1 00:00:13,480 --> 00:00:17,560 Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast. 2 00:00:17,680 --> 00:00:19,880 Speaker 1: My name is Mike Reagan. I'm a senior editor at 3 00:00:19,880 --> 00:00:23,720 Speaker 1: Bloomberg and Humble Donna higher Across Asset Report at Bloomberg, 4 00:00:24,280 --> 00:00:27,600 Speaker 1: and this week on the show, Well, crypto is raging again. 5 00:00:27,800 --> 00:00:31,200 Speaker 1: Stocks are near record highs thanks to just a handful 6 00:00:31,240 --> 00:00:35,040 Speaker 1: of companies really, and Tesla's market cap has surged past 7 00:00:35,080 --> 00:00:38,040 Speaker 1: the one trillion dollar mark. It really makes you think, 8 00:00:38,240 --> 00:00:40,839 Speaker 1: do you have to worry about being in a bubble again? What? 9 00:00:41,000 --> 00:00:42,960 Speaker 1: We'll get into it with one of the best known 10 00:00:43,080 --> 00:00:47,199 Speaker 1: experts in fundamental investing. But first, Phil Donna, I have 11 00:00:47,400 --> 00:00:50,920 Speaker 1: to ask you about your adventure in n f T 12 00:00:51,159 --> 00:00:53,440 Speaker 1: Land this week. I know, they actually allowed you to 13 00:00:53,520 --> 00:00:55,800 Speaker 1: turn your computer off for once. I think it's the 14 00:00:55,840 --> 00:00:59,000 Speaker 1: first time your computer has been off in about eighteen 15 00:00:59,000 --> 00:01:01,520 Speaker 1: months or so, a year and a half, a year 16 00:01:01,520 --> 00:01:04,560 Speaker 1: and a half and you you you literally stopped typing 17 00:01:04,560 --> 00:01:06,680 Speaker 1: and they let you go to the n f T 18 00:01:07,560 --> 00:01:13,040 Speaker 1: Non Fungible Token Conference in New York. What was that like? Yeah, 19 00:01:13,200 --> 00:01:16,560 Speaker 1: it was my first conference where I actually was with 20 00:01:16,680 --> 00:01:19,560 Speaker 1: other people, because I've been to a bunch of you know, 21 00:01:19,720 --> 00:01:22,959 Speaker 1: virtual conferences over the last couple of months, but um, 22 00:01:23,000 --> 00:01:26,119 Speaker 1: it was it was strange to be around people. First 23 00:01:26,120 --> 00:01:29,200 Speaker 1: of all, the second of all, the big the main 24 00:01:29,280 --> 00:01:35,000 Speaker 1: event really was the after parties after the conference, and 25 00:01:35,040 --> 00:01:37,360 Speaker 1: I hadn't realized that going in. So they were like 26 00:01:37,640 --> 00:01:41,160 Speaker 1: twenty or thirty or some crazy amount of parties and 27 00:01:41,200 --> 00:01:46,240 Speaker 1: everybody was just party hopping afterwards and talking about n 28 00:01:46,280 --> 00:01:49,160 Speaker 1: f t s and cryptos and all kinds of stuff. 29 00:01:49,760 --> 00:01:52,400 Speaker 1: I think that's the deal with all crypto conferences. It's 30 00:01:52,480 --> 00:01:58,520 Speaker 1: just some whatever panel and then some big nightclub spectacle. Yeah, exactly, 31 00:01:58,960 --> 00:02:00,600 Speaker 1: I had I had no I do you going in? 32 00:02:00,760 --> 00:02:03,680 Speaker 1: So you know, I got invites to parties for the 33 00:02:03,720 --> 00:02:07,080 Speaker 1: first time in my life, the first time. I do 34 00:02:10,360 --> 00:02:12,280 Speaker 1: wish you here is our guest. Let's bring him in 35 00:02:12,680 --> 00:02:15,440 Speaker 1: built out a britroduce our guests. Yeah, I'm so happy 36 00:02:15,520 --> 00:02:17,640 Speaker 1: to have Rob are not joined us. He's the founder 37 00:02:17,680 --> 00:02:21,000 Speaker 1: and chairman of Research Affiliates. Thanks so much for coming back. 38 00:02:21,680 --> 00:02:24,600 Speaker 1: Oh it's a privilege. And Rob, you're in Austin. I 39 00:02:24,639 --> 00:02:27,079 Speaker 1: believe right, you're getting some some traveling this week, Is 40 00:02:27,080 --> 00:02:30,519 Speaker 1: that right? I have been on one of my first 41 00:02:30,720 --> 00:02:35,720 Speaker 1: business trips in the last eighteen months and visited Arizona 42 00:02:35,760 --> 00:02:37,480 Speaker 1: in Texas, and I have a couple of sons in 43 00:02:37,560 --> 00:02:42,520 Speaker 1: tech in Austin, so I'm spending the weekend here. Oh good, enjoy, Robert. 44 00:02:42,639 --> 00:02:44,400 Speaker 1: I want to bring you in on that notion of 45 00:02:44,480 --> 00:02:47,680 Speaker 1: bubbles Uh. I was reading one of the slide deck guy. 46 00:02:47,800 --> 00:02:51,880 Speaker 1: I think you had his a presentation recently. We're maybe 47 00:02:51,880 --> 00:02:54,160 Speaker 1: it's just on your website. I'm not sure, but I 48 00:02:54,280 --> 00:03:00,960 Speaker 1: was sort of fascinating by one one slide in the deck. Say, uh, 49 00:03:01,120 --> 00:03:04,280 Speaker 1: we're talking about the notion of bubbles um. You say, 50 00:03:04,320 --> 00:03:08,880 Speaker 1: We'll offer a simple two part definition. One, we're using 51 00:03:08,880 --> 00:03:13,160 Speaker 1: a value valuation model, for example, discounted cash flow model. 52 00:03:13,200 --> 00:03:18,359 Speaker 1: We must make implausibly optimistic assumptions in order to justify prices. 53 00:03:19,160 --> 00:03:23,000 Speaker 1: And then number two is the marginal buyer doesn't care 54 00:03:23,040 --> 00:03:27,160 Speaker 1: about evaluation models. I wonder to me, number two seems 55 00:03:27,200 --> 00:03:31,480 Speaker 1: to be usually the case when you enter bubble territories, 56 00:03:32,080 --> 00:03:35,480 Speaker 1: people just turn off the logic, They turn off, sort 57 00:03:35,480 --> 00:03:38,440 Speaker 1: of turn these models off or just ignormal. Is that 58 00:03:38,920 --> 00:03:41,600 Speaker 1: is that that your opinion of what usually happens? And 59 00:03:41,880 --> 00:03:45,480 Speaker 1: are we seeing any any signs of that right now? Um, 60 00:03:45,520 --> 00:03:48,680 Speaker 1: of course we're seeing signs of that, and when it 61 00:03:48,760 --> 00:03:53,520 Speaker 1: comes to people ignoring valuation models, that is characteristic of bubbles. 62 00:03:53,640 --> 00:03:55,840 Speaker 1: That's there really is a cross check on the first one. 63 00:03:55,880 --> 00:03:58,560 Speaker 1: I mean, there are people who will say, gosh, you'd 64 00:03:58,560 --> 00:04:01,560 Speaker 1: have to make implausible assumption is about Microsoft to justify 65 00:04:01,560 --> 00:04:07,480 Speaker 1: its current market cap? Um? Okay maybe, But is the 66 00:04:07,520 --> 00:04:14,000 Speaker 1: marginal buyer uh an unsophisticated investor who doesn't care about 67 00:04:14,080 --> 00:04:20,880 Speaker 1: valuation hardly, and so you can readily scratch that off 68 00:04:20,880 --> 00:04:23,760 Speaker 1: the list. With Apple, uh, you don't even have to 69 00:04:23,760 --> 00:04:28,120 Speaker 1: make implausible assumptions. You just have to make moderately aggressive 70 00:04:28,120 --> 00:04:32,200 Speaker 1: assumptions and you can easily justify the price. When it 71 00:04:32,200 --> 00:04:37,440 Speaker 1: comes to things like Tesla and Zelo and u uh, Netflix, 72 00:04:37,480 --> 00:04:41,680 Speaker 1: you have to make very, very very aggressive assumptions. Uh 73 00:04:41,760 --> 00:04:45,000 