WEBVTT - Benn Eifert On The Mania That Was Even Bigger Than Meme Stocks 0:00:10.000 --> 0:00:13.400 Hello, and welcome to another episode of the All Thoughts Podcast. 0:00:13.480 --> 0:00:16.600 I'm Tracy Alloway and I'm Joe. Wi isn't the Joe. 0:00:16.960 --> 0:00:19.800 There's been a lot of crazy stuff that's happened over 0:00:19.800 --> 0:00:22.919 the past couple of years. I don't know what what 0:00:23.160 --> 0:00:27.800 what makes you say that? Well, okay, besides literally everything, 0:00:27.840 --> 0:00:31.400 besides everything, the most remarkable thing is when when I 0:00:31.440 --> 0:00:35.040 think about this year and the bottom falling out of 0:00:35.080 --> 0:00:38.800 a whole bunch of stuff, is that this is exactly 0:00:38.880 --> 0:00:42.080 what everyone or what a lot of people said would happen. Right. 0:00:42.159 --> 0:00:46.400 People looked at text stocks, people looked at crypto and 0:00:46.440 --> 0:00:50.519 they said, this looks unsustainable. It looks like a bubble, 0:00:50.680 --> 0:00:52.560 or it looks like a mania. Why in the world 0:00:52.640 --> 0:00:55.080 are people buying this stuff? Well, you know, it's funny 0:00:55.240 --> 0:00:58.279 thinking back to the top of the meme market, like 0:00:58.320 --> 0:01:01.840 in ear and people are like, this has got to 0:01:01.880 --> 0:01:05.039 be the top, rights and it turned out to be 0:01:05.160 --> 0:01:07.880 exactly the top, And that never happens. But I guess 0:01:07.920 --> 0:01:09.759 if you say this has got to be the top enough, 0:01:10.120 --> 0:01:11.880 then eventually will be. But if you look at like 0:01:11.920 --> 0:01:15.120 some of those measures MOREGANA. Stanley puts together this great 0:01:15.160 --> 0:01:18.040 chart of like the cumulative p and L of Robin 0:01:18.080 --> 0:01:22.319 Hood traders since the start of the pandemic, and it 0:01:22.360 --> 0:01:25.600 basically peaked right in February one, and then it's been 0:01:25.640 --> 0:01:28.000 downhill ever since. It really was the top, right, I 0:01:28.040 --> 0:01:31.520 think retail investors basically erase any gains that they made 0:01:31.640 --> 0:01:37.720 from So looking back with the benefit of hindsight, it 0:01:37.760 --> 0:01:40.800 seems inevitable that all of this, you know, would turn 0:01:40.880 --> 0:01:44.760 out this way. But as we were describing, there are 0:01:44.760 --> 0:01:47.480 still people who jump into these things right totally in 0:01:47.520 --> 0:01:50.120 the grand scheme of things. It's like people always joke 0:01:50.200 --> 0:01:53.880 like hindsight is but I've never actually believed that's true. 0:01:53.960 --> 0:01:55.480 And we know that's not true because we look at 0:01:55.560 --> 0:01:58.360 history all the time and dispute what actually happened, right, 0:01:58.520 --> 0:02:02.640 and so there's never actually any agreement. Nonetheless, you know, 0:02:02.760 --> 0:02:04.960 with this sort of like cycle having played out, of 0:02:04.960 --> 0:02:07.640 all these people on during the market getting excited about 0:02:07.640 --> 0:02:09.920 some of the craziest stuff there is everyone calling a 0:02:09.960 --> 0:02:13.120 top and then a downturn, it's probably not too early 0:02:13.160 --> 0:02:15.520 to start asking the question, like, what did we learn 0:02:15.600 --> 0:02:17.560 the last two years about how markets work? Yeah, I 0:02:17.560 --> 0:02:20.280 think that's right, And obviously some stuff is still shaking out. 0:02:20.639 --> 0:02:23.359 But I think we have enough here to at least 0:02:23.440 --> 0:02:26.760 do a review of everything that we've seen over the 0:02:26.800 --> 0:02:29.560 past couple of years and how you know investors can 0:02:29.639 --> 0:02:32.800 avoid some of the mistakes they may have made in 0:02:33.120 --> 0:02:36.440 that period. Time to start learning. Yes, okay, the learning 0:02:36.440 --> 0:02:39.200 hour on All Loots. Well, I'm pleased to say we 0:02:39.280 --> 0:02:41.440 have the perfect person to discuss this. We're going to 0:02:41.520 --> 0:02:44.520 be speaking with Ben Eiffert, who has been on the 0:02:44.520 --> 0:02:48.919 podcast a number of times talking about retail