We Study Billionaires - The Investor’s Podcast Network - TIP209: Billionaire Bill Gates' Lessons (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. On today's show, we cover probably the most famous billionaire in the entire world, and that's Mr. Bill Gates. Mr. Gates's net worth is estimated to be $97 billion, and he's the co-founder of Microsoft and now runs the largest nonprofit on the entire planet, the Bill and Melinda Gates Foundation. During today's show, we cover some of Mr. Gates's interesting questions that he's recently fielded, and then we provide a little bit of commentary on his points. So without further delay, here's some of the thoughtful ideas worth sharing from Mr. Bill Gates. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most.

Starting point is 00:00:45 We keep you informed and prepared for the unexpected. All right, welcome to the Investors podcast. My name is Preston Pish, and I'm your host, and I'm accompanied by my co-host Stig Broderson. And today we're going to be talking to you about Bill Gates. I think pretty much everybody on the planet knows who Bill Gates is and what he's done with Microsoft and now he's gone on into the nonprofit sector and created the biggest nonprofit I think the world has ever seen. Today, what we're going to do is we're going to cover some recent Q&As that we found useful

Starting point is 00:01:24 and really educational. And so without any hesitation here, Stig, let's go ahead and jump into the first question. Bill was asked, besides dropping out of Harvard, what were some of the best things that you did looking back at it and why did you make those decisions at those points in time? So here's what he said. Well, I've been, you know, so lucky in terms of my progression. You know, I had parents who read a lot and came and shared even at the dinner table, like my dad was working on lawsuits and my mom was working on various social service type things. And so I had an exposure to that. And they gave me an arbitrary budget to buy books. They sent me.

Starting point is 00:02:06 me to a super nice school for high school, then they sent me to a super nice school for college. They basically paid for it. The idea that computers were going to be a change agent, and I was lucky enough to meet Paul Allen, and early on we brainstormed about this, I did the chip, and the chip changed the rules. I mean, most things don't get a million times better, not engine efficiency or, you know, most things have theoretical minimums. computation is something that we're not even close to the theoretical minimum, and yet we've improved so much. So seeing that that was going to come, and weirdly that most people didn't see that was going to come. So even people at IBM were still thinking in terms of big computers.

Starting point is 00:02:49 Now all the software and service-driven companies are worth even more than IBM. When I was growing up, IBM was the monolith, and it was like, okay, are we going to beat them? Are we going to join them? those bastards. Actually, they were very nice people, but we always thought of them. And they sort of stood for these big computers that only big companies and governments could get the benefit for. So actually, we played off of that to have this power to the people, personal computing type thing. Of course, now we're a big company. And somebody can play off of us. It's hard to say what the ventures are. I mean, being able to concentrate on

Starting point is 00:03:23 something in an extreme way, you know, is that nature, is it nurture? Maintaining curiosity, A lot of people lose curiosity in their 20s or 30s. So if you hand them a big, thick book, they're like, what? Am I going to read that? I used to tell everybody to read Stephen Pinker, but I think even as an intellectual framework, even better than Rosling. But I'm afraid a lot of people don't make time

Starting point is 00:03:48 to read what's a fairly academic and super profound, both better ages of our nature and enlightenment now. And then, you know, I was born at a time where I can go out and learn all these things. things and then I have friends you know if I'm trying to understand quantum computing a lot of times I get confused so it helps have friends who can come and say try to straighten you out and it makes your willingness to try to learn something even trying to understand tornadoes which are this funny 3D

Starting point is 00:04:16 thing you know having somebody could show me where the visualization was and okay what are unique conditions I don't think I would have done that if I didn't have a group of people that had stayed in electric curious and that we had the internet to kind of feed us access to the latest thing. So I think, you know, the time I was born, you know, meeting policy and the microprocessor, the idea that a young person can start a company here is a super nice thing because although people at first are skeptical, as soon as they realized their normal model of what I knew and what I could do that I didn't fit that normal model, then they assumed I knew way more than I did. And I could solve all sorts of problems. I had no