Speaker 1: I debated Cathy would about a month ago at at 74 00:04:45,400 --> 00:04:49,640 Speaker 1: morning Star conference and um I asked her, what's your 75 00:04:49,720 --> 00:04:54,400 Speaker 1: valuation model that would justify a target price of three thousand, 76 00:04:55,240 --> 00:04:59,039 Speaker 1: and she said, well, that's simple. Um, it's gonna grow 77 00:04:59,080 --> 00:05:04,120 Speaker 1: eighty nine year for the next five years, and um, 78 00:05:04,160 --> 00:05:05,680 Speaker 1: at the end of the five years, it will be 79 00:05:05,760 --> 00:05:09,960 Speaker 1: valued at the same multiples as today's fang stocks. And 80 00:05:10,120 --> 00:05:12,720 Speaker 1: I was thinking at the time, I've been asked to 81 00:05:12,760 --> 00:05:16,800 Speaker 1: play nice, but I was thinking at the time, Uh, 82 00:05:17,640 --> 00:05:22,359 Speaker 1: a year for five years, that is umfold growth. So 83 00:05:23,560 --> 00:05:25,400 Speaker 1: is she really saying it will be twenty five times 84 00:05:25,400 --> 00:05:28,760 Speaker 1: as large in just five years as it is today? Amazon, 85 00:05:29,200 --> 00:05:33,520 Speaker 1: the biggest growth story of a generation, grew fourteenfold in 86 00:05:33,520 --> 00:05:38,600 Speaker 1: the last ten years, So tescitly, she's assuming twice Amazon's 87 00:05:38,680 --> 00:05:44,360 Speaker 1: growth um in half as many years. That's really aggressive. 88 00:05:45,120 --> 00:05:48,440 Speaker 1: So when I hear numbers like that, I think, Okay, 89 00:05:48,520 --> 00:05:54,440 Speaker 1: that's implausible, and therefore it's potentially bubble territory. How many 90 00:05:54,480 --> 00:05:59,000 Speaker 1: people use a valuation model to justify buying hardly anyone, 91 00:05:59,720 --> 00:06:04,760 Speaker 1: and so that qualifies for the definition. Well, Rob just 92 00:06:05,120 --> 00:06:07,560 Speaker 1: I'm gonna pull up Mike greag in here and ask 93 00:06:07,560 --> 00:06:10,279 Speaker 1: you a multipart question. But I was I was really 94 00:06:10,320 --> 00:06:13,200 Speaker 1: listening to the episode the last time you were on 95 00:06:13,200 --> 00:06:16,080 Speaker 1: on this podcast, and I believe you had mentioned the 96 00:06:16,120 --> 00:06:20,159 Speaker 1: Tesla example. Uh, and I think you had said in 97 00:06:20,240 --> 00:06:24,000 Speaker 1: the market, we're seeing microbubbles all the time, and correct 98 00:06:24,040 --> 00:06:26,720 Speaker 1: me if I got the term wrong. And then I 99 00:06:26,760 --> 00:06:28,720 Speaker 1: was what I was looking through one of your your 100 00:06:28,760 --> 00:06:31,600 Speaker 1: slide decks that you had put together recently, and you 101 00:06:31,640 --> 00:06:35,279 Speaker 1: had said something like, you know, what is an anti bubble? 102 00:06:35,320 --> 00:06:38,240 Speaker 1: So I'm hoping you can describe to us what you're 103 00:06:38,480 --> 00:06:41,640 Speaker 1: what you see going on, what you might consider a 104 00:06:41,640 --> 00:06:45,080 Speaker 1: bubble or a microbubble. Uh and uh And what exactly 105 00:06:45,120 --> 00:06:48,920 Speaker 1: is an anti bubble? Well, firstly, microbubbles are single asset 106 00:06:48,960 --> 00:06:52,440 Speaker 1: bubbles um tesla. If you buy into the notion that 107 00:06:52,480 --> 00:06:56,240 Speaker 1: it's a bubble, as we do, um, there's a microbubble, 108 00:06:56,360 --> 00:07:01,880 Speaker 1: is just one asset? Tech? Is it a bubble? Nope, Tech, 109 00:07:01,960 --> 00:07:06,000 Speaker 1: there's lots of companies where people use valuation models to 110 00:07:06,080 --> 00:07:11,240 Speaker 1: justify buying uh and uh. You have to make aggressive 111 00:07:11,280 --> 00:07:16,080 Speaker 1: assumptions to collectively justify today's tech waiting in the indexes. 112 00:07:16,560 --> 00:07:19,640 Speaker 1: But you don't have to use implausible assumptions. So it's 113 00:07:19,680 --> 00:07:21,960 Speaker 1: not quite like the tech bubble of two thousand in 114 00:07:21,960 --> 00:07:29,520 Speaker 1: that regard um. Anti bubbles are markets or investments where 115 00:07:30,200 --> 00:07:34,200 Speaker 1: you would have to make implausibly pessimistic assumptions in order 116 00:07:34,240 --> 00:07:38,640 Speaker 1: to not earn a decent return. So let me give 117 00:07:38,680 --> 00:07:43,280 Speaker 1: you an example. Um state owned enterprises in China and Russia. 118 00:07:43,680 --> 00:07:48,680 Speaker 1: The narrative is, don't buy these. These are state owned. 119 00:07:48,960 --> 00:07:53,120 Speaker 1: The state has the right and the power to appropriate 120 00:07:53,160 --> 00:07:57,120 Speaker 1: your wealth at will, and you could put money there 121 00:07:57,240 --> 00:08:01,560 Speaker 1: and get nothing. Absolutely true, Like most narratives, that's true. 122 00:08:02,480 --> 00:08:06,120 Speaker 1: But if they want continued access to global capital, the 123 00:08:06,200 --> 00:08:09,880 Speaker 1: likelihood is they'll continue the current dividends, they'll increase them 124 00:08:09,880 --> 00:08:13,000 Speaker 1: with the growth of the economy, and you won't get 125 00:08:13,080 --> 00:08:16,440 Speaker 1: much more than that. Okay, what's the yield on s 126 00:08:16,480 --> 00:08:21,480 Speaker 1: O s in China and Russia? It's about five If 127 00:08:21,520 --> 00:08:24,560 Speaker 1: it grows with inflation, let alone growing with the economy. 128 00:08:24,560 --> 00:08:28,400 Speaker 1: That's a five percent real return. M hm our work 129 00:08:28,480 --> 00:08:31,400 Speaker 1: suggests that real returns in bond markets around the world 130 00:08:31,440 --> 00:08:36,280 Speaker 1: are negative and in stock markets in the US barely positive. 131 00:08:36,679 --> 00:08:42,080 Speaker 1: So is a five real return pretty good? Yeah, you'd 132 00:08:42,080 --> 00:08:47,520 Speaker 1: have to make implausible assumptions not to justify buying. And 133 00:08:47,640 --> 00:08:54,080 Speaker 1: does the marginal seller care about valuation models? No, they're 134 00:08:54,080 --> 00:09:05,600 Speaker 1: selling because of the narrative. They know they're cheap. So 135 00:09:05,679 --> 00:09:07,840 Speaker 1: if you're in either a bubble or an anti bubble, 136 00:09:07,880 --> 00:09:11,200 Speaker 1: and you this notion that the marginal buyer seller just 137 00:09:12,520 --> 00:09:16,320 Speaker 1: is ignoring the valuation models, at least that's part of it. 138 00:09:16,640 --> 00:09:19,600 Speaker 1: I mean, I'm guessing eventually, you know, what happens is 139 00:09:19,640 --> 00:09:23,480 Speaker 1: something sort of you know, shakes people up and you 140 00:09:23,760 --> 00:09:27,559 Speaker 1: sort of revert to caring about valuations again and correct 141 00:09:27,600 --> 00:09:29,400 Speaker 1: me if I'm wrong about any of this. But you know, 142 00:09:29,480 --> 00:09:32,120 Speaker 1: to me, the main candidate that would do that in 143 00:09:32,160 --> 00:09:35,200 Speaker 1: this instance, a lot of people would would claim would 144 00:09:35,200 --> 00:09:39,360 Speaker 1: be the Fed changing policy. And um, we did get 145 