investing, talking 0:02:49.000 --> 0:02:52.560 about derivatives, the impact of retail getting into derivatives on 0:02:52.600 --> 0:02:55.480 the market. He is, of course a managing partner at 0:02:55.560 --> 0:02:59.559 QVR Advisors, which is a boutique hedge fund that specializes 0:02:59.600 --> 0:03:03.200 involved derivative So Ben, thank you so much for coming 0:03:03.200 --> 0:03:06.520 back on all thoughts. Racy, Joe, it's so nice to 0:03:06.520 --> 0:03:09.280 be back. I missed you guys. It's been way too long. 0:03:09.960 --> 0:03:14.080 So maybe to begin with there are so many crazy 0:03:14.120 --> 0:03:16.440 things we could start with. But what do you think 0:03:16.520 --> 0:03:18.560 was the craziest thing that you saw in the market 0:03:18.760 --> 0:03:20.720 over the past couple of years. Was there a moment 0:03:20.720 --> 0:03:23.480 where you were just like, I cannot believe this is happening. 0:03:25.080 --> 0:03:28.480 The absolutely I think the craziest moments of the last 0:03:28.520 --> 0:03:30.880 few years is a really really really tall orator, right, 0:03:31.400 --> 0:03:37.160 I would say, actually, I found the sizes of the 0:03:37.320 --> 0:03:41.640 unsecured loans that very large. And you might have thought 0:03:41.800 --> 0:03:47.560 sophisticated investors and credit organizations were giving to three Arrows 0:03:47.600 --> 0:03:49.560 capital two and a half two and a half billion 0:03:49.560 --> 0:03:52.480 dollars in the Genesis alone with like no collateral, Right. 0:03:53.040 --> 0:03:55.040 I mean you come into this just thinking, look, these 0:03:55.040 --> 0:03:58.160 are these are big boys, These are are wealthy people 0:03:58.160 --> 0:04:01.040 who created a tremendous amount of money, and they wouldn't 0:04:01.080 --> 0:04:05.560 just do completely obviously crazy stuff like that, right, And 0:04:05.560 --> 0:04:07.360 then and then it turns out that the answer is 0:04:07.400 --> 0:04:10.400 and of course they do. Well, that's such a great answer, 0:04:10.440 --> 0:04:13.320 And I'm glad you said that, because obviously we did 0:04:13.400 --> 0:04:16.400 this intro and we talked about like, oh, the retail 0:04:16.520 --> 0:04:20.640 craziness and people buying AMC in GameStop on robin Hood. 0:04:20.800 --> 0:04:23.920 But of course you're right, like, actually these were pros. 0:04:24.120 --> 0:04:27.039 These were people who are like very successful and essentially 0:04:27.040 --> 0:04:31.560 like building an industry and lending billions of dollars unsecured 0:04:31.760 --> 0:04:35.120 to a crypto hedge fund that we know in retrospect 0:04:35.200 --> 0:04:39.560 was not doing anything particularly uh sophisticated. That's actually like 0:04:39.600 --> 0:04:43.560 way crazier than buying shares of game stop. Absolutely, I 0:04:43.600 --> 0:04:46.120 think retail gets all of the attention, and you know, 0:04:46.160 --> 0:04:47.640 we can talk about that all day, and there's all 0:04:47.680 --> 0:04:51.080 kinds of stuff there, but I think people forget that 0:04:51.520 --> 0:04:55.520 the role of institutional investors in this process, and the 0:04:55.560 --> 0:04:59.480 way that institutional investors start to buy into narratives and 0:04:59.560 --> 0:05:03.599 start uh and you start to develop this fear that 0:05:03.680 --> 0:05:07.640 they're missing some huge technological revolution um and then do 0:05:08.320 --> 0:05:11.200 incredibly crazy things in huge size is almost a more 0:05:11.240 --> 0:05:14.360 interesting story. Can you actually talk a little bit more 0:05:14.520 --> 0:05:19.599 about the psychology the sort of institutional fomo, because again, 0:05:19.640 --> 0:05:22.960 like sort of like retail fomo is really obvious. If 0:05:23.000 --> 0:05:25.640 your friend, you know, suddenly made ten tho dollars or 0:05:25.680 --> 0:05:29.560 a hundred thousand or more, like trading call options on 0:05:29.640 --> 0:05:31.520 robin Hood, maybe you want to get into it, but 0:05:31.640 --> 0:05:35.640 you probably assume in your capacity as a hedge fund manager, 0:05:35.760 --> 0:05:39.200 you probably talked to a lot of sophisticated investors institutions. 