Starting point is 00:04:55 clue how to solve. But, you know, it was nice that people were kind of a gog that we'd built this company and done these things from a young age. So I think the culture of America, that almost the American dream type success story, worked out. And then, you know, not being in Silicon Valley, but not being far from Silicon Valley, that ended up, I think, working for the company in a great way. So Stig, to me, listening to his response, I don't know that he necessarily answered the question directly. It was more of a reflection of that period in time. So Stig, Stig, to me, listening to his response, I don't know that. and kind of the attributes that added to his success, from my vantage point at least. I think you absolutely right.

Starting point is 00:05:32 And perhaps it has something to do with him not want to talk more about why he dropped out to Howard. I think he's been asked that question a million times like the most famous dropout. I really like press in how he framed how he was thankful. And I think that really also goes to how much of a learner he has because he keeps being humble. And that's kind of like the trait we see with people who keep on learning all the time. He was so humbled and so thankful in terms of where he was born and when he was born. He's been lucky in many ways.

Starting point is 00:06:04 And he talked about that nature and nurture thing too. And there's so many things in his life when he's just very, very lucky. Yeah, it reminds me, I can't remember which book this was. I know it was a Jim Collins book that we read where these people that were ultra successful that had done really well almost always attributed their success. Like the number one thing that they attributed their success to was luck. Collins gets into a great discussion about how it's not necessarily luck that they're attributing it to, but that's what they say whenever they're asked.

Starting point is 00:06:33 But what Colin says is they have more of an appreciation for all the unknowns and they have an understanding for all the unknowns and the things that they didn't really have any kind of control over that went in their favor. They're just quick to acknowledge those truths opposed to a person who has a lot more ego and a person who isn't necessarily seeing things as clearly as somebody like. like Bill Gates obviously saw the world throughout all of his success. They basically slapped the label luck onto it. I gathered a lot of that and what he was saying is like, well, this thing went right for me. The microprocessor came along, which was huge. And for me, that's really kind of the

Starting point is 00:07:11 learning point when you listen to him, respond to that, is how he falls right into that Jim Collins model that we had read about earlier. Yeah, I absolutely love that book. It's from good to grade. and he calls this like the window test. Like, do you sit inside and look outside and blame everyone else? Or are you looking inside on yourself and saying, oh, look at how many good things that are happening to me in my life. That is not my responsibility at all. Bill Gates talks about hearing another interview

Starting point is 00:07:39 about how microchips became a million times cheaper while he was in Microsoft. And I was like, I don't know if necessarily a million or whatever it was. But to me, it was amazing. And he said, I couldn't do that. if that hasn't been the case, otherwise we couldn't have done our job, otherwise we couldn't have grown out exponentially. And that has nothing to do with Bill Gates. There was just something that was a given, something that came from the outside. She's been so lucky. And I definitely don't want to

Starting point is 00:08:06 take anything away from Bill Gates. I think calling Bill Gates just lucky and not calling him smart or hard worker would probably be the understatement of the century. It's actually very interesting if some of you have seen some of the interviews with his parents. I mean, it is no coincidence that there's a smart kid coming out with that family, giving him book allowance since he was just a kid. They just wanted to give him unlimited learning. How amazing is that? So I think there was a lot of good things that really was his favor.

Starting point is 00:08:34 He also mentioned when he was born. He was hired as a computer programmer before the title was invented. He had a lot of good things going for him for sure. All right. So let's go ahead and play another question. This next question, Bill was asked, becoming successful takes a lot of motivation and focus. What helps you stay motivated and focused?

Starting point is 00:08:56 And this is his response. Being as successful means having it so much money as I do. It also takes a ridiculous level of luck in addition to whatever other factors are involved. I mean, I had no idea that writing software would be so profitable. And it's nice. Now I have the opportunity and responsibility of giving that money back through the various things I'm doing. So it's a very nice deal. I think, you know, working on something where you love it and you feel like there's a sense of progress.