00:09:39,400 --> 00:09:42,480 Speaker 1: a little hint this week, uh more than a hint. 146 00:09:42,480 --> 00:09:44,760 Speaker 1: You know, the Fed is basically coming out and saying 147 00:09:45,000 --> 00:09:48,679 Speaker 1: they do plan the taper asset purchases. Um, is that 148 00:09:48,800 --> 00:09:51,240 Speaker 1: enough to do it? Or you know, is the policy 149 00:09:51,320 --> 00:09:54,920 Speaker 1: still for the foreseeable future so loose that it shouldn't 150 00:09:54,960 --> 00:09:58,280 Speaker 1: really sort of slap some sense back into the market 151 00:09:58,840 --> 00:10:03,160 Speaker 1: right away, Cattle. This question is a fun one, um, 152 00:10:03,200 --> 00:10:05,560 Speaker 1: because whatever the catalyst is, it's got to come as 153 00:10:05,559 --> 00:10:08,959 Speaker 1: a surprise to the market. And what the market is 154 00:10:09,040 --> 00:10:15,160 Speaker 1: unsurprised by is already baked into the price. So FED tapering, No, 155 00:10:15,559 --> 00:10:19,640 Speaker 1: that's not a catalyst because it's totally expected. Um, But 156 00:10:19,720 --> 00:10:21,840 Speaker 1: it is a fun parlor game to guess what the 157 00:10:21,880 --> 00:10:27,600 Speaker 1: catalyst could be rising interest rates in the years ahead 158 00:10:28,080 --> 00:10:32,000 Speaker 1: if that happens. There's a narrative out there that says 159 00:10:32,040 --> 00:10:37,160 Speaker 1: growth stocks are worth a lot of money because you're 160 00:10:37,240 --> 00:10:41,320 Speaker 1: discounting future growth at a very low rate, well below 161 00:10:41,400 --> 00:10:45,800 Speaker 1: the growth rate, and so the value of future growth 162 00:10:46,200 --> 00:10:50,480 Speaker 1: goes through the roof. No wonder these stocks are expensive. Well, 163 00:10:50,480 --> 00:10:52,640 Speaker 1: it turns out if you go back historically and asked 164 00:10:52,679 --> 00:10:57,319 Speaker 1: did changes in real rates effect the relative performance of 165 00:10:57,360 --> 00:10:59,920 Speaker 1: growth and value, the answer is no. It's a right 166 00:11:00,679 --> 00:11:05,200 Speaker 1: random relationship. There is no evident linkage in the data. 167 00:11:05,440 --> 00:11:10,440 Speaker 1: So when you have a narrative that says growth stocks 168 00:11:10,440 --> 00:11:14,240 Speaker 1: are starting because interest rates are falling, UH, it becomes 169 00:11:14,240 --> 00:11:18,640 Speaker 1: a self fulfilling prophecy until it doesn't. And if it's 170 00:11:18,679 --> 00:11:23,520 Speaker 1: a narrative that is incorrect, the self fulfilling prophecy is 171 00:11:23,559 --> 00:11:28,680 Speaker 1: a self fulfilling prophecy that is in error, creating an inefficiency, 172 00:11:28,760 --> 00:11:32,560 Speaker 1: creating a miss price, and creating an opportunity. So I 173 00:11:32,640 --> 00:11:36,680 Speaker 1: look at that and I think, well, one catalyst for 174 00:11:37,400 --> 00:11:41,600 Speaker 1: um FANG type stocks to take a hit would be 175 00:11:41,840 --> 00:11:46,880 Speaker 1: rising interest rates. Another catalyst would be gosh, these companies 176 00:11:46,920 --> 00:11:50,560 Speaker 1: have done awfully well partly because of COVID. Most of 177 00:11:50,559 --> 00:11:54,600 Speaker 1: them are extraordinarily well positioned for a world UH with 178 00:11:54,720 --> 00:11:58,120 Speaker 1: a pandemic. Most of them are well positioned for the 179 00:11:58,200 --> 00:12:03,160 Speaker 1: aftermath of the pandemic because behaviors will change in their favor. Well, 180 00:12:03,200 --> 00:12:08,360 Speaker 1: that's good, um. But by the same token, uh, I 181 00:12:08,440 --> 00:12:13,280 Speaker 1: love to ask the question, what's what problems are we 182 00:12:13,400 --> 00:12:17,760 Speaker 1: facing today that will be facing still in five years 183 00:12:17,760 --> 00:12:20,839 Speaker 1: and what are going to be irrelevant in five years? 184 00:12:21,440 --> 00:12:25,520 Speaker 1: Is COVID going to be uh stalking the world as 185 00:12:26,160 --> 00:12:30,640 Speaker 1: uh a lethal death machine five years from now? No, 186 00:12:31,240 --> 00:12:34,920 Speaker 1: We'll have global herd immunity by then. It'll still kill people, 187 00:12:35,160 --> 00:12:39,760 Speaker 1: but not in vast numbers. Um. Is our supply chain 188 00:12:39,800 --> 00:12:44,640 Speaker 1: disruption is going to be uh make breaking havoc with 189 00:12:45,440 --> 00:12:48,800 Speaker 1: global economy five years from now? No? No, I mean 190 00:12:48,840 --> 00:12:51,719 Speaker 1: that's a perfect example of the kind of thing that 191 00:12:51,720 --> 00:12:56,840 Speaker 1: that a healthy economy figures out a fixed reasonably quickly. 192 00:12:57,320 --> 00:13:01,200 Speaker 1: Are demographics still going to be an issue? Uh five 193 00:13:01,280 --> 00:13:04,000 Speaker 1: years from now? My goodness? Yes? How often do you 194 00:13:04,040 --> 00:13:08,840 Speaker 1: hear the media talking about the demography um our, debt 195 00:13:08,840 --> 00:13:11,160 Speaker 1: and deficit going to be an issue five years from now? 196 00:13:11,760 --> 00:13:16,760 Speaker 1: My goodness? Yes? And so it helps you focus on 197 00:13:16,840 --> 00:13:23,280 Speaker 1: which relationships, which narratives deserve attention and which may just 198 00:13:23,400 --> 00:13:29,200 Speaker 1: be roiling markets creating opportunities for you to contratrade. I 199 00:13:29,200 --> 00:13:31,280 Speaker 1: want to take us back to something Mike mentioned in 200 00:13:31,320 --> 00:13:34,280 Speaker 1: your introduction, which is that we're being pulled higher by 201 00:13:34,440 --> 00:13:36,679 Speaker 1: just a handful of stocks, And I know it's something 202 00:13:36,720 --> 00:13:39,720 Speaker 1: you focus a lot on and you've written about this 203 00:13:40,120 --> 00:13:42,960 Speaker 1: quite a bit, so I'm I'm hoping you could break 204 00:13:43,000 --> 00:13:46,480 Speaker 1: down for us what the concerns are around that, and 205 00:13:46,480 --> 00:13:50,440 Speaker 1: then maybe you slightly hinted at the next part of 206 00:13:50,440 --> 00:13:54,400 Speaker 1: my question, which is something we don't really hear about 207 00:13:54,559 --> 00:13:58,559 Speaker 1: very frequently, which is what what actually might make that 208 00:13:59,000 --> 00:14:03,000 Speaker 1: trend come apart? If that makes sense, it's under what 209 00:14:03,040 --> 00:14:05,079 Speaker 1: what what would need to happen for the Big five 210 00:14:05,400 --> 00:14:10,760 Speaker 1: to not be pulling stocks higher all the time? Well, firstly, 211 00:14:10,920 --> 00:14:15,920 Speaker 1: plain old gravity can come into play. Uh. I'm often asked, uh, 212 00:14:15,960 --> 00:14:19,320 Speaker 1: what finished off the tech bubble in the year two thousand. 213 00:14:19,800 --> 00:14:24,680 Speaker 1: I have yet to hear are really compelling, uh, catalyst 214 00:14:24,840 --> 00:14:28,520 Speaker 1: that could have caused the tech bubble to burst other 215 00:14:28,600 --> 00:14:32,760 Speaker 1: than gravity? And so part of it may just be gravity. Now, 216 00:14:32,760 --> 00:14:34,960 Speaker 1: you've got to be careful with bubbles because they can 217 00:14:35,000 --> 00:14:40,880 Speaker 1: go far longer and carry much further than anyone might expect. 