In this episode of the Judgment Call Podcast Aswath Damodaran and I talk about:

• Why he started putting his lectures online as early as 1997!
• Why Aswath considers academia, journalism and the financial industry ripe for disruption and how Aswath managed to stay ‘independent’ during his teaching career.
• What is the Equity Risk Premium and why Professor Damodaran is so focused on it?
• Professor Damodaran’s view on inflation and interest rates?
• What is source of the low productivity growth in the US? What role did the Federal Reserve in it?
• Will Tesla stay a ‘trend stock’?
• Does Uber actually have a ‘business model’?
• What is behind the backlash against capitalism?
• What are Professor’s Damodaran best investments right now and how do these ‘short squeezes’ actually work?
• and much more!

You may watch this episode in 4K resolution on Youtube – The Judgment Call Podcast Episode #39 – Aswath Damodaran (Making economic sense of a ‘crazy world’).

Aswath Damodaran teaches corporate finance and valuation at the Stern School of Business at New York University.

Aswath has won many accolades for his unique ‘no BS’ teaching style and has also earned the moniker ‘Dean of Valuation’.

You may reach Professor Aswath Damodaran via his website.

Torsten Jacobi:  I talk today with Aswath Damodaran who teaches corporate finance and valuation at the Stern School of Business at New York University. Aswath Damodaran has won many accolades for his unique no BS teaching style and he’s also earned the moniker Dean of Valuation. Aswath Damodaran is also shockingly productive. He wrote 11 books as far as I could count that might be incorrect by now. He has published hundreds of YouTube videos and publishes an incredible array of white papers of lots of different valuation techniques and has his own website which is really fun to read through. Welcome to the Judgment Call Podcast, Aswath Damodaran!

And I wanted to ask you, what is that secret of your extreme productivity? Do you have something you could share with us so maybe we can learn from that?

Aswath Damodaran: I’ve discovered that if I compartmentalize my life, I get a lot less done. In other words, if I said, this is my block for research, this is my block for teaching, this is my block for having fun, and this is for everything else, I mean, I don’t have enough time. So I’ve discovered, and this is through hard experience, I guess, that when I do something, I try to develop, I try to accomplish multiple objectives. I’ll give you an example, last year, in the midst of the COVID crisis, I decided that I wanted to write about the crisis in real time. And the reason is very simple, because if you wait till a crisis is over and you write about it, you have all these benefits of hindsight, you said, those people are stupid, they didn’t even think about that. So I wanted to keep this journal. So I kept a journal, and it took a little, what, 20 minutes a day, 15 minutes a day, I put my thoughts in. But after about two weeks of keeping the journal, I said, you know what, I have enough thoughts, I’m going to put them as a post. I wrote it as a blog post, there were a series of 14 blog posts that I wrote between February and December, each taking about two or three hours to write. And then I had 14 posts, and I added up the pages, and they’re like 75 to 80 pages of writing in those posts. And I said, this is a pity to let go to waste. So right now, I’m taking those 14 posts, I’m consolidating them into a paper, basically bringing all those thoughts, and it’s going to become a paper, those that 15 minutes I spent every day become post, the post became a paper, and the paper will probably become a book because I look at it and said, it’s 100 pages long, I’m pretty close to being a book. And along the way, I’ve also taken the data and what I’ve learned and made it part of my teaching. So those 15 minutes a day have paid off immensely for me in terms of the post, the book, the paper, the teaching. And that is something I try to do with pretty much everything I do every day. I try to say, what are the multiple boxes I can check off by doing it? So I valued GameStop two weeks ago, I did it because I was interested, I wanted to see what was going on. Hey, you know what, that GameStop valuation became part of a post and it’s going to probably become part of my next, when I do the next edition of one of my valuation books, it’ll probably be in there. So I think that if you can, if each thing you do fits only one slot, you’re going to run out of time. So the more you can spread your stuff, and it’ll take an extra couple of minutes every time you do things, the more productive I think you can get for the effort you put in. Yeah, that’s certainly a great guideline. Do you have a research team or a bunch of editors that do most of that work for you or you literally produce the content yourself? I am solo and it reflects my weakness. I am a control freak. I have never been able to turn over any of the stuff I do to anybody else. I maintain my data, I write my stuff. I have never had a research assistant. The TAs I use in my class, I’m more, you know, ornaments than actual TAs because I don’t use them very much. So I think that’s more, so I’m not going to view that as a strength, it’s just a reflection of me as a person. I like to be in control. I do almost everything you see is a team of one, which is me. The good thing is I answer to myself and I’m very, very gentle with myself.