Starting point is 00:09:34 Now, our foundation does a lot of things that seem to go very slow or very tough. You know, we're involved in trying to improve K-12 education in the United States. Even though we put a lot into that, I would say we can't say for sure. whether that money will cause a significant change. High school dropout rates, college attendance rates, kids who enjoy college, kids who get a good job, whichever metric you pick, those metrics in the last 12 years we've been involved had moved basically not at all. You know, there's points of light, you can go to some charter schools that we've done and go,

Starting point is 00:10:09 wow, you know, hey, there's 500 kids there, but there's 50 million kids in the K-12 system. And even despite these nice little groups of 500, if you look at the aggregate measures, there's really no meaningful change that has come out of the reform movement. Maybe some hints of what we need to scale up in the future for that. My basic advice is pick something you like. It's very good at the skill of reading and learning new things is something you retain as you get older. One thing I have that I think other people have lost a little bit is the willingness to learn a new subject area. to pick up a book and read pretty deeply about that.

Starting point is 00:10:52 And when I think, well, why am I willing to do that? Well, partly, I have enough friends who know a lot that if I get confused or stuck, I can just send email and, you know, they'll straighten me out on the thing. So I'm not at much risk of falling into utter confusion. So having, you know, smart friends who can rescue your dead ends is a pretty good thing. Wanting to learn about stuff, wanting to understand stuff, wanting to meet the scientists who might have a chance of making the breakthroughs in the new areas. It makes things a lot of fun. I find myself working as many hours as I did 10 years ago.

Starting point is 00:11:27 Now, in my 20s, I didn't go home at night. I didn't believe in weekends and vacation. So I'm not as fanatical as I was in the first decade of Microsoft. That was a lifestyle for somebody in their 20s with no wife, no girlfriend, parents who don't require them to come around too often. That was pure fanaticism. But I'm semi-fanatical at this point because it's fun and energizing. So for me, it just sounds like he just loves what he's doing. Anything that he's worked on, he's always loved what he's doing.

Starting point is 00:11:58 And it's a lot easier to stay motivated when you love what you're doing. I would tell you, if you want to read a fantastic book on Bill Gates, I personally like the Paul Allen book. I thought that it gave such an accurate account of Bill Gates, especially early in his life when he was learning how to code in high school. These stories about Bill Gates when he was in his teens were just fascinating from this Paul Allen book that we read a while back. I think it's called Idea Man.

Starting point is 00:12:27 Another thing that I wanted to quickly highlight was he briefly touched at the very beginning there when he's talking about all the money that he's made about his foundation. My wife right now is getting a master's degree in non-referralia. nonprofit management at Johns Hopkins, she's looking at a lot of 990 forms. A 990 form is basically like an income statement and balance sheet for nonprofits. One night she was studying and she was looking at something and she was doing research on the Gates Foundation. She was looking at the financial statements, the 990 form and she said, Preston, come here, look at this. And so I came over. I looked at the form and she goes, look how much money this guy is given away each year.

Starting point is 00:13:07 I truly had no idea how much money the Gates Foundation was given away. I know that they're a billion dollar nonprofit. Well, I look at the financial statement, and this guy is given away $5 billion a year. When you hear that number, you're like, oh, yeah, that's a lot of money. But what's neat about his filings is he publishes in the 990 every single dollar that is given to whatever organization, whatever foundation. And I mean, the list just keeps going and going and going. And so we were flipping through the form and we're like a million dollars here,

Starting point is 00:13:46 $500,000 here, $1.3 million here. And the list just goes and goes and goes. And you're looking at it and you're like, how can one human being accomplish such an enormous amount of, I don't want to use the word power, but how can he capture that much work through money and then give that much back? It's just mind boggling. And I'll tell you, if you ever want to see something that'll just kind of blow your mind, search 990 form, Bill Gates Foundation, look through it. It'll just blow your mind.