218 00:14:41,680 --> 00:14:44,960 Speaker 1: My favorite example is the Zimbabwe stock market during their 219 00:14:45,040 --> 00:14:48,600 Speaker 1: hyper inflation in two thousand eight. As you came into summer, 220 00:14:48,680 --> 00:14:53,200 Speaker 1: you might have said this, country's got hyper inflation. It's 221 00:14:53,240 --> 00:14:56,520 Speaker 1: a mess. I want to not only do I want 222 00:14:56,520 --> 00:14:58,960 Speaker 1: to not own that that stock market, I'm gonna short 223 00:14:58,960 --> 00:15:01,800 Speaker 1: sell it, but I don't know much about it, So 224 00:15:01,840 --> 00:15:03,960 Speaker 1: I'm going to short sell two percent of my net worth. 225 00:15:04,960 --> 00:15:08,080 Speaker 1: Well over the next six weeks, their currency fell tenfold 226 00:15:09,200 --> 00:15:13,520 Speaker 1: and their stock market went up five hundred fold, five 227 00:15:13,720 --> 00:15:18,560 Speaker 1: hundred fold, which means in US dollar terms, fiftyfold, which 228 00:15:18,600 --> 00:15:21,800 Speaker 1: means you're short position just cost you a percent of 229 00:15:21,840 --> 00:15:25,160 Speaker 1: your net worth. Eight weeks later, the currency had fallen 230 00:15:25,200 --> 00:15:29,680 Speaker 1: another hundred fold and the stock market basically went to 231 00:15:29,800 --> 00:15:32,840 Speaker 1: zero and stop trading. So you were right, but bankrupt. 232 00:15:33,120 --> 00:15:38,840 Speaker 1: Be very careful about bubbles. Now the we look at 233 00:15:38,880 --> 00:15:43,239 Speaker 1: the fangs, we actually broaden it to include Apple and Microsoft, 234 00:15:43,280 --> 00:15:47,600 Speaker 1: the big winners from the first tech bubble. And what 235 00:15:47,640 --> 00:15:50,360 Speaker 1: we find is those six companies, which we refer to 236 00:15:50,400 --> 00:15:53,320 Speaker 1: as the fan mags, are worth more than the top 237 00:15:53,360 --> 00:15:57,000 Speaker 1: five companies in the SMP five hundred. Why because the 238 00:15:57,040 --> 00:16:00,080 Speaker 1: top five are all in the fan mags. Five of 239 00:16:00,120 --> 00:16:04,800 Speaker 1: the six are the top five companies in the SMP UM. 240 00:16:04,840 --> 00:16:08,720 Speaker 1: This level of concentration has not been seen since the 241 00:16:08,840 --> 00:16:14,200 Speaker 1: late forties or early fifties. Um. And what's interesting is 242 00:16:14,240 --> 00:16:18,480 Speaker 1: the total value of these six companies is approximately eight 243 00:16:18,480 --> 00:16:22,360 Speaker 1: and a half trillion dollars. All right, that's just a 244 00:16:22,400 --> 00:16:25,440 Speaker 1: really big number. Um. How do we put it into 245 00:16:25,440 --> 00:16:29,160 Speaker 1: a context. Well, the entire stock market of Japan is 246 00:16:29,200 --> 00:16:35,680 Speaker 1: six trillion, So you can buy Japan for these six companies. Uh. 247 00:16:35,960 --> 00:16:42,120 Speaker 1: The three largest economies in Europe Germany, France and the UK, 248 00:16:43,160 --> 00:16:50,600 Speaker 1: with collectively nearly two hundred million citizens, worth less than 249 00:16:51,720 --> 00:16:55,200 Speaker 1: the fan max. So I look at that and I think, gosh, 250 00:16:55,240 --> 00:17:01,000 Speaker 1: that seems awfully stretched and so um, I view that 251 00:17:01,080 --> 00:17:05,760 Speaker 1: as kind of classic bubble territory. But like I said, 252 00:17:05,960 --> 00:17:08,000 Speaker 1: bubbles can go on for a long time and can 253 00:17:08,080 --> 00:17:11,800 Speaker 1: carry a long way. This is not a totally serious question, 254 00:17:11,840 --> 00:17:14,280 Speaker 1: but I have you know you mentioned fanmags, and I 255 00:17:14,320 --> 00:17:17,360 Speaker 1: know on Twitter there were so many jokes after Facebook 256 00:17:17,480 --> 00:17:19,760 Speaker 1: changed its name to Meta. I don't know if you 257 00:17:19,800 --> 00:17:27,159 Speaker 1: guys are reconsidering a new acronym. Uh no, um uh. 258 00:17:27,680 --> 00:17:34,280 Speaker 1: We may want to replace Netflix with Tesla uh, which 259 00:17:34,320 --> 00:17:38,400 Speaker 1: would turn it into fat mag. But never mind that 260 00:17:38,400 --> 00:17:44,240 Speaker 1: that's a nice ring to it. Rob. So for listeners 261 00:17:44,280 --> 00:17:47,440 Speaker 1: who aren't familiar with research affiliates, I mean a lot 262 00:17:47,520 --> 00:17:52,040 Speaker 1: of your pioneering work is fundamental indexing, UH waiting an 263 00:17:52,040 --> 00:17:56,320 Speaker 1: index based on the true fundamentals of a company rather 264 00:17:56,440 --> 00:17:59,720 Speaker 1: than just a market cap index, uh like the sp 265 00:17:59,840 --> 00:18:05,160 Speaker 1: F under um. But with so many investors just going 266 00:18:05,240 --> 00:18:09,640 Speaker 1: passively into an S and P five hundred fund um 267 00:18:10,040 --> 00:18:14,120 Speaker 1: regardless of the you know, the collected wisdom of fundamental indexing, 268 00:18:14,520 --> 00:18:16,960 Speaker 1: does it just make it such an uphill task to 269 00:18:16,960 --> 00:18:19,920 Speaker 1: to go against that flow? You know what I mean? 270 00:18:20,160 --> 00:18:22,919 Speaker 1: And and is you know, speaking of self fulfilling prophecies. 271 00:18:23,000 --> 00:18:26,159 Speaker 1: Does it just you know, it's hard to take the 272 00:18:26,200 --> 00:18:27,800 Speaker 1: other side of that trade, is what I'm saying. With 273 00:18:27,840 --> 00:18:30,720 Speaker 1: so many, so much, so much money flowing right into 274 00:18:30,720 --> 00:18:34,119 Speaker 1: market cap how do you think about that? Here's a 275 00:18:34,119 --> 00:18:38,879 Speaker 1: couple of observations. Firstly, every billion dollars flowing into index funds, 276 00:18:39,000 --> 00:18:41,480 Speaker 1: and there's a lot of billions of dollars flowing into 277 00:18:41,520 --> 00:18:46,520 Speaker 1: index fund involves two hundred million dollars moved from non 278 00:18:46,720 --> 00:18:53,120 Speaker 1: SMP members to SMP members size weighted or market cap weighted, 279 00:18:53,760 --> 00:18:57,080 Speaker 1: hence favoring the largest cap stocks, which tend to be 280 00:18:57,200 --> 00:19:01,600 Speaker 1: underweighted in most active port folios. So you're gonna have 281 00:19:01,920 --> 00:19:07,600 Speaker 1: two billion dollars flow into large cap and out of 282 00:19:07,880 --> 00:19:10,280 Speaker 1: non members of the index. So there have been those 283 00:19:10,280 --> 00:19:13,960 Speaker 1: in academia who try to quantify what's the valuation gap 284 00:19:14,119 --> 00:19:18,080 Speaker 1: difference of being a member versus a non member UM, 285 00:19:18,080 --> 00:19:21,920 Speaker 1: and it's pretty large. Now here's another factor that's just fascinating. 286 00:19:22,960 --> 00:19:25,600 Speaker 1: Stocks that are added to the S and P are 287 00:19:25,720 --> 00:19:31,560 Speaker 1: companies that have just recently soared UM. They're popular, they're beloved. 