Torsten Jacobi:  Then it’s even more incredible that you’re able to keep that up. I saw on your YouTube channel this, as far as I could scroll down, they were four or five years old and I think the first audience is probably your students when you actually do the lectures. But it probably goes even further back and this is an amazing array of knowledge that you bring online for free. When did you decide to bring most of the lectures online on YouTube and why did you do it?

Aswath Damodaran: You’re going to be surprised by when I decided to bring it to record it. It was in the mid 90s. Even before YouTube, I used to have a camcorder set up in the back of my room and the reason is very simple. I’m a teacher. That’s how I describe myself. It is my core in terms of what I do. So about 25 years ago, I said, if I’m preparing to teach a class of 250, which is my traditional class, wouldn’t it be nice if I could teach 10,000? Teachers want bigger audiences just like actors. So I said, you know what, I would like to have other people be able to watch the class, but this was the mid 90s. There was no online. There was no YouTube. So I actually got a camcorder, recorded my class in the old VHS tapes, made five copies, and I put them in the library for people to come in and watch the videos. They’re not in the class. Somewhere in the 90s, I learned how to convert a VHS video into an online video. In those days, the resolution was just awful. But I said, you know what? I’m going to do it. So I started doing this about 20 years ago, and I came to YouTube late, and I’m sorry I came to YouTube as late as I did because initially I used to use more traditional forums for delivering the videos. You put the MP4 file, let people download it, watch it. What YouTube brings actually is this capacity to deliver the videos to parts of the world where people don’t have broadband because YouTube adjusts to whatever your capacity is. There are more people to be able to watch it. So I started putting my classes on YouTube probably eight, nine years ago. And my blog post, where I’ve been writing my blog since 2008, sounds New Age, but basically it was just, this is what I think about markets. I started it during the 2008 crisis, and I just used to write. And in 2015, I don’t remember what post it was. I said, I’m going to try to make a YouTube video, what I just said in the post and added on to the video, and added on to the post. And I noticed something very interesting. It took about the same time to watch the video as it took to read the post. But there were four times more people watching the video than reading the post. And I said, you know what? Maybe the world is changing under me. People are less willing to read and they’re more willing to watch. So every post I do from this day on, if you look at the accumulation of YouTube videos, it’s just incremental. Each time I do a post, I do a video. And since I do about 30 to 40 posts a year, sometimes 50, that’s 50 YouTube videos right there. You multiply by six, you’re very quickly. So it’s not as if I sat down and said, I’d like to make a library of YouTube videos. It’s almost accidental. It’s happened because it’s an add on again to what I was doing in terms of writing the post.

Torsten Jacobi: Yeah, you’re really a machine in content production. Because I admired a lot and what I even more admire is what I found on your website. And you introduce yourself, and that’s just probably in the second paragraph, you say, you know, education, the publishing industry, and also financial services are basically currently broken industries and ripe for disruption. And that reads to me like, you know, what entrepreneurs would put on their website. Maybe a VC would talk about it too. But you barely see this in academia. Most professors would never say that. Maybe they would admit to it privately, but they would never say it in public. How popular does that make you within your own university or with other folks in academia?