Starting point is 00:14:23 So sorry to go off on a tangent there, but I really wanted to highlight the work that he's doing because everyone knows them from Microsoft. off, but I'll tell you the stuff that he's doing in the nonprofit sector is somewhat unbelievable. Like, it is at a whole different level that the world has never seen before. And he's doing that today. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord.

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Starting point is 00:18:41 Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. Yeah. I'm very excited also to talk about the next question. I have a few more notes to this question, but the next question. next question, we talk more about his foundation. It is absolutely amazing what he's doing.

Starting point is 00:19:03 And just like he was disrupting the world of software, I think you can easily say he's doing the same thing to philanthropy. It's absolutely amazing. What he's giving away, even if you compare it to other countries, which in itself is either impressive or very sad. But you know, one quick thing I would like to highlight about how Brigades is keeping up his motivation and focus. but he talks about when learning a new subject area, because he was not talking about just learning. He was not talking about if you are coder, you will be even better at writing codes by reading this book or taking this course. That was not what he was saying. He's very interested in different subjects. And I think that is very, very appealing. And I think it's not for him, it's a way just to learn about life also. But I think it's a way to stay motivated in a sense that he's always on a steep learning curve.

Starting point is 00:19:53 And whenever you're really good at something, someone like Bill Gage, I'm sure you can teach him something about software, but he's probably not on a really steep learning curve the same way as if you're going from subject to subject. And I kind of like that, you know, learning to learn, keeping being motivated, not plateauing. I love that mindset in terms of honing your own skills

Starting point is 00:20:16 rather than just being focused on one thing you want to excel at. Especially in the day and age where specialization seems to be more and more important, I think what we need to specialize and even more is learning to learn new things. All right. Yeah, I obviously agree with you, Stig. I mean, that's really what the point of our whole show is. Okay, so we're going to go ahead and play the next question here. This one piggybacks on some of the comments that we were saying before,

Starting point is 00:20:40 and the question is, what inspired you to take on philanthropic work? Well, my work at Microsoft was about taking technology out to the masses. You know, I never liked the idea that computers were just for big companies. or governments or things like that. So the kind of empowerment idea that we could all be creative and communicate with computers, that was always there in the Microsoft realm.

Starting point is 00:21:03 And as part of my Microsoft work, I would travel to India and China and South Africa. And so a little bit, I got a familiarity that, to be honest, I didn't have when I was in college. I only had the vagus numeric awareness of what the poorest 2 billion, the situation they were in. And so I remember going to,

Starting point is 00:21:23 a slum in South Africa, actually Soweto right by Johannesburg, and taking it a free computer, where I was giving them a computer, took them a few hours to find a power cord that was long enough to get to where the electricity was, and so they kind of plugged it in. And it was clearly not that relevant to the need for food and medicine and the very basics. And so that kind of started me on a journey to understand what was up with the poorest $2 billion, What was being done for their health and agricultural and those things. And I was kind of stunned that the world wasn't paying enough attention to those very basic needs. You know, for example, in the 90s, when I was early in philanthropy and just doing a modest amount,

Starting point is 00:22:09 I gave a $40 million grant for malaria, and somebody said, now you're the biggest funder of malaria in the world. And I thought, well, that's ridiculous. It kills a million children a year. you know, people are spending hundreds of millions on baldness drugs to avoid male baldness, and, you know, nobody's died yet from that. You know, what are the priorities of the world? And, you know, maybe capitalism alone doesn't necessarily signal us to help the people

Starting point is 00:22:36 whose voice in the marketplace is so limited because they don't have money. And so they're pretty quiet, in a sense, in terms of the R&D budgets of the world. And so I started to get that glimpse. and of course in a sense, I was always going to have the challenge that through the good luck of my Microsoft ownership being extremely valuable, I was either going to spend it on myself,

Starting point is 00:23:00 I only need a limited number of hamburgers per day, and so was I going to give it to my kids, I had a view that that would kind of distort their life and actually not be beneficial to them. And so then if I wanted to give it back to society, I better figure out where it could go. And I know it would have some sort of research,

Starting point is 00:23:22 innovation type aspect, but I had to spend a lot of time in Africa and the poor parts of India to kind of get that these basic health needs, the agricultural needs, were pretty fundamental, and yet there were advances taking place that would let us really make big progress on those. So it kind of evolved from the early 1990s that I first got in mind until, you could say, 2008.