288 00:19:32,040 --> 00:19:35,439 Speaker 1: The index committee is embarrassed that they don't have it 289 00:19:35,480 --> 00:19:39,040 Speaker 1: in the index. Yet, let's fix that. And what do 290 00:19:39,119 --> 00:19:43,400 Speaker 1: they replace a company that's in free fall unloved, where 291 00:19:43,440 --> 00:19:46,640 Speaker 1: the index committee is embarrassed that it is in the index. 292 00:19:47,240 --> 00:19:50,399 Speaker 1: Tesla and a I V are beautiful case study in 293 00:19:50,440 --> 00:19:56,280 Speaker 1: that UM. Now what happens to the stocks that are added. 294 00:19:57,240 --> 00:20:00,679 Speaker 1: Tesla's an outlier. On average, they under form the market 295 00:20:00,720 --> 00:20:03,600 Speaker 1: by one to two in their first year, not much, 296 00:20:03,680 --> 00:20:09,600 Speaker 1: but underperform. The stocks that are deleted from the index 297 00:20:09,840 --> 00:20:13,600 Speaker 1: on average beat the market by two thousand basis points 298 00:20:13,600 --> 00:20:16,800 Speaker 1: twenty percentage points in the first year after they're deleted. 299 00:20:17,680 --> 00:20:19,600 Speaker 1: Now that means that if you wanted to create a 300 00:20:19,600 --> 00:20:23,040 Speaker 1: better index fund, you could just invest in the SMP 301 00:20:23,440 --> 00:20:27,120 Speaker 1: and then when SMP changes the index, write it down 302 00:20:27,160 --> 00:20:29,200 Speaker 1: on a post it note, stick it on your fridge, 303 00:20:29,600 --> 00:20:31,479 Speaker 1: look at it a year later, and say, Okay, now 304 00:20:31,480 --> 00:20:35,120 Speaker 1: I'll do the trade. That kind of utterly naive approach 305 00:20:35,200 --> 00:20:38,080 Speaker 1: gives you SMP returns plus eight team basis points a 306 00:20:38,160 --> 00:20:42,480 Speaker 1: year over the last thirty years. That's pretty cool. So, 307 00:20:42,480 --> 00:20:48,920 Speaker 1: so indexing creates inefficiencies that can be easily exploited, that 308 00:20:48,960 --> 00:21:09,199 Speaker 1: can create interesting investment opportunities. So you and I actually 309 00:21:09,200 --> 00:21:12,240 Speaker 1: talked about this, I think it was over the summer, 310 00:21:12,280 --> 00:21:15,000 Speaker 1: so a couple of months ago, and it was about 311 00:21:15,320 --> 00:21:18,680 Speaker 1: Tesla's addition, and you had done some research showing that 312 00:21:19,400 --> 00:21:21,880 Speaker 1: really large companies that are added to an index tent 313 00:21:22,080 --> 00:21:27,200 Speaker 1: to lag. You just mentioned Tesla Tesla as an outlier. 314 00:21:27,400 --> 00:21:29,520 Speaker 1: So what is your thinking on this one, because it 315 00:21:29,560 --> 00:21:33,520 Speaker 1: did just have one of its best months in the 316 00:21:33,600 --> 00:21:37,240 Speaker 1: last year and a half and it was one of 317 00:21:37,280 --> 00:21:40,560 Speaker 1: the biggest advancers in the SMP five hundred in the 318 00:21:40,560 --> 00:21:43,680 Speaker 1: month of October. So how are you thinking about it? Well, 319 00:21:44,040 --> 00:21:49,000 Speaker 1: um stocks, whether expensive or inexpensive, go up and down. 320 00:21:49,600 --> 00:21:52,800 Speaker 1: They just do. You can have cheap stocks that that 321 00:21:53,160 --> 00:21:55,840 Speaker 1: go get cheaper. You can have expensive stocks that get 322 00:21:55,880 --> 00:21:58,560 Speaker 1: more expensive, and like I said, bubbles can go further 323 00:21:58,600 --> 00:22:05,320 Speaker 1: than anyone could possibly man engent um. It's interesting when 324 00:22:05,359 --> 00:22:10,640 Speaker 1: we last spoke, Tesla was roughly flat from its being 325 00:22:10,680 --> 00:22:12,760 Speaker 1: added to the index, but the market was up about 326 00:22:14,520 --> 00:22:17,119 Speaker 1: so it was behind the market. And a I V 327 00:22:18,040 --> 00:22:23,200 Speaker 1: Apartment investment, so tiny company that does that's a reet 328 00:22:23,359 --> 00:22:27,360 Speaker 1: for for apartments. My god, have you seen how apartment 329 00:22:27,440 --> 00:22:32,600 Speaker 1: rents have soared? Okay, a I V, a company that 330 00:22:32,840 --> 00:22:39,640 Speaker 1: is a reat specializing in apartments, was up six when 331 00:22:39,720 --> 00:22:43,760 Speaker 1: we last spoke. Now, I think what's happened to rents 332 00:22:43,800 --> 00:22:46,560 Speaker 1: around the country in the last year. That's a solid 333 00:22:46,640 --> 00:22:51,040 Speaker 1: found foundation for the rebound in price. And so it 334 00:22:51,119 --> 00:22:54,040 Speaker 1: was six ahead of Tesla at the time. It's still 335 00:22:54,080 --> 00:22:58,800 Speaker 1: ahead of Tesla. It's still gone up more than Tesla has. 336 00:22:59,040 --> 00:23:05,600 Speaker 1: And so when we look at um these patterns of behavior, 337 00:23:06,080 --> 00:23:12,400 Speaker 1: when we look at um uh the way indexing royals 338 00:23:12,480 --> 00:23:17,720 Speaker 1: the markets. One of the strangest narratives coming out of 339 00:23:17,720 --> 00:23:23,680 Speaker 1: the indexing world is we don't move prices. Well, they 340 00:23:23,680 --> 00:23:27,760 Speaker 1: say that because a stock is added and the price 341 00:23:27,840 --> 00:23:32,520 Speaker 1: doesn't move when they add it. Okay, that's because it 342 00:23:32,600 --> 00:23:37,639 Speaker 1: already moved. Tesla was up between the date it was 343 00:23:37,680 --> 00:23:40,800 Speaker 1: announced and the date it was added. Why didn't some 344 00:23:40,880 --> 00:23:44,680 Speaker 1: index funds buy it when it was announced in anticipation 345 00:23:44,720 --> 00:23:47,520 Speaker 1: of it going up. They've got the world very well 346 00:23:47,600 --> 00:23:51,960 Speaker 1: trained that any tracking error, any mismatch between their performance 347 00:23:52,560 --> 00:23:55,480 Speaker 1: and the market index, is a sign of sloppiness or 348 00:23:55,520 --> 00:24:00,960 Speaker 1: even incompetence. And so they zero in on the actual 349 00:24:01,640 --> 00:24:04,200 Speaker 1: price at which the stock will come into the index. 350 00:24:04,840 --> 00:24:09,160 Speaker 1: How do they do that? They enter a blocked trade, 351 00:24:09,280 --> 00:24:13,960 Speaker 1: that is, a market on close trade. Market unclosed means, 352 00:24:14,840 --> 00:24:19,320 Speaker 1: by it, whatever the price is, no price limit, market prices, 353 00:24:19,359 --> 00:24:24,280 Speaker 1: anything goes and at unclosed means I want this to 354 00:24:24,320 --> 00:24:28,600 Speaker 1: be part of the closing price transaction. So well, over 355 00:24:28,600 --> 00:24:31,359 Speaker 1: a hundred billion dollars of Tesla changed hands in one 356 00:24:31,480 --> 00:24:38,000 Speaker 1: blocked trade at the close of December eighteen of last year. 357 00:24:38,840 --> 00:24:42,240 Speaker 1: All right, well, that's kind of interesting. Why why would 358 00:24:42,240 --> 00:24:45,560 Speaker 1: you do a market trade to lock in the price, 359 00:24:46,800 --> 00:24:49,600 Speaker 1: not to lock in the best price, to lock in 360 00:24:49,640 --> 00:24:52,639 Speaker 1: the exact price at which the stock is entering the 361 00:24:52,760 --> 00:24:57,520 Speaker 1: SMP five kind of interesting, SMP. Don't get me wrong. 