself, but it's stern, and I can say that. I haven't been your colleague for 20 years. You're universally kind of admired, and generally people are fond of you. Any thoughts on how to be a good participant

and a good colleague in an organization? I mean, I think that I want people around me to succeed. I mean, yesterday I heard of a word that I'd never heard of before, which is the opposite of schadenfreude. Schadenfreude. I read the same thing. And I said, that's an amazing word. I agree.

It's a word that I want to put into practice every day of my life is I want people around me to succeed because I gain nothing by bringing people down around me. And once in a while, I do say things that bring somebody down. And I say, why did I do that? Because I've always regretted doing it. So one of the reasons I have not a big, I mean, I have a Twitter account. I have, you know, 325 million. I tweet like four times a month is I find that when I say things in the moment, I sometimes forget that lesson of, you know, bringing somebody down, even for that momentary, you

know, happiness you get. Hey, I brought that person down is not worth it. So I'm going to work hard at it. I'm not, you know, I'm not perfect at it, but I'm going to try to work to make people around me succeed. Because if I do that, I get the bonus, I get the dividends from their success. Aswath Damodaran holds the Kirchner Family Chair in Finance Education and is Professor of Finance at NYU Stern School of Business, where he teaches corporate finance and valuation. He's written extensively on valuation, corporate finance, and portfolio management. And his blog, Musings on

Markets, was selected by the Times of London as one of the top 10 stock market blogs in the world. And most importantly, he has been voted Professor of the Year across 190 faculty by the graduating MBA class nine times during his career at NYU. He joins us from his home in San Diego. As always, Aswath, really appreciate your time. Thanks, Scott. Algebra of happiness. Aswath's comment on Schadenfreude and Freundinfreude, I think, is wonderful. The same thing happened to me.

I read this thing yesterday that everyone knows what Schadenfreude is. Schadenfreude is basically you sort of revel in or enjoy other people's misfortune. I am really guilty of that. We have this email chain or this text chain of all my fraternity brothers from UCLA. And it struck me about 10 years ago, a friend of ours was really struggling professionally and had to borrow money from us. And the text chain just came alive. Everyone was so fascinated with the struggles that this friend of ours was having. And we weren't close with him, but we all knew him. And it just struck me. I'm like, this is such schadenfreude. Everybody on this text chain, including myself, is sort of reveling in and fascinated by this pornography of misfortune, that this person got really unlucky and was having trouble in his marriage, having trouble in his job, and was economically super strained.

And I thought, this is just so ugly. How did we get here that we decide that we're going to spend more time talking about our friend's misfortune than our own blessings or our friend's achievements or talking about our kids? And I remember thinking, I just don't want to be like that. And I am like that. I'm fascinated with other people's disappointments or poor blessings. And it's a really ugly side of me and I think of human nature. I try to get better at it, but the idea of really leaning

in to people's accomplishments and really going out of your way to congratulate people and try and be happy for them. There is an ROI there. And so get to Freud and Freud as fast as possible. The Schadenfreude is tempting, but it's not rewarding. And it's a downward spiral. Freund and Freud. Our producers are Caroline Shagrin, Claire Miller, and Drew Burrows. Sammy Resnick is our associate producer. If you like what you heard, please follow, download, and subscribe. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you next week. True story.

In the middle of watching the Titanic, I had to go to the emergency room as the bug plug went up my ass. And the doctor said, how far did it go up there? Sorry. Yeah, there's nothing wrong with that. I mean, you know, come on. I mean, who hasn't had that happen in the midst of a movie? 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 slash Vox. That's www.alexpartners.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. support for this podcast comes from clavio you know that feeling when your favorite brand really gets you deliver that feeling to your customers every time clavio turns your customer data into real-time connections across ai powered email sms and more making every moment count over 100 000 brands trust clavio'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.