Starting point is 00:23:47 which is when I left my full-time work at Microsoft, and since then I've been full-time doing the foundation work. So the thing that I really like about this discussion that he's having here is it gets into his mindset. It gets into how he thinks about solving a problem. The discussion about the baldness, he looks at where are the most people dying in the world, and what are they dying from, and is there an easy solution? and let me rack and stack all of these different issues that we see around the world. Let me categorize how much money I think it's going to take to solve each one of those in the probability of success.

Starting point is 00:24:26 That's how he thinks. He starts with the big picture and where can I have the most impact? It's like the Pareto principle. You get a glimpse of that. And I mean, what a comment. He put down $40 million into malaria research. And you got $100 million being spent on baldness. which just shows you that society, I guess, treasures vanity much higher than the other.

Starting point is 00:24:51 That's crazy. But what an awesome. And my hat's off to Bill Gates with what he's doing. This is amazing stuff. Absolutely amazing stuff. You know, I'm a big fan, too, of the Bill and Melinda Gates Foundation. I think what I really like is how he tries to run this as a business and having different metrics that you would typically have if you were a country. annually, around $100 billion are giving in foreign aid, and $4 billion that is given in health

Starting point is 00:25:22 and agriculture, which is primarily where Gates Foundation are working. If they're giving away up to $5 billion a year, this is a pretty significant player, not just as a foundation, but as a country. And another thing that I think you need to mention whenever you talk about this foundation is that they're giving real money away. And what I mean by that is there's a lot of things that are not completely transparent when other countries talking about how to meet a certain quota given by the UN or any kind of way that they're describing or explaining how much that they're really giving.

Starting point is 00:26:00 This is something that especially Western Europe has been doing. They're giving loans to a poor country, which of course is great. But the interest of those loans are just really, really high. They kind of know they're not getting it back. So in a way to donate a lot of money, they are writing off the interest as a donation for that year and then the next year and then the next year. So they're not really giving any new money away, but it looks like they're giving millions and millions of dollars. This foundation, the Bill and Melinda Gates Foundation, are giving real dollars away, which just has another type of impact, as you can imagine. As Preston said before to the question, right now it's around $15 billion in assets and it's rapidly growing.

Starting point is 00:26:41 right now. Some of you might also think that how does that add up with Warren Buffett saying he wants to donate 99% of his fortune? Bill Gates has said that he will donate at least 95% of his fortune to charity. Like, how does that all add up? And it really does in the sense that they are giving every year for different reasons, including tax. There are so and so much that can give away. I think Warren Buffett, it's around $3.4 billion every year he can give away in Berkshess, yes. And then if he was to disease, then he can give all it away. So it is actually very, very significant what they're doing. And whenever this foundation was built in 2010, the so-called giving pledge, so many other billionaires have contributed to this, not just only to this foundation, but also to other

Starting point is 00:27:29 foundations. Right now, 175 billionaires as pledged to give at least 50% of their fortune away, including Mark Zuckerberg, Elon Musk, and Sirius, Blakely. So this is quite significant also on a larger scale. And I think we really need to applaud that. I really like that we have a chance to bring that up here also on the show. All right. So let's go ahead and play another question. And let's talk about tech. The question that was proposed to Bill was, what's the difference between the products that Microsoft, Apple, and all these other large competing companies have been making during the last 15 years versus today, what do you think they'll be making in the next 15 years? So this is a futuristic

Starting point is 00:28:08 tech question for Bill. And this is how he responds. Well, it's an industry that's had very dramatic change. Of the first 500 software companies that came into existence, the right software for the personal computer, Microsoft was the very first, but the rest of the 500 are all gone. And so there's been a lot of dead ends, people doing games, people doing accounting software, people doing system software. and so in a way, people remember the ones that survived. Apple did a great job, actually went through a tough period and then survived.