362 00:24:57,920 --> 00:25:01,600 Speaker 1: SMP has done a wonderful favor for the world by 363 00:25:01,680 --> 00:25:07,399 Speaker 1: creating the world's first and largest index fund that the 364 00:25:07,520 --> 00:25:11,320 Speaker 1: normal retail investor could buy. They have shaken up the 365 00:25:11,359 --> 00:25:16,560 Speaker 1: active management arena by demonstrating that the average active manager 366 00:25:16,600 --> 00:25:20,639 Speaker 1: doesn't win. Doesn't mean that active managers can't win. But 367 00:25:20,760 --> 00:25:23,119 Speaker 1: an active manager wins only if there's a loser on 368 00:25:23,160 --> 00:25:25,400 Speaker 1: the other side of their trades. And if you ask 369 00:25:25,640 --> 00:25:28,840 Speaker 1: most active managers who's the loser on the other side 370 00:25:28,880 --> 00:25:32,439 Speaker 1: of your trade, they don't have a clue. If they 371 00:25:32,440 --> 00:25:36,440 Speaker 1: don't have a clue, they probably don't have value. Add Rob, 372 00:25:36,440 --> 00:25:39,000 Speaker 1: I wanted to before we get to our our crazy 373 00:25:39,080 --> 00:25:42,639 Speaker 1: things of the week, I wanted to UM ask you 374 00:25:42,720 --> 00:25:46,480 Speaker 1: about one of the scattered plots I saw in a 375 00:25:46,520 --> 00:25:50,520 Speaker 1: recent report of years was kind of showing where you know, 376 00:25:50,560 --> 00:25:54,520 Speaker 1: the attractive expected returns are. I couldn't help a notice 377 00:25:54,680 --> 00:25:59,040 Speaker 1: Emerging market value seems to screen very well UM on 378 00:25:59,080 --> 00:26:01,480 Speaker 1: both accesses. Alt to describe it to the chart to 379 00:26:01,560 --> 00:26:04,159 Speaker 1: two readers. You know you've got your expected return and 380 00:26:04,240 --> 00:26:10,439 Speaker 1: you're expected volatility on the X axis. UM. I know 381 00:26:10,520 --> 00:26:15,120 Speaker 1: it's not the first time e M equities have screened attractively, right, 382 00:26:15,160 --> 00:26:17,719 Speaker 1: I mean they kind of always doing. I'm wondering if 383 00:26:17,720 --> 00:26:21,280 Speaker 1: those you know, if if the one access is UH 384 00:26:21,800 --> 00:26:23,920 Speaker 1: is ruining the fun on the other access In other words, 385 00:26:24,040 --> 00:26:29,160 Speaker 1: is that expected volatility so much that for investors thinking 386 00:26:29,160 --> 00:26:32,919 Speaker 1: about risk adjusted returns that they just stay away from it, 387 00:26:32,960 --> 00:26:36,320 Speaker 1: and then you don't get the the expected return that 388 00:26:36,400 --> 00:26:39,800 Speaker 1: it's screening for. Is there is there a relationship there? 389 00:26:39,840 --> 00:26:44,840 Speaker 1: Do you think the relationship is actually more in the 390 00:26:44,880 --> 00:26:50,200 Speaker 1: camp of behavioral finance, and that is UM market prices 391 00:26:50,200 --> 00:26:53,639 Speaker 1: are set based on narratives, based on think of it 392 00:26:53,680 --> 00:27:02,960 Speaker 1: as memes UM widely accepted UH opinions that are shared 393 00:27:03,000 --> 00:27:07,439 Speaker 1: to an extent that it creates the price. Now, the 394 00:27:07,560 --> 00:27:12,720 Speaker 1: narrative in two thousand eight was emerging markets are emerging, 395 00:27:13,840 --> 00:27:19,200 Speaker 1: and you have the Arab spring and you have UH 396 00:27:19,640 --> 00:27:22,639 Speaker 1: rapid growth as far as the eye can see. And 397 00:27:23,160 --> 00:27:27,400 Speaker 1: so of course you should pay more for an emerging 398 00:27:27,440 --> 00:27:30,480 Speaker 1: markets portfolio than for U stocks. You're gonna have higher growth. 399 00:27:31,920 --> 00:27:36,679 Speaker 1: And so the Emerging Markets Index was priced at thirty 400 00:27:36,760 --> 00:27:41,640 Speaker 1: eight times the valuation UH the thirty eight times it's 401 00:27:41,760 --> 00:27:45,679 Speaker 1: ten years smoothed earnings. So think of that as a 402 00:27:45,720 --> 00:27:49,360 Speaker 1: sustainable learning space. UH. The US was at twenty eight 403 00:27:49,400 --> 00:27:53,680 Speaker 1: times pre crash, and so it was a premium to 404 00:27:53,720 --> 00:27:57,399 Speaker 1: the US. Where is it now, It's fifteen times the 405 00:27:57,480 --> 00:28:01,960 Speaker 1: US is at thirty eight. It's a discount. So the 406 00:28:02,040 --> 00:28:05,360 Speaker 1: question is what's a fair relative valuation. The fair relative 407 00:28:05,400 --> 00:28:07,760 Speaker 1: valuation when everybody thought there were no clouds on the 408 00:28:07,760 --> 00:28:12,800 Speaker 1: horizon was premium. The fair valuation when everybody thinks the 409 00:28:12,840 --> 00:28:21,919 Speaker 1: emerging markets are bumbling towards oblivion, uh is discount. Now 410 00:28:21,960 --> 00:28:25,359 Speaker 1: once again, think about a five year look ahead. The 411 00:28:25,520 --> 00:28:29,840 Speaker 1: narrative is, these countries are not well prepared for COVID. 412 00:28:29,880 --> 00:28:34,320 Speaker 1: The death rates are way higher. Um, they don't even 413 00:28:34,359 --> 00:28:38,680 Speaker 1: know how many have died, but the numbers bound to 414 00:28:38,720 --> 00:28:43,720 Speaker 1: be at least twice the reported numbers. And um, they 415 00:28:43,840 --> 00:28:47,080 Speaker 1: roll out the vaccine slowly. Uh so this is gonna 416 00:28:47,080 --> 00:28:48,920 Speaker 1: be a big problem for them. And by the way, 417 00:28:48,960 --> 00:28:51,760 Speaker 1: to supply chain disruptions do more harm to us or 418 00:28:51,840 --> 00:28:55,320 Speaker 1: to the emerging economies that depend on delivering these goods 419 00:28:55,320 --> 00:29:00,760 Speaker 1: and goods to the developed world. So these are terrible headwinds. 420 00:29:01,160 --> 00:29:07,400 Speaker 1: Five years from now, they're immunized. There is no major 421 00:29:07,720 --> 00:29:12,280 Speaker 1: problem with COVID. Supply chain disruptions are dealt with. So 422 00:29:12,360 --> 00:29:17,280 Speaker 1: now what's the fair relative valuation discount? Well, if so, 423 00:29:17,920 --> 00:29:22,800 Speaker 1: then e M is going to double. That's cool. Now 424 00:29:24,360 --> 00:29:27,160 Speaker 1: what about value the spread between growth and value and 425 00:29:27,200 --> 00:29:30,160 Speaker 1: emerging markets is an eight to one ratio. That is 426 00:29:30,200 --> 00:29:33,880 Speaker 1: to say, the valuation multiples of their high flyers is 427 00:29:33,960 --> 00:29:39,560 Speaker 1: eight times the valuation multiples of their value stocks eight 428 00:29:39,640 --> 00:29:43,160 Speaker 1: to one ratio. So what happens if that returns to 429 00:29:43,320 --> 00:29:48,160 Speaker 1: the normal four to one ratio, Well, value doubles relative 430 00:29:48,200 --> 00:29:52,560 Speaker 1: to growth, and that also means that value on a 431 00:29:52,600 --> 00:29:56,200 Speaker 1: standalone basis beats the market by another. So