Aswath Damodaran: It’s interesting because I, you know, if I were an entrepreneur, I’d have had more trouble because then you’re trying to make money off education, off publishing. So upfront, I said, if I decide that I’m going to try to make, do a better way of education, but make money on it, it’s going to make me less credible. Because everything I say, then people say, well, that you’re trying to push your website or your way of teaching. So I decided early on that I was going to stay in the system. I was going to stay at a university. And I was going to disrupt from within. Now, because if you’ve ever been in a university setting, it is inertia. Nothing changes. Nothing moves. In fact, I remember a couple of years ago, my wife and I were in Bologna, one of the very first universities, 900 years old, and I walked into one of those old classrooms and I was surprised at how little things have changed in terms of how people teach 900 years later. Things don’t change because universities, I describe them as lunatic asylums run by the inmates because the faculty run it for their best interests. So I said, you know what? I’m going to stay in the system. But I’m going to find a way to disrupt it from within. So the first time I did this, I took my class and made it available to the world. People asked me, did you check with NYU on whether this is OK? And I said, my view is I’m going to do this first. And then I’m going to go to them and say, look, I’m making my classes available to the world for free. And if you have a problem, you might want to read your mission statement because every university’s mission statement says that its mission is about education. It’s not collecting tuition. It’s not doing research. I said, if you truly believe your mission statement then, then tell me how you’re going to ask me to pull these videos offline. Because then, and it’s amazing, I’ve been able to do this for 20 years. I put my classes online. Once in a while, I will get somebody in the administration saying, you can’t do that. This is our business. And because I don’t make money, I’m able to say, look, I’m doing this because you told me my mission was education, I’m just accomplishing that mission. So I think with my colleagues and I have come to an uneasy, maybe an OK place to be where they accept that I’m not in the same page as them. My intent is not to publish papers. I couldn’t care less what my academia friends think about them. My job is a teacher. I’m going to educate. And because I carry more than my weight in the classroom, I teach large classes, I’ll make their lives easier, they are OK with it because they can go back to doing what they want to do, which is write papers, get published, move up the academic ranks. So in education, I haven’t had a backlash. In publishing, it’s been more difficult because publishers, of course, will not let you take a book and give it away for free. So I could not, for instance, send a book off to Wiley or Prentice Hall or Pearson. So a couple of things. One is I said, look, it’s obviously not right for me to reproduce a book out there, but I can take the content that I have in the book and write about it in my blog. I can write it about it in my teaching notes and essentially deliver the same content. You don’t own the content, you just own what I’ve written in the books. So there it’s been a more tense relationship because there are times where I’ve heard from publishers saying, you got to take that off your website because that’s very close to what’s in your book. So far, at least, it’s not gone to the final set. With financial services, one of the ways I’ve been able to live with the kind of arrangement I have with them is I have a lot of students who’ve gone into, I mean, I’ve been teaching 40 years. I’ve been people who run investment banks, who run equity research, so they’re high up at the ranks, but I’ve never, ever consulted with an investment bank or a traditional bank because the minute you do that, then you have relationships. And then if you say something about investment banking being terrible at doing IPOs, you’re going to hear from somebody saying, you can’t do that. So with the financial services business, the fact that I’ve never had a formal relationship in terms of consulting or being on a board allows me to say things. And I think in a strange way, that makes me more credible at investment banks because they know I’m not pushing. So if I’m talking Goldman Sachs, they’re not thinking, hey, does he work for Morgan Stanley? Is that why he’s doing this? They know I’m saying what’s on my mind and I’m often talking to people who were in my class 20, 25, 30 years ago who know exactly where I come from.

Torsten Jacobi: It’s amazing that you preserved your own independence with such a vigor. And I think it’s rare in these industries. I know that a bunch of professors that had success online on YouTube, they’re not looking into either creating their own online university or they’re joining online universities. This whole model becomes kind of, YouTube is the premium part and then the premium part is then the course that you teach that gives you a certificate because so far we don’t have a lot of certificates on YouTube, there is a couple of universities who’ve been playing with this. I think that’s a really interesting field. It seems to be hard to create a business model around it. It’s easy to get enough traction because obviously your content is fantastic and so are other professors. They really are the best in the world and I think this is easy in your field. You are the best in the world at valuing things and reading corporate financial statements. And I always feel there is what’s going to happen to education because we literally only need one professor like you who knows so much about that particular topic and that’s going to be a great education for pretty much anyone say the first, second, third year student. They only need one professor with a YouTube video anywhere on the planet. So we don’t need any other professors anymore. Do you think education will follow this internet model? There will be one company or maybe Google who runs all of education?