Starting point is 00:28:46 So it's a phenomenal story where they contributed a lot. Google is still sort of in its first iteration, where its very first product was so immensely successful, both in terms of volume and profitability, that they're coming in and doing new things. So we've come a long ways as an industry. I mean, things that used to be hard to print things, and that was a big deal. It used to be hard to set up email. That was a big deal.

Starting point is 00:29:13 Videos were too many bits and the speed of decoding was too slow. So things we take for granted today, there's a lot of wonderful engineering that went into those things, but everybody just gets to build on top of that work. The work for the future, a lot of it has to do with how we engage with the device.

Starting point is 00:29:32 The keyboard is still going to be around, but voice, touch, touch, pen, video recognition, all of these things that some people call new user interface or newie to sort of say it's a generation past the thing that we're building off of, which is the GUI graphics user interface. That's going to be such a phenomenal change in these devices. And these devices are going to have to work together in a more coupled way. So as you walk into a room with a screen, your phone would just be able to use that green

Starting point is 00:30:05 in a rich way. If there's a camera in there, it can do recognition off of that camera. And so you won't, ideally, you won't even think about the different computing platforms. They're just helping you out. They're just pervasive in the environment. In particular, if you look at the fact that you'll have flexible screens that are almost like a papyrus roll, that you'll be able to cover the walls with high-resolution screen capability, that you'll have motors that are cheap enough, that robotic-type capability,

Starting point is 00:30:31 including even arm manipulation, that you'll just take that for granted. What we can do in this digital realm in the next 15 years, you know, kind of the sky's the limit. It's almost scary in terms of the number of jobs that software-driven activities will be able to automate in a very rich way. You know, the scale of how we can use machine learning and rich databases behind these things to behave in a far more intelligent fashion. Machine learning is now evolved to a thing called deep learning where we actually can take and recognize what the key characteristics. characteristics are, and it's not proven, but it's believed that's probably similar to the mechanisms that the brain uses to try and learn things. So both on the depth of the thing and how it reaches out into the world and interfaces with you, things will look radically different than they

Starting point is 00:31:24 do today. You know, the fact that screens are rigid right now, you know, people will look at that and say, well, what was that about? The fact that you can't project onto your eye and create sort of an infinite resolution, augmented reality experience. You'll just take that for granted. And so I'd say that the innovation is going faster now than ever before. That's some interesting stuff. I can't really say that it's anything different than what we had probably heard about, really kind of thought was coming in the coming 15 years. I will say this, this augmented reality stuff that you're basically creating 3D in your own room. and it appears as if somebody's there.

Starting point is 00:32:03 It's some pretty fascinating stuff. I know Microsoft had built an augmented reality visor and also a company called Magic Leap just recently launched their hardware. Some of this stuff is getting really, really fascinating. And if you're not too up to speed on augmented reality, I tell you, do a Google search, look at some YouTube videos. We'll put, actually, we'll throw some videos up in our show notes if you want to check those out of augmented reality.

Starting point is 00:32:29 It's actually 3D mapping the, environment around you. So if you're sitting in a room, you basically have LIDAR technology that scans the room and comes up with a 3D map of what everything looks like. And then the software understands what that 3D mapping looks like of your environment. And then as it places objects into the room, think about Skype. If we are sitting at a table, the person that I'd be chatting with, if they had some type of 3D mapping on their end, basically what the software can do is place that person at the same table that you're seeing in your house. They'd put them on the other side of the table and as if they're sitting there,

Starting point is 00:33:08 you wouldn't see the bottom half of their body because it'd be blocked by the table because the software can recognize that there's a table between you and where it's placing the 3D object. And it would appear as if there was somebody straight across from you. So this stuff is becoming, believe it or not, this stuff is becoming real. There's companies magically if it's a private company, but I believe they've raised funding in excess of a billion dollars. This stuff is happening.