0:05:39.800 --> 0:05:43.479 You must see like the institutional fomo side in a 0:05:43.520 --> 0:05:46.080 way that the rest of us don't. How does that work? 0:05:46.080 --> 0:05:47.680 How does that thinking and how do they sort of 0:05:47.680 --> 0:05:50.960 like get in the brain space where they become comfortable 0:05:51.040 --> 0:05:54.359 or obsessed with like taking these huge risks. Absolutely, I 0:05:54.400 --> 0:05:57.960 think it's you know, on the face of it, institutions 0:05:58.000 --> 0:06:01.840 are probably better at no to saying things that just 0:06:01.920 --> 0:06:04.599 seem obviously crazy and silly. You know, They're less likely 0:06:04.720 --> 0:06:08.800 to buy into very poorly framed Look, you can make 0:06:08.839 --> 0:06:11.440 a thousand percent a month doing this kind of you know, 0:06:11.520 --> 0:06:15.920 kind of pitches. Right. Institutions have generally speaking, smart fook 0:06:15.960 --> 0:06:18.599 smart people, and they're able to recognize those kind of 0:06:18.600 --> 0:06:22.000 things very quickly. But what I think is really key 0:06:22.120 --> 0:06:28.920 here is that momentum is very dangerous for institutional investors 0:06:28.960 --> 0:06:32.120 precisely because it's a real financial markets phenomena, right. It's 0:06:32.120 --> 0:06:35.359 one that's had tremendous amount of proper academic research for 0:06:35.400 --> 0:06:38.560 a long time. It's clearly an effect that exists in 0:06:38.600 --> 0:06:41.240 a sense, and really and momentum is the tendency of 0:06:41.560 --> 0:06:43.800 things that have been going up lately to keep going 0:06:43.880 --> 0:06:46.120 up in the in the near future, right. And the 0:06:46.160 --> 0:06:51.440 best explanation really, I think for historical momentum effects is 0:06:51.480 --> 0:06:56.360 that something important is changing behind the scenes about the world, right, 0:06:56.480 --> 0:07:01.320 and it's poorly understood and skept eckle, old fashioned or 0:07:01.320 --> 0:07:05.120 grumpy investors try to fight it, right. Warren Buffett says, look, 0:07:05.160 --> 0:07:09.000 I can't own Google or Amazon twenty twelve because look 0:07:09.000 --> 0:07:11.120 at these pe multiples, they're kind of high. I don't 0:07:11.120 --> 0:07:13.040 really understand what these guys are doing. And then they 0:07:13.040 --> 0:07:16.000 turn out to be these huge transformative businesses. Right, And 0:07:16.360 --> 0:07:20.640 that's a real thing, and it results on average in 0:07:20.840 --> 0:07:23.720 various ways. In sometimes it makes sense to own things 0:07:23.800 --> 0:07:25.600 that have been going up, even if you don't totally 0:07:25.640 --> 0:07:30.320 understand why. Right. But the longer that returns momentum builds 0:07:30.680 --> 0:07:34.320 in some particular area, right, the more over time that 0:07:34.680 --> 0:07:38.840 even institutional investors that are generally sophisticated and skeptical feel 0:07:38.920 --> 0:07:42.040 the need to get involved, right because they start to think, look, 0:07:42.080 --> 0:07:44.640 I must be missing out. I don't totally understand this, 0:07:44.720 --> 0:07:47.040 but I must be missing out on something transformative. I 0:07:47.080 --> 0:07:49.320 can't be the guy who's sitting here in this room 0:07:49.400 --> 0:07:52.080 in five or ten years and say, yeah, I didn't 0:07:52.120 --> 0:07:54.640 own Amazon or I didn't get involved in that new thing, 0:07:54.880 --> 0:07:57.160 and I completely missed out, and everybody else made a 0:07:57.160 --> 0:07:59.080 ton of money doing this and I just didn't get it. 0:07:59.080 --> 0:08:02.360 At the time right um. And I think the institutional 0:08:02.400 --> 0:08:07.600 investors also probably have a pretty high tolerance and almost 0:08:07.640 --> 0:08:12.360 sometimes an attraction to complexity. Right It makes makes them 0:08:12.440 --> 0:08:15.440 feel smart, makes them feel in the know about something new, 0:08:15.960 --> 0:08:20.320 and often, of course, complexity can obscure the sources of 0:08:20.400 --> 0:08:23.040 risk that are actually being taken into an investment. So 0:08:23.360 --> 0:08:27.120 just on the idea of momentum, this is something that 0:08:27.160 --> 0:08:30.920 I feel was different about the past couple of years, 0:08:30.960 --> 0:08:33.679 maybe on the institutional side as well as the retail side. 0:08:33.720 --> 0:08:38.120 But it feels to me like people used to if 0:08:38.120 --> 0:08:41.040 they saw something that they thought was a bubble or 0:08:41.600 --> 0:08:44.640 didn't make sense, or you know, it was a mania 0:08:44.720 --> 0:08:47.800 in one form or another, I think people would shy 0:08:47.840 --> 0:08:51.200 away from it, thinking that this is a bad investment. 