Aswath Damodaran:I think there is that danger and pretty much any business that technology takes over, you get a winner take all phenomenon, whether it’s in Google with the search engine or in music. If you think about the music business, 25 to 30 years ago, the business got disrupted and of course we didn’t go into record companies so you didn’t have those gatekeepers which are the old music companies that said we’re going to pick the stars, we’re going to put them on records, we’re going to make you buy 16 songs even though you wanted one. We broke the business or Apple iTunes broke the business and for the following 15 years, the business had a 50% drop in revenues, rediscovered at least some of itself in streaming. But the business that’s emerged is now a very different business. It’s top heavy. In what sense the very top stars make a disproportionately large percentage of the revenues. And I think this ties into a bigger issue in society which is we are building these top heavy societies where you’ve got people with $150 to $200 billion the very top and people at the bottom struggling to make the bills. So I’m wary about where this will end up in terms of an end game because the reality is if you’re the University of Florida or the University of Tennessee and you’re paying somebody $150,000 or $100,000 to be a professor in finance and you can pick up a polished full version of a finance course evaluation course or corporate finance course which technologically is easy to do now for $5,000 you could replace the professor with three package courses and in some schools it’s already happening. This is not a hypothetical where some classes are being taught online or and essentially the school is cutting costs. So it is an issue and I have been preaching this to professors around the country. I do a session called the Barbarians with the Gate and basically to wake faculty up saying guys you might not realize how much risk you’re under being outsourced. You don’t realize the barbarian because they said they’re saying well people always pay to come to school they have to be in my classroom without me how will they get their degrees and in that session I talk about how every aspect of what a university offers from classes which is the easiest one to the social network. Let’s face it when you think about the old the reason you went to Harvard is not just to get the degree but to get the network. The entertainment value, people go to university because they can watch football games the weekend. The safety zone, parents want to send their kids off to university because they want them for four years to do stupid things and not tend to do much trouble. I take each aspect and talk about how online entities are now supplying it and I said you’re like the old cable company. You don’t even realize that the game is changing right under your eyes and I tell them look if all you’re doing is taking somebody else’s slides and reading them in front of a classroom which unfortunately is how a lot of people in colleges teach is they don’t want to do the work. I said if that’s what you’re doing I’m coming after you. I’m coming after you not directly but my material is going to come after you because you’re begging to get outsourced. So I tell people you got to give something that leads people to believe that it’s something that says we need you still. Yeah, I guess the upside on this revolution is enormous right? We deliver education for one hundredth, maybe one thousandth of the cost and it’s going to be instantly available anywhere on the planet literally seconds being recorded. So if it’s already there technology and all the pieces already there like you described this probably you have been seeing this many, many years but the pieces already there but nobody has seen it put together and now with COVID we’re kind of forced to and now the picture is emerging quite differently and I think that the hard part is a lot of people play with the online university model but making it in a way you actually can make money and you retain this little thing of this is something this gate everyone has to go through and pay me a thousand bucks. I think this is hard what it is, it might be the certificate, it might be the social network who knows. I want to go and take a look a little bit into your research. I admit I didn’t get that far and I make way more effort or I think I have better success with other guests because they don’t have as much published. So I really struggled with the material you have online. I looked into a couple of papers and one thing you seemed to focus on maybe this just was being picked up more is the equity risk premium. And it is a way to showcase how what risk or to me and maybe I understand that wrong what that risk that investors are seemingly taking against the risk free return that they would get with bonds minus inflation. And I was curious you put a lot of effort in, you track this across different countries, you track it across a long timeline and you’ve discussed it in length, does it have a predictive value? Do you make forecasts from there about the next five years or the next 10 years? Let me back up first to talk a little bit about why this number fascinates me. In almost everything we do, we sometimes are in the search for give me one number. One number that kind of, because in every discipline, if you’re a doctor, you do a test, there are hundreds of things that come back. So what’s one number? And with stocks, the equity risk premium is the one number that tells me more about stocks than any other number. I’ll give you contrast. A lot of people who track stocks look at P ratios. That’s a big thing of the P ratio, low or high, and they said that’s a number. But P ratios of a problem, which is when interest rates change, the P ratio used to think was a reasonable ratio, then no longer applies. So P ratios fail because they don’t factor in