Starting point is 00:33:32 Now, how far along they are, you can make that judgment based on the videos that you can watch. But I think it's a little bit further along than people might realize. The hardware is still clunky. Let me just put that out there. Like, you're going to look a little crazy walking around with this stuff on your head. But there's some neat stuff happening in this space that he was talking about. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:37:18 this engineering that's already been done, you know, just being passed on from generation to generation. One of the things that I've really been looking into here over the past few weeks talking about learning new subjects. That has been more in machine learning and AI really to get a better understanding of this. Because I think that whenever we listen to Bill Gates or someone like that in the tech industry, they're always talking about the future and it's difficult to understand like the scope of what we're really talking about. And in many ways, especially if we're not as visionary as they are. But let me give you an example of what we could mean whenever we talk about artificial intelligence.

Starting point is 00:38:00 And this is an example of how you are perceived as a human being and then what artificial intelligence can do. So imagine James Cameron. I guess a lot of people would say that he's one of the most successful and talented directors in our time. James Cameron in an AI sense is very inefficient. And he's very inefficient because he spent years learning how to read and write. Because you need that before you can become a director. And he spent years watching movies, figuring out what is it that the audience likes, what is it that do not like.

Starting point is 00:38:35 So that took a long time too. So imagine what AI can do then. Well, it can already read and write. And if you had to teach that to the computer, you know, you can do that in a few minutes. Now, with the processing power we had today and especially the processing power we have in the future, you can watch thousands or millions of movies in a matter of seconds or minutes. Whenever James Cameron's like 25 or 30 years old, whatever, like you can do that easily in the afternoon, at least in the future in the way of thinking about AI.

Starting point is 00:39:10 James Cameron would have to pay for his actors. AI can basically just animate them. AI can ensure that the movie is being translated into multiple countries because it can mimic the way that people talk in that language and it can automatically translate that into that local dialect even if that's what it needs to be done. Now, you can't do all of this today, but it's not as far out as you might imagine. I just wanted to give that as an example. Definitely not to say anything bad about James Cameron, but just to give you an idea of how is it that you can be so talented, intelligent as a human being, and perhaps how will that be replaced by

Starting point is 00:39:50 a machine in the future? What we're going to do now at this point in the show, we're going to transition to taking a question from a member of our audience. The question that we're going to play today comes from Trevor Cohen. So here's Trevor's question. Hi guys. My name is Trevor, and my question is in regards to the ever-shinking public market. The number of publicly traded companies is roughly half the size that it was in the mid-1990s and roughly 25% smaller than it was in 1976. Do you think that this trend will continue and is it a cause for concern? Thanks very much and keep up the great work.

Starting point is 00:40:23 All right. So Trevor, I really, really like this question. And I have an opinion on it. I don't know if this opinion is valid. And the example that I'm about to tell you might be way over simplifying things. But this is how I understand it. If you've ever played a game of Monopoly, what happens? happens as the game continues to progress. If you start off with four players, you start off

Starting point is 00:40:45 with six players or whatever. As the game continues to go on, there's domination and capitalization. There's domination that occurs whenever you're dealing with free markets and there's winners and there's losers. If you allow that game to continue to go on and you allow businesses to fail and you allow other players to basically take possession of those assets, you have what's called consolidation. Now, imagine playing that game, but the banker isn't allowing other businesses to fail. Instead, what they're doing is they continue, the person who's playing the bank in the game continues to add liquidity into the game by adding more money. So a player's getting ready to fail. The bank steps in and says, ah, don't fail. Let's give you another $100. And so you keep feeding

Starting point is 00:41:33 liquidity into the game. Those players are going to be able to continue to play, but their chance of winning continues to go down and becomes less and less probable because that money continues to flow to the asset holders, the main asset holders in the game. And so, yeah, you can keep the number of businesses in there, but they become weaker and weaker and weaker. And the ones that are amassing all the wealth are becoming stronger and stronger and stronger. I believe that's an example of what we're seeing in modern economies right now. And the central bankers, through quantitative easing, and Japan was the first one to start doing this back in the 1990s. During this last credit cycle, you're now seeing it occur in Europe and the United States.