now instead 432 00:29:56,200 --> 00:30:01,520 Speaker 1: of doubling, now you're up a and uh, if you're 433 00:30:01,560 --> 00:30:04,560 Speaker 1: up a d over the next ten years, this is 434 00:30:04,560 --> 00:30:10,360 Speaker 1: not this is not tesla at growth. This is this 435 00:30:10,440 --> 00:30:14,719 Speaker 1: is just modest increments. A few hundred basis points from this, 436 00:30:14,880 --> 00:30:17,600 Speaker 1: a few hundred basis points from that, and you can 437 00:30:17,600 --> 00:30:21,320 Speaker 1: pretty quickly get to double digit returns on a tenure 438 00:30:21,360 --> 00:30:27,400 Speaker 1: look ahead basis. Um, I'm happy to invest in something 439 00:30:27,400 --> 00:30:32,000 Speaker 1: that's got high odds of double digit tenure returns. And 440 00:30:32,040 --> 00:30:36,120 Speaker 1: I'm sort of inferring that you would put uh, China's 441 00:30:36,160 --> 00:30:39,760 Speaker 1: regulatory crackdowns in that bucket of stuff that we're probably 442 00:30:39,760 --> 00:30:41,760 Speaker 1: not gonna be talking about in five years. I guess, 443 00:30:42,200 --> 00:30:47,320 Speaker 1: of course, now, is China going to continue down a 444 00:30:47,360 --> 00:30:52,600 Speaker 1: maoist path? They might, but they're only one emerging economy, 445 00:30:52,760 --> 00:30:59,520 Speaker 1: and in our strategy, fundamental Index for Emerging Markets UM 446 00:31:00,040 --> 00:31:03,400 Speaker 1: kinda barely rates in the teams in terms of its 447 00:31:03,440 --> 00:31:07,080 Speaker 1: weight in the cap weighted market. It's more like uh 448 00:31:07,360 --> 00:31:11,120 Speaker 1: thirty plus percent, So we wind up giving it a 449 00:31:11,120 --> 00:31:16,040 Speaker 1: halfway anyway. And that's not because we subjectively judge UH 450 00:31:16,280 --> 00:31:20,440 Speaker 1: She's policies to be wrong. It's because Chinese stocks are 451 00:31:20,440 --> 00:31:22,680 Speaker 1: expensive relative to the rest of the world, so we're 452 00:31:22,720 --> 00:31:27,320 Speaker 1: rewaiting the value down, the growth stocks down UM. The 453 00:31:27,400 --> 00:31:30,440 Speaker 1: bat stocks, by do all above inten cent they're all Chinese. 454 00:31:30,920 --> 00:31:34,440 Speaker 1: The fang stocks Facebook, Amazon, Netflix, and Google, they're all us. 455 00:31:35,200 --> 00:31:41,120 Speaker 1: The tech innovation seems concentrated in these two markets stand clear. 456 00:31:41,200 --> 00:31:45,760 Speaker 1: Of the craziest things we saw in markets this week, well, 457 00:31:46,000 --> 00:31:48,800 Speaker 1: the Donna. In our strategy here on what goes up, 458 00:31:48,880 --> 00:31:51,080 Speaker 1: we put a heavy weight on the crazy things we 459 00:31:51,120 --> 00:31:54,000 Speaker 1: saw during the week. So let's start with you. What's 460 00:31:54,000 --> 00:31:56,960 Speaker 1: the craziest thing you saw this week. It's actually tied 461 00:31:57,000 --> 00:31:59,960 Speaker 1: to my trip to the n f T conference, which 462 00:32:00,160 --> 00:32:02,800 Speaker 1: is I went to two separate panels. There was big 463 00:32:02,840 --> 00:32:06,520 Speaker 1: news from the n f T world from Quentin Tarantino, 464 00:32:07,440 --> 00:32:16,040 Speaker 1: who found his old first handwritten script for pulp fiction 465 00:32:16,560 --> 00:32:20,560 Speaker 1: and turned it into seven secret n f T s. 466 00:32:21,280 --> 00:32:24,840 Speaker 1: And so that's the craziest thing I've seen this week. 467 00:32:25,040 --> 00:32:27,720 Speaker 1: And and the way I understand it is if you 468 00:32:27,800 --> 00:32:32,200 Speaker 1: buy the n f T, what you're buying is access 469 00:32:32,240 --> 00:32:36,080 Speaker 1: to this secret content. So the n f T s 470 00:32:36,080 --> 00:32:38,600 Speaker 1: are going to have commentary from him. You're going to 471 00:32:38,680 --> 00:32:43,240 Speaker 1: be able to see I guess pages from the script. Uh, 472 00:32:43,440 --> 00:32:47,320 Speaker 1: some some scenes that had never been seen before. So 473 00:32:48,040 --> 00:32:51,720 Speaker 1: I think you're just like unlocking secret content. And maybe 474 00:32:51,720 --> 00:32:54,400 Speaker 1: our our listeners can correct me if I'm wrong. But 475 00:32:54,440 --> 00:32:57,600 Speaker 1: it's the first time I've really heard of this secret 476 00:32:57,760 --> 00:33:01,000 Speaker 1: n f T thing. I would need if they if 477 00:33:01,040 --> 00:33:03,080 Speaker 1: one of the n f T shows you what's inside 478 00:33:03,080 --> 00:33:05,600 Speaker 1: the briefcase that they carried around the whole movie, that 479 00:33:05,640 --> 00:33:08,520 Speaker 1: I might be a buyer that. But I don't know 480 00:33:08,520 --> 00:33:10,840 Speaker 1: if that's that's on the table. That's the other thing 481 00:33:10,840 --> 00:33:12,560 Speaker 1: about the secret n f T. We might never know, 482 00:33:12,920 --> 00:33:15,880 Speaker 1: because if you buy it and you choose to keep 483 00:33:15,880 --> 00:33:18,560 Speaker 1: it a secret, you don't need to. I mean, then 484 00:33:18,640 --> 00:33:24,440 Speaker 1: you you know, that's like the Japanese billionaire who bought 485 00:33:24,560 --> 00:33:29,800 Speaker 1: the Van go um Iris's painting and then instructed his 486 00:33:30,240 --> 00:33:34,520 Speaker 1: um executors to bury it with him, and it's never 487 00:33:34,600 --> 00:33:37,320 Speaker 1: been seen since, which means one of two things. They 488 00:33:37,360 --> 00:33:41,720 Speaker 1: either honored his his request or they sold it to 489 00:33:41,880 --> 00:33:44,880 Speaker 1: some hitge fund billionaires in Switzerland who's got it hidden 490 00:33:44,880 --> 00:33:49,720 Speaker 1: away and evolved behind his desk in his office. Rob, 491 00:33:49,760 --> 00:33:52,080 Speaker 1: have you fallen into this crypto and n f T 492 00:33:52,280 --> 00:33:55,280 Speaker 1: rabbit hole at all? Are you? Uh? Are you thinking 493 00:33:55,280 --> 00:33:59,720 Speaker 1: about this stuff at all? Two thousand thirteen, I became 494 00:33:59,760 --> 00:34:05,200 Speaker 1: a were of bitcoin. I thought it was fascinating. Uh. 495 00:34:05,240 --> 00:34:10,759 Speaker 1: I as a libertarian, UM, I thought this will give 496 00:34:11,840 --> 00:34:15,280 Speaker 1: central bankers are so called run for their money. Uh, 497 00:34:15,320 --> 00:34:18,799 Speaker 1: it'll be fun to watch. And so I debated, should 498 00:34:18,840 --> 00:34:21,400 Speaker 1: I put a hundred grand in or? I said, no, 499 00:34:21,600 --> 00:34:23,960 Speaker 1: I don't buy things I don't understand. I'll just buy 500 00:34:23,960 --> 00:34:28,160 Speaker 1: one bitcoin costing two hundred some dollars. Uh today it 501 00:34:28,160 --> 00:34:33,120 Speaker 1: would be worth um uh today? Yeah today, if I 502 00:34:33,280 --> 00:34:41,960 Speaker 1: bought the hundred thousand, it'll be worth about million. Let's see, 503 00:34:42,880 --> 00:34:44,640 Speaker 1: that's amazing. Well, at least you got one, right, you 504 00:34:44,719 --> 00:34:48,080 Speaker 1: got uh, you got a partial laser. I guess as 505 00:34:48,120 --> 00:34:50,680 