0:08:51.200 --> 0:08:53.160 But it feels like over the past couple of years, 0:08:53.640 --> 0:08:58.560 people sort of wholeheartedly just jumped in, knowing that a 0:08:58.640 --> 0:09:02.520 lot of the price action was it necessarily justified by fundamentals, 0:09:02.640 --> 0:09:04.839 but thinking that you could go in, you can make 0:09:04.840 --> 0:09:06.920 some money and then hopefully get out on time. In 0:09:07.000 --> 0:09:11.360 your experience, is that behavior that you've observed, Like, is 0:09:11.360 --> 0:09:14.840 it that nihilistic or is it really about the narrative 0:09:14.880 --> 0:09:17.440 and people just not wanting to miss the next big thing. 0:09:18.960 --> 0:09:22.280 I think there's an inherent cyclicality to it, just with 0:09:22.840 --> 0:09:27.640 human memory and institutional memory and the experience of of investors, right. 0:09:28.080 --> 0:09:31.839 I mean, there's just simple important factors here, like how 0:09:31.880 --> 0:09:35.240 long has it been since the last big mania that 0:09:35.480 --> 0:09:39.240 people were piling into that ended really poorly, right, allowing 0:09:39.400 --> 0:09:42.360 the collective consciousness of excess and crash to fade, and 0:09:42.760 --> 0:09:45.200 time for new narratives to build, and time for those 0:09:45.200 --> 0:09:48.440 new narratives to generate returns and to attempt new investors, 0:09:48.840 --> 0:09:51.880 time for new frontiers to emerge. That can we can 0:09:51.920 --> 0:09:54.920 create new narratives around. I mean, if you think back 0:09:55.040 --> 0:09:58.160 really to the last couple of decades, and it's been 0:09:58.200 --> 0:10:02.480 a pretty long, slow bowl market cycle since two thousand 0:10:02.520 --> 0:10:04.880 and nine. Right. We've had some minor disruptions, We had 0:10:04.920 --> 0:10:07.160 some European sovereign debt issues, and we had a few 0:10:07.160 --> 0:10:11.000 other things, but really things have gone really, really really 0:10:11.040 --> 0:10:14.560 well for a long time. And market participants, you know, 0:10:14.600 --> 0:10:18.079 the memory of the tech bust is pretty long faded, 0:10:18.120 --> 0:10:21.760 certainly in terms of actual institutional knowledge of investment organizations 0:10:21.840 --> 0:10:23.880 as opposed to just in lore of the old old 0:10:23.920 --> 0:10:28.360 people right, um, and that leads market participants over time 0:10:28.440 --> 0:10:31.440 to start taking more and more silly risks and to 0:10:31.559 --> 0:10:35.200 become more and more susceptible to creating narratives around you know, 0:10:35.280 --> 0:10:37.520 some of these new things. I think that, you know, 0:10:37.600 --> 0:10:39.240 I think it's going to be much harder, you know, 0:10:39.320 --> 0:10:41.319 in the next three or four years. Probably we won't 0:10:41.360 --> 0:10:45.000 see a bunch of you know, brand new, really you know, 0:10:45.040 --> 0:10:47.760 really crazy things developed famous last words, right, I mean, 0:10:47.800 --> 0:11:06.640 we probably will Because I said that something that I've 0:11:06.800 --> 0:11:09.880 been thinking about two and it really fits with this 0:11:10.000 --> 0:11:13.680 idea of like the sort of like last institutional holdouts, 0:11:13.720 --> 0:11:16.640 the people that fight the new thing, that people that 0:11:16.920 --> 0:11:20.040 are skeptical of tech, the people that are skeptical of crypto, 0:11:20.080 --> 0:11:22.720 and then like eventually they sort of get dragged along 0:11:22.760 --> 0:11:26.160 and then eventually many of them capitulate. Not only does 0:11:26.200 --> 0:11:28.920 it seem like many of them capitulate in some