Starting point is 00:42:17 And I think as we go into yet another credit cycle, whenever that happens, I think things are going to get really, really interesting because you're getting to a point where they've manipulated the financial market so much that interest rates are pushed to zero. We even saw Japan during this last credit cycle push their interest rates into the negative territory. If you're talking about real rates, which are inflation adjusted, they're negative all over the place, depending on what duration you're talking. I think that that is a major issue. And I think that one of the results that you're seeing out of that is the consolidation of what you just described. That's my personal opinion. And I might be really biased or have gaps in my thinking,

Starting point is 00:42:57 but that's the way I see it. So Trevor, I really like this question too. I don't think we ever covered anything remotely connected to that. So that's a really interesting point that you have. Whenever I look at some of the stats here, I think there are quite a few reasons why you're seeing this, what, 50% shrinkets since. I think right now we have around 3,600 realistic companies, and it used to be doubled that just before the dot-com burst. There are quite a few reasons. IPOs, they're no longer as popular for venture capital as they have been. Back in 1980s, We were uproats around 80% of the IPOs that came from the venture capital background. Last year, it was only 15%.

Starting point is 00:43:41 There's also this tendency that you will keep your company private longer if you can. Facebook would be an example. It was just massive whenever it was listed. You see more and more consolidation just in general. That was also what Preston was getting at before. That's easily a few hundred companies here over the past decade. Those are some of the reasons why you see this. decline. When I think about it, I have a few arguments why it's not a problem. It's not a problem

Starting point is 00:44:09 in the sense that when it comes to disruption, that growth tip comes from new businesses, we will still have startup companies, even though we didn't have listed markets or we didn't have as developed public markets as we have today. Also, a lot of the companies that are disappearing here on the exchanges, they're nano and microcap, and most money are poured into the major indexes anyway. So I guess for most stock investors, it's not necessarily a big deal. There are also quite a few reasons why it could be a problem. One thing that is evident is that the fewer players you have in the market, the higher prices you will get. So for you as a consumer, it's probably not a good thing. One example comes to mind would be something like the airline

Starting point is 00:44:54 industry. The more consolidation you have seen here over the past 10, 15, 20 years, I think for frequent travel laws, you will have experience that it's been more expensive, not just inflation, but it is actually more expensive than it has been. There's another concern that private companies they're not forced to disclose as much information as public companies. So that could also, if that's the side of Fentio-on, be a problem. And the more power you have to companies, again, like, what's the reason for the existence of a company? That is to make money. And profit is really what you as a company focus more on than everything else. at least for most companies.

Starting point is 00:45:33 So you will have more powerful companies, perhaps also more powerful companies, than nation states. Again, depending on which side of the venture on, that could also be a problem for this. But Trevor, really, really insightful question. I think this is a tendency, or I think this is a trend

Starting point is 00:45:50 that very few people are actually aware of and it can change the business landscape and perhaps also the political landscape, perhaps even democracy to some extent. So it's a very interesting topic that you bring up. All right, Trevor, thank you so much for submitting your question for asking it. We're going to give you a free subscription to our paid course where we teach people how to conduct intrinsic value calculations for individual stock picks.

Starting point is 00:46:16 If you're interested about this course, you can go to TIP intrinsic value. That's tip intrinsic value.com to learn more about it. But Trevor, you're going to get a free subscription. So we really appreciate you calling in. If anyone else listening to this wants to get your question played on the show and potentially get a free course, go to AsktheInvesters.com to record your question. And if it gets played on the show, you'll get a free course like Trevor. All right, guys. That was all that pressed on eye had for this week's episode of The Investors Podcast. We see each other again next week.

Starting point is 00:46:46 Thanks for listening to TIP. To access the show notes, courses or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to AsktheInvesters.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting.

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