Speaker 1: they say, But how about you, Rob? Have you seen 506 00:34:50,719 --> 00:34:56,799 Speaker 1: anything crazy this week? Craziest thing This week for me 507 00:34:57,760 --> 00:35:02,880 Speaker 1: is back to business US as normal, in person meetings 508 00:35:03,160 --> 00:35:07,720 Speaker 1: all day every day Monday, Tuesday, Wednesday, Thursday, dinner meetings, 509 00:35:08,000 --> 00:35:12,200 Speaker 1: breakfast meetings, lunch meetings, and the fun of seeing people 510 00:35:12,360 --> 00:35:15,040 Speaker 1: face to face. I've done a little scattered bits of 511 00:35:15,080 --> 00:35:17,680 Speaker 1: that in recent weeks, but this is the first time 512 00:35:17,719 --> 00:35:20,719 Speaker 1: I've done a dedicated week of travel and face to 513 00:35:20,760 --> 00:35:26,680 Speaker 1: face meetings. Uh. It's in historical terms, it's not a 514 00:35:26,719 --> 00:35:31,680 Speaker 1: particularly strange thing. But this week it is feels good, 515 00:35:31,760 --> 00:35:35,360 Speaker 1: doesn't it. It feels wonderful. And I know you're in Austin, 516 00:35:35,440 --> 00:35:37,320 Speaker 1: so I assume you're gonna stop in and see Elon 517 00:35:37,440 --> 00:35:40,279 Speaker 1: Musk got the new Tesla headquarters, right, Oh yeah, he 518 00:35:40,280 --> 00:35:48,240 Speaker 1: and I are having dinner tonight alright, hopefully brisket in Austin. Um. 519 00:35:48,280 --> 00:35:50,640 Speaker 1: But I'll give you my craziest thing. Uh, and this 520 00:35:50,719 --> 00:35:54,000 Speaker 1: is I couldn't top to what I got from a 521 00:35:54,120 --> 00:35:57,880 Speaker 1: listener who goes by the name financial Gambler on Twitter. Vidonna, 522 00:35:58,040 --> 00:36:01,200 Speaker 1: very very loyal listener. He's good friend of the show, 523 00:36:01,280 --> 00:36:05,719 Speaker 1: so he thanked. He's a good tweeter. Yes, uh. He 524 00:36:05,800 --> 00:36:10,839 Speaker 1: put it out on eBay. There's a iPhone X that's 525 00:36:10,880 --> 00:36:15,960 Speaker 1: being auctioned on eBay, and it's the only known iPhone 526 00:36:16,200 --> 00:36:19,560 Speaker 1: that has a USB port to it at US B 527 00:36:19,880 --> 00:36:23,919 Speaker 1: C port to be specific. You know Apple obviously has 528 00:36:24,000 --> 00:36:26,520 Speaker 1: their own you know, the lightning charger whatever you call 529 00:36:26,560 --> 00:36:30,080 Speaker 1: that port. So here's where we play the prices, right, Bill, 530 00:36:30,120 --> 00:36:33,680 Speaker 1: Donna and Rob? What would you pay or what? Now? 531 00:36:33,760 --> 00:36:36,719 Speaker 1: What would you pay? I know Rob's a fundamentals guy, 532 00:36:36,800 --> 00:36:41,520 Speaker 1: so he he probably wouldn't pay anything above list price. 533 00:36:41,600 --> 00:36:44,960 Speaker 1: But what do you suppose the current bid is for 534 00:36:45,040 --> 00:36:50,200 Speaker 1: this one of a kind USB port phone on eBay? Well, 535 00:36:50,680 --> 00:36:52,880 Speaker 1: you go first. I was hoping you'd ask me what 536 00:36:53,040 --> 00:36:56,320 Speaker 1: I would bid because I wouldn't bid very much because 537 00:36:56,360 --> 00:37:02,320 Speaker 1: nobody who uses USB anymore? Well to U S B 538 00:37:02,480 --> 00:37:07,800 Speaker 1: C Yeah, compact, So that's the smaller, the smaller one, right, Yeah, 539 00:37:07,880 --> 00:37:10,480 Speaker 1: that makes a big difference. And that makes that makes 540 00:37:10,480 --> 00:37:15,600 Speaker 1: at least a million two million dollar difference. And well, 541 00:37:15,640 --> 00:37:20,560 Speaker 1: I'm guessing seven figures. I'm going to guess three three million. Wow. Uh, 542 00:37:20,840 --> 00:37:22,680 Speaker 1: you know we're in a bobble bubble with that kind 543 00:37:22,719 --> 00:37:24,959 Speaker 1: of pricing on this. We'll do it. What's your guest? 544 00:37:25,480 --> 00:37:30,760 Speaker 1: I was gonna guess like three thousand bucks A true bargain. 545 00:37:31,280 --> 00:37:33,040 Speaker 1: We got a pretty good spread. I will say the 546 00:37:33,040 --> 00:37:34,920 Speaker 1: auction is not over so we may get to your 547 00:37:34,920 --> 00:37:38,799 Speaker 1: three million, Rob, especially when our big, big pocketed, deep 548 00:37:38,800 --> 00:37:43,600 Speaker 1: pocketed listeners. Here this HERD nine hundred, which I was 549 00:37:43,640 --> 00:37:46,720 Speaker 1: surprised by. But to your point, Rob, you know, people 550 00:37:46,920 --> 00:37:50,480 Speaker 1: like to have collectible, one of a kind thing, so 551 00:37:50,520 --> 00:37:52,360 Speaker 1: I could see this thing going up before the auction 552 00:37:52,440 --> 00:37:55,400 Speaker 1: is actually closed. When I see when I see people 553 00:37:55,440 --> 00:37:58,279 Speaker 1: spending sixty million for an n FT piece of art 554 00:37:58,600 --> 00:38:02,160 Speaker 1: where anyone can view the art on the Internet, and 555 00:38:02,320 --> 00:38:07,400 Speaker 1: all you have is a document that says you own it. Um, 556 00:38:07,440 --> 00:38:12,439 Speaker 1: and it's electronic. Uh. And you don't even control distribution 557 00:38:12,520 --> 00:38:15,040 Speaker 1: or draw licensing fees on that that still all goes 558 00:38:15,080 --> 00:38:20,920 Speaker 1: to the artist. Uh. And then I think some stupid 559 00:38:20,960 --> 00:38:23,560 Speaker 1: thing can go for three million. Well, Rob, I think 560 00:38:23,600 --> 00:38:25,040 Speaker 1: that's all the time we have. I hope you can 561 00:38:25,040 --> 00:38:28,440 Speaker 1: get some brisket while you're in Austin. I um, I'm 562 00:38:28,520 --> 00:38:32,839 Speaker 1: drooling thinking about it. Uh and Voltada Um. I don't 563 00:38:32,840 --> 00:38:37,360 Speaker 1: know if you're a brisket fan, but well, okay, maybe 564 00:38:37,360 --> 00:38:43,720 Speaker 1: they have tofu brisket. I don't know. Thank you, Thanks Robert, 565 00:38:43,960 --> 00:38:45,880 Speaker 1: pleasure has always have you on the show and hopefully 566 00:38:45,880 --> 00:38:57,160 Speaker 1: we can bring you back some day. What Goes Up. 567 00:38:57,200 --> 00:38:59,359 Speaker 1: We'll be back next week. Let's hope that you can 568 00:38:59,360 --> 00:39:02,120 Speaker 1: find us on the blue Berg Terminal website and app, 569 00:39:02,400 --> 00:39:05,359 Speaker 1: or wherever you get your podcasts. We'd love it if 570 00:39:05,360 --> 00:39:07,279 Speaker 1: you took the time to rate and review the show 571 00:39:07,400 --> 00:39:10,719 Speaker 1: on Apple Podcasts so more listeners can find us. And 572 00:39:10,880 --> 00:39:13,799 Speaker 1: you can find us on Twitter, follow me at reg Anonymous. 573 00:39:14,080 --> 00:39:17,640 Speaker 1: Bildonna Hirich is at Bildonna hi Rich. You can also 574 00:39:17,680 --> 00:39:21,720 Speaker 1: follow Bloomberg Podcasts at podcast and thank you to Charlie 575 00:39:21,760 --> 00:39:25,000 Speaker 1: Pellett of Bloomberg Radio. What Goes Up is produced by 576 00:39:25,040 --> 00:39:29,040 Speaker 1: Tofur forheas the head of Bloomberg Podcasts is Francesco lev 577 00:39:29,760 --> 00:39:31,439 Speaker 1: Thanks for listening, See you next time.