way 0:11:29.000 --> 0:11:32.080 or another, it seems like in the late stages of 0:11:32.120 --> 0:11:35.240 the boom or the bubble specifically, you get the most 0:11:35.320 --> 0:11:38.680 egregious behavior. And I don't remember the exact dates, but 0:11:38.720 --> 0:11:41.440 I'm thinking like some of these loans to like three 0:11:41.480 --> 0:11:44.679 arrows capital or some of these moves into like Luna, 0:11:44.880 --> 0:11:48.320 the stable coin ecosystem that crashed like they happened really 0:11:48.440 --> 0:11:51.280 late in the cycle. It seems like there's this effect 0:11:51.280 --> 0:11:54.520 where not only do the final folks get dragged across 0:11:54.559 --> 0:11:57.080 the line, they seem to really like do it in 0:11:57.280 --> 0:12:02.679 size at the worst possible time. I think that's totally right. 0:12:02.720 --> 0:12:04.440 I mean, if you look back again at this what 0:12:04.600 --> 0:12:09.000 has been a very long, slowish, you know, bullmarket cycle 0:12:09.000 --> 0:12:12.280 where things have been good, it was really only call 0:12:12.360 --> 0:12:14.880 it that was sort of the turning point where all 0:12:14.920 --> 0:12:18.040 of a sudden everything started to just go parabolic together 0:12:18.080 --> 0:12:22.319 at the same time, right across public markets, across private markets. 0:12:22.720 --> 0:12:25.440 You know, I think a big part of the institutional 0:12:25.520 --> 0:12:31.280 role in that really came from this huge psychology around 0:12:31.600 --> 0:12:35.960 private assets and private investments being this fantastic place to be. 0:12:36.120 --> 0:12:39.600 There's big sources of innovation, stable returns because you know, 0:12:39.640 --> 0:12:43.320 without park to market volatility. Right. You saw just really 0:12:43.360 --> 0:12:45.880 in the last few years, you see the formation of 0:12:46.000 --> 0:12:49.240 VC growth funds. Right. So you always used to think 0:12:49.280 --> 0:12:52.640 of venture capital as you know, these nerdy, weird engineers 0:12:52.720 --> 0:12:56.560 doing cool science experiments and backing these early stage companies 0:12:56.600 --> 0:12:59.839 to do really disruptive stuff, Right, whereas growth funds were 0:12:59.880 --> 0:13:03.880 all about raising mega institutional scale capital at full fees 0:13:03.920 --> 0:13:07.160 with long luck and plowing that into companies that were 0:13:07.200 --> 0:13:09.440 already valued at two billion dollars and just had a 0:13:09.440 --> 0:13:13.319 completely different asymmetry to the return profile. Right, And you 0:13:13.400 --> 0:13:16.640 had corporates like soft Bank and hybrid public private headphunes 0:13:16.679 --> 0:13:19.840 like Tiger coming in to compete for deals, to get 0:13:19.840 --> 0:13:23.000 those deals with startups by saying, look, we have bigger 0:13:23.080 --> 0:13:25.200 checks and we're not going to ask you any annoying questions. 0:13:25.200 --> 0:13:27.319 We're not going to do due diligence, like I want 0:13:27.400 --> 0:13:29.120 you to sign the storm sheet in twenty four hours 0:13:29.120 --> 0:13:32.560 that I just sent you, right, And that was really 0:13:32.800 --> 0:13:35.640 you know, where did that a lot of that came from. 0:13:35.679 --> 0:13:37.360 I mean I was and I think I had a 0:13:37.360 --> 0:13:41.319 Twitter post about this, But I would go to conferences 0:13:41.360 --> 0:13:43.560 with big institutional investors and the only thing that you 0:13:43.559 --> 0:13:47.400 would hear about was how big asset owners were taking 0:13:47.440 --> 0:13:50.840 money out of liquid alternative type of investments and put 0:13:50.880 --> 0:13:53.480 and moving them into privates because the returns and privates 0:13:53.480 --> 0:13:55.880 had them so high, and there was such a perception 0:13:55.920 --> 0:13:58.600 of such limited risk and privates. It also seemed tracy, 0:13:58.720 --> 0:14:01.040 like if you look at it Charter like soft Bank 0:14:01.480 --> 0:14:04.240 the stock Like that's how you erased like years and 0:14:04.320 --> 0:14:06.520 years worth. So it's like soft Bank is where it 0:14:06.559 --> 0:14:09.760 was seen, and it's like, yeah, if you like do 0:14:09.880 --> 0:14:12.400 these like big investments late in the game, you just 0:14:12.440 --> 0:14:15.560 like wipe out years of games. So actually, this is 0:14:15.600 --> 0:14:17.880 something that I want to ask. You know, a lot 0:14:17.960 --> 0:14:21.200 of the craziness that we've seen has been focused on 0:14:21.400 --> 0:14:25.760 tech stocks, either in the public market or tech investments 0:14:25.760 --> 0:14:28.400 in the private market through venture capital and things like that. 0:14:28.840 --> 0:14:31.640 And you were talking about narratives earlier and fear of 0:14:31.680 --> 0:14:37.160 missing out. Is there something about tech specifically that makes 0:14:37.240 --> 0:14:41.040 it more vulnerable to people getting very excited about it. 0:14:41.280 --> 0:14:43.640 I guess there's so much technology that has pitched as 0:14:44.120 --> 0:14:47.280 life changing or world changing in one way or another, 0:14:47.360 --> 0:14:49.840 it feels like it's easier maybe to build a big 0:14:49.960 --> 0:14:51.960 narrative out of it to try to get more people 0:14:52.000 --> 0:14:55.280 into it. I think that's exactly right. So, I mean, 0:14:55.320 --> 0:14:58.520 just to be clear, technology itself is not the problem, right, 0:14:58.560 --> 0:15:01.640 I mean, technology, disruptive tech, logical innovation is what drives 0:15:01.680 --> 0:15:04.640 the world forward. And you know, Silicon Valley and venture 0:15:04.640 --> 0:15:06.520 capital like plays a really important role in that and 0:15:06.600 --> 0:15:10.240 that's great, But the technology inherently has this characteristic right 0:15:10.240 --> 0:15:13.320 that you're not selling a current set of cash flows 0:15:13.440 --> 0:15:15.640 or a well trodden path of how you know that 0:15:15.720 --> 0:15:18.440 can be valued by people with spreadsheets and some kind 0:15:18.480 --> 0:15:22.400 of relatively formula. Wait, it's about selling a vision of 0:15:22.440 --> 0:15:25.120 the future and a vision of what could be and 0:15:25.480 --> 0:15:28.000 how that can play into future economics and trying to 0:15:28.040 --> 0:15:30.560 relate that to past innovation. And like that's a very 0:15:30.640 --> 0:15:33.440 nebulous thing in the end, right, And it's something that 0:15:33.600 --> 0:15:40.760 is inherently susceptible to hype and narrative, particularly when the 0:15:41.240 --> 0:15:44.720 I think, as you've seen in recent years, particularly when 0:15:45.400 --> 0:15:50.400 financial markets set up ways for people to get actually 0:15:50.440 --> 0:15:53.440 paid and to monetize that kind of narrative and hype, 0:15:53.520 --> 0:15:56.560 right as opposed to, Hey, I finished building this company, 0:15:56.640 --> 0:15:58.520 and then I it becomes a big company, and then 0:15:58.520 --> 0:16:01.280 I get really rich. Right when it becomes I sell 0:16:01.400 --> 0:16:04.520 this vision of the future that's really disruptive, and then 0:16:04.600 --> 0:16:06.800 I can issue a token and I can sell it 0:16:06.840 --> 0:16:09.080 to retail and I can make a billion dollars just 0:16:09.160 --> 0:16:11.920 by doing that without actually building anything, right, And I 0:16:11.960 --> 0:16:14.880 think that's you know, we're similarly out you know, in 0:16:14.880 --> 0:16:18.400 in technology. If I can create a startup that gets 0:16:18.400 --> 0:16:20.680 about value to three billion dollars, and then I can 0:16:20.720 --> 0:16:22.800 go into the secondary market and I can get liquidity 0:16:22.800 --> 0:16:24.560 as a founder and sell a lot of my shares 0:16:24.600 --> 0:16:27.080 to like institutional investors that want to get some right. 0:16:27.440 --> 0:16:30.680 And I think that's the inherent trick with technology is 0:16:30.720 --> 0:16:34.880 that it is inherently, by its nature much more susceptible 0:16:34.920 --> 0:16:40.240 to narrative driven you know, valuation and narrative driven thinking. Um, 0:16:40.280 --> 0:16:42.240 And that is what it is, right, That's that's not 0:16:42.280 --> 0:16:44.000 something that's going to go away, but it's something that 0:16:44.040 --> 0:16:47.840 investors have to be really cautious about how to differentiate. 