interest rates or they don’t factor in growth. Equity risk premiums capture how much people are willing to pay for stocks relative to what you can make risk free. So it brings in the level of rates and given the growth. So in a sense, it’s a consolidated number. And the reason it matters is it’s a price of risk in the equity market. If people get more scared, that number will rise. So as an example, between February 14th and March 23rd of 2020, which is when the peak of the COVID crisis hits market, markets were melting down, the equity risk premium for the S&P fund had almost doubled. That’s almost never happened before. I mean, the closest we came was in 2008. Doubling basically means people is terrified. And then for some reason over the rest of the year, all of that increase melted away. So something clearly took that fear away from investors. I spent the whole year thinking about what that could be. And the only reason I was aware of it happening was because I was tracking the equity risk premium. So that’s why I think it’s fascinating. But the question of whether it has predictive value, that’s tricky because the question you’re really asking is, can I time markets based on equity risk premiums? Yeah, can I make money from them? I don’t use them for predictive value because I’m not a market timer. I’m a stock picker. I use equity risk premiums to value individual companies today. As a stock picker, I’m looking for cheaper, expensive companies. I’m not asking is the market overall cheaper, expensive for a simple reason. I’m not very good at market timing. Equity risk premiums increase over time. They decrease over time. There are lots of people who use variants of equity risk premiums to decide whether they should be buying stocks or not. But maybe they know things I don’t. But from my experience, I’ve discovered it doesn’t work for me. And I’ve learned as an investor, you’ve got to go with what works for you. And for me, I compute the equity risk premium because it helps me value individual companies today, which will then help me pick stocks. I don’t use the equity risk premium as a proxy for, hey, should I be in stocks or should I be in something else? Yeah. Well, one thing, that is just my theory of what happened with the markets. And I was stunned, like everyone else, that it went up so quickly again, the public markets, but the real economy doesn’t look that way, depending on where you go. I’m currently in Miami. And here it looks like inflation is running wild. You can’t get into a restaurant without a two hour wait, even like the not so great ones. I tried to get drinks at my hotel and took me like an hour to even get a drink. The room rates are $700. And the inflation and the pressure on that little piece of what’s open of America and that’s actually warm now is amazing. So I think when I live in San Francisco, which has been shut down and the real economy has been shut down the whole time. So I think our expectation, my own expectation was that the real economy will, to some extent, show itself in stock prices. But I think what actually happened is that people thought it’s going to be much worse. And COVID is, we relatively quickly figured out that COVID is bad, but it’s not airborne Ebola. I mean, not all going to die. And I think this was baked into the, in that moment in March, be baked in that we all going to die and the economy is never going to recover. And then we realized, oh, well, Google and Apple and all of these big companies, they’re doing pretty well. They’re doing, they’re kind of absorbing all this restaurant revenue, so to speak. And that’s kind of my personal gut feeling of what actually happened. I don’t know if you agree with this. Maybe it doesn’t really explain it. I think that there is some truth to what you’re saying, but it’s a two layered impact. We talked about how society is as a haves and the have nots. This has been a pretty sanguine crisis if you’re one of the haves, right? You still have a job. You might have to do a Zoom sessions from home, but you’re still getting your paycheck. You’re still, you know, and so you’ve, and you have money to invest. And let’s face it, the people who drive asset prices, stock prices, bond prices are the people in the top 20%, not the bottom 80%. This crisis, I think, has been devastating for people at the lower end of the spectrum, but they’re not the ones buying stocks. So some of the disconnect comes from that. The second is the market is a predictive mechanism. And you’re right. The market is looking forward and saying, you know what, this too shall pass. We’re all going to open up, restaurants are going to fill up. And I don’t think it’s a bad assumption what I have a problem with. And this is, I think the word you used was, I think the key word for me that I’m going to track this year is when that happens, what’s going to happen to inflation? I mean, already you can see it in Miami, prices shooting up, but we’re sending people $2,000 checks and the economy actually opens up and actually starts to pick up steam. And they go after fewer and fewer goods and services, inflation could very quickly start to come back. And that could be deadly for stocks. Stocks can live with an economy that’s dead in the water, but stocks are incredibly damaged by inflation coming back, gangbusters. And that I think is what we have to worry about this year is as the economy comes back, what’s inflation going to do? Really curious about that, how you read the tea leaves there, because Michael Burry came out I think this week and said, you know, there is a good chance for Weimar style inflation. And I grew up in Germany and I saw the billions of dollars of my grandparents notes that they showed to me. And there was Bill Ackman today, he came out and said, you know, there’s a high risk this is going to happen, exactly, you know, several hundred percent of inflation. And on the other side, we see