0:16:48.360 --> 0:16:50.320 And you get it's like the early phases of a 0:16:50.600 --> 0:16:53.920 technology cycle, right, you get those nerdy engineers building really 0:16:53.920 --> 0:16:57.080 cool stuff in the garage, but then the NBA start 0:16:57.120 --> 0:16:59.600 to show up. Right, It's kind of a classic line 0:16:59.600 --> 0:17:01.840 and sell a valley, right, and you end up with 0:17:01.920 --> 0:17:04.720 a lot of huckster types coming in to kind of 0:17:04.840 --> 0:17:07.360 ride along the wave because there's so much money involved. 0:17:07.440 --> 0:17:10.000 And that's where you get the trouble. Can you explain 0:17:10.240 --> 0:17:13.840 arc to us, like what was that about? Because you 0:17:13.880 --> 0:17:16.040 know Joe mentioned the soft bank chart. If you pull 0:17:16.119 --> 0:17:19.240 up the Arc Innovation E T F it's pretty similar, 0:17:19.280 --> 0:17:23.080 basically erased like two years of gains. But you know, 0:17:23.880 --> 0:17:27.600 Cathy Wood was out there talking about how the technological 0:17:27.680 --> 0:17:31.560 revolution was going to increase GDP growth to like fifty, 0:17:32.560 --> 0:17:35.120 which I think is a number that has never been 0:17:35.119 --> 0:17:38.920 experienced in terms of GDP growth ever in the history 0:17:38.960 --> 0:17:42.560 of the global economy. But like, what was that about? 0:17:42.600 --> 0:17:46.919 And why did people seem to buy into a vision 0:17:47.080 --> 0:17:50.480 that you know, on the surface was pretty easy to 0:17:50.520 --> 0:17:55.360 pick apart. Yeah, I mean it was a perfect storm. 0:17:55.440 --> 0:17:59.879 I think narrative we have to have these like firew 0:18:00.000 --> 0:18:04.879 exchound to go off. It was this perfect storm of 0:18:05.240 --> 0:18:11.119 timing and compelling narrative, right. I mean, retail investors and 0:18:11.160 --> 0:18:13.960 individual investors were just starting to see this huge up 0:18:14.000 --> 0:18:17.240 surge in interest in markets and trading and participation in 0:18:17.320 --> 0:18:19.920 markets that we hadn't seen since the previous tech boom 0:18:19.960 --> 0:18:22.800 back in the nineties, right, And a lot of that 0:18:22.920 --> 0:18:29.080 interest was centered around new new era, new economy technology stocks, 0:18:29.119 --> 0:18:32.359 a lot of the smaller speculative type of names that 0:18:32.400 --> 0:18:35.200 were coming to the market through SPACs. And you know, 0:18:35.400 --> 0:18:38.280 Kathy did a really good job of capitalizing on that 0:18:38.400 --> 0:18:42.159 interest and offering a really simple way to get exposure, 0:18:42.520 --> 0:18:44.800 you know, not to any specific stock, but to this 0:18:44.920 --> 0:18:48.560 idea of disruptive innovation, right, And that's a theme that 0:18:48.760 --> 0:18:51.040 really appeals to a lot of folks, you know, a 0:18:51.119 --> 0:18:53.199 lot of young folks, but not just young folks, right. 0:18:53.320 --> 0:18:56.560 And she uh, you know, she's charismatic, and she doesn't 0:18:56.560 --> 0:18:59.800 did a great job on TV, and she was able 0:18:59.840 --> 0:19:03.320 to tracked huge inflows. And of course the trick with 0:19:03.359 --> 0:19:05.360 all of that is, you know, I mean, she's made 0:19:05.359 --> 0:19:07.480 a tremendous amount of money, and good for her, but 0:19:07.640 --> 0:19:10.320 on on management fees, on those on those vehicles, but 0:19:10.359 --> 0:19:12.760 if you look at kind of the net capital destruction 0:19:13.160 --> 0:19:16.399 in the process, that's been enormous, right, because she was 0:19:16.520 --> 0:19:20.520 you know, those inflows were partly responsible, among lots of 0:19:20.520 --> 0:19:23.159 other types of things for driving up the prices of 0:19:23.200 --> 0:19:26.520 many of those types of companies dramatically and and ultimately 0:19:26.560 --> 0:19:28.480 way way way out of line with any kind of 0:19:28.920 --> 0:19:32.400 probability of success and probability and monetization. I just had 0:19:32.440 --> 0:19:35.359 this sort of realization actually I've never really thought about 0:19:35.440 --> 0:19:38.920 before until Tracy's question about like narratives and wide tech, 0:19:38.920 --> 0:19:42.160 because it seems to me. The other area where you 0:19:42.200 --> 0:19:46.040 see this is commodities, where there's like incredible stories that 0:19:46.080 --> 0:19:48.800 people tell, Like peak oil was a huge one, the 0:19:49.200 --> 0:19:52.480 endless Rise of China was another one. We're not going 0:19:52.560 --> 0:19:55.359 to have enough copper and lithium for the demand for 0:19:55.440 --> 0:19:57.720 evs for the next ten years. And then of course 0:19:57.720 --> 0:20:00.480 you have all like you know, the hucksters and fine 0:20:00.920 --> 0:20:03.960 financiers who's like, you know, give us your money for 0:20:04.000 --> 0:20:06.200 this mining project up with the Yukon where we're gonna 0:20:06.200 --> 0:20:08.320 strike gold or whatever. It feels like in a way 0:20:08.359 --> 0:20:11.000 like commodities and now we're like in this commodity cycle, 0:20:11.040 --> 0:20:13.560 like and like tech are like these like evil twin 0:20:13.680 --> 0:20:17.040 brothers or like distant cousins where it's like, as a society, 0:20:17.119 --> 0:20:23.160 we oscillate between a tech cycle nineties, commodity cycle, two 0:20:23.200 --> 0:20:25.919 thousand's tech, the twenty tens, where we just sort of 0:20:25.920 --> 0:20:28.600 like passed back and forth between, Like are we in 0:20:28.640 --> 0:20:31.600 a tech story cycle or commodity story cycle. I don't 0:20:31.600 --> 0:20:33.399 know if that's a question, just sort of something I'm like, 0:20:33.760 --> 0:20:36.280 it seems like there's like these big, big swings that 0:20:36.320 --> 0:20:38.880 go back and forth between the two. It's totally true. 0:20:38.880 --> 0:20:41.240 I mean commodities since the beginning of time have been 0:20:41.359 --> 0:20:45.719 just the massive, most massive like cyclical boom bust area 0:20:45.880 --> 0:20:49.320 right where you have shortages and prices get driven up 0:20:49.359 --> 0:20:54.439 and people and companies hoarde and then eventually that leads 0:20:54.480 --> 0:20:58.920 to an economic downturn and commodity prices collapse and there's 0:20:58.920 --> 0:21:01.159 a huge gluts. And this is you know, not a 0:21:01.200 --> 0:21:03.480 new thing, and it's a perpetual thing. But to your point, 0:21:03.480 --> 0:21:05.840 it gets tied up in all kinds of narratives that 0:21:05.880 --> 0:21:09.360 people create around how you know, we're going to run 0:21:09.359 --> 0:21:11.280 out of fossil fuels and oil prices are going to 0:21:11.359 --> 0:21:14.560 go to infinity and then the and it goes back 0:21:14.600 --> 0:21:16.200 and forth and back and forth, and we're doing it 0:21:16.240 --> 0:21:20.160 again now of course, right, and I think, um, there's there. 0:21:20.160 --> 0:21:22.560 It's compliments in a in a it's in some sense 0:21:22.560 --> 0:21:25.879 commodities are like this very simple fundamental thing as compared 0:21:25.920 --> 0:21:28.880 to technology, right, But they get tied up in these 0:21:28.880 --> 0:21:32.040 macro stories, which you know, macro is always really hard, 0:21:32.119 --> 0:21:34.359 right because you know the world is changing, and you 0:21:34.400 --> 0:21:37.160 always can have some conception of you know, the way 0:21:37.160 --> 0:21:39.240 in which the world is changing and why it's going 0:21:39.280 --> 0:21:42.400 to lead to this huge extrapolation. So this actually sort 0:21:42.440 --> 0:21:44.520 of gets to my next question, how do you know 0:21:44.560 --> 0:21:48.960 who's just a storyteller in real time versus someone who 0:21:49.200 --> 0:21:52.600 is actually correctly identifying a new trend. Because you know, 0:21:52.640 --> 0:21:55.320 you mentioned Warren Buffett in the beginning. He was wrong 0:21:55.840 --> 0:21:59.080 and it's like not all of like the Curmudgeons on 0:21:59.160 --> 0:22:02.399 a certain area get vindicated in the end. He was 0:22:02.480 --> 0:22:06.159 wrong to dismiss the Googles and the you know, the 0:22:06.240 --> 0:22:10.240 facebooks in he ended up making a fortune on Apple 0:22:10.440 --> 0:22:12.879 and sort of like erased a bunch of like you 0:22:12.880 --> 0:22:15.280 know that compensated for a bunch, But he was wrong 0:22:15.359 --> 0:22:19.080