the CPI numbers and I was listening to David Rosenberg and he said, you know what, the CPI numbers are basically big input is rent, which is definitely dropping everywhere. Big input is commodities, which dropped for quite some time, maybe not as much now. So for consumers, the CPI seems to be extremely stable, if not dropping further. But still, everyone is really concerned about the money printing, which we shouldn’t be, because we actually are in a deflation, everyone is just crazy and inflation will never happen. So I’m really, really thought there’s a really good argument seemingly to me, I’m a layman, on both sides. How do you read the tea leaves? Well, I don’t see what, I mean, I’m not saying thousands of percent or even hundreds of percent. Ten percent inflation will be enough to finish us off. You remember the last time I had ten percent inflation was the 1970s, in the 1970s was a lost decade for investors, stocks, bonds, you know, and I think that could we have double digit inflation? I think it is possible. I mean, clearly the CPI is not showing it now, but they’re too brown for the CPI. The first is, it’s sticky, it’s not that there’s any bias here, but it’s sticky. The basket doesn’t change enough to reflect where you’re actually spending your money. And it’s a lagged indicator. By the time the CPI heats up, the colors already escaped from the bond, it’s too late. So I think, and I think, and my problem with markets is right now, markets are making two assumptions that, to me, are at war with each other. One is they’re assuming the economy will come back strongly, whether it’s because of the new trillion dollar, $1.9 trillion dollar packet, or whether it’s because the economy will, you know, people are going, COVID is going to end, vaccines are going to roll out, the economy will come back strongly. I don’t have a problem with that assumption by itself. The second assumption they’re making is while all of this great stuff is happening to the economy, rates will continue to stay low. And to me, those assumptions are at war with each other. Because if the inflation comes back strongly, I can almost guarantee that rates are going to rise, whether they will rise to 3% or 5%, we can debate. But I think the reason for this is a fixation we’ve developed over the last decade. And this fixation is something I think you were planning to ask me about, which is about the Fed. The Fed somehow controls interest rates. Yesterday, the big rise in stock prices came about because Jerome Powell, and he didn’t even say it in those words, said the economy is weak, we’re going to do what we can as the Fed to keep rates low. But if you think about what the Fed actually does, it sets a Fed funds rate. It doesn’t set the Teeble rate, the Teebond rate, your mortgage rates. Those who said by demand and supply, nothing the Fed does, even the hundreds of billions that it claims to buy, it’s just a dent in this huge market. If the economy comes back, I don’t see a way that rates stay at 1%. In fact, even from the start of this year to today, think of how much rates have already risen without the Fed saying or doing a thing, rates have risen because the economy is delivering better numbers. So I think my problem at the market is it’s being internally inconsistent about what it’s assuming about the future. Either the economy is coming back and rates are rising, or the economy is not coming back and rates are staying low, but you can’t mix and match those two. And I think that’s going to be the test for markets this year, and you’re going to have days like yesterday and today, play out over and over again as the optimists and the pessimists fight this out. Yeah, I think everybody kind of agrees that unless we go Japan style, which I think everybody seems to be trying to not match that example, the rates definitely going to go up, and either it goes up because of inflation or because growth comes back, right, so there could be two different triggers, probably there’s more. But two that are being discussed right now. No, I think that’s good to have it as two triggers, because that I think tells you which trigger you have to worry about more. If it’s real growth driven, I’m less worried. And here’s why. When you have real growth driven, rise in rates, rates will rise, but so will earnings. Earnings will be higher than expected because you’re getting real growth. If it’s inflation driven, we’re in trouble because rates will rise, real earnings are not going up very much, and then we’re going to get squeezed, and that’s exactly what happened between 1976 and 1980 in the US is you got in those pincer movements of high inflation and low real earnings growth, and that I think is going to be a much more day. And that’s why I picked on the inflation when you used it earlier because to me, inflation driven, rises in interest rates are deadly. Real growth driven, rises in interest rates I can live with. Well, a lot of people, and that was Michael Burry’s argument, say, go even further, and they say, well, it’s actually the rates are one thing, and it might be a big impact, but it’s relatively small for consumers if they are 1% or 3%, right? I mean, there is an impact, but it’s for consumers, it’s probably not a lot of direct input. The big problem that he mentioned is, and I think this is something I’ve been going on and on this podcast, is a lot of people are kind of giving up of the idea of the dollar, especially in the US, probably less outside of the US, but the Europeans have that too. They basically feel what’s going on in the US, we’ve become a banana republic, we have terrible infrastructure, our government doesn’t work, and what’s even worse, the people kind of have abandoned the government and the idea of a real dollar. Everyone now believes the Bitcoin, everyone, right? It’s a tech thing, it’s a Silicon Valley thing, but it’s spreading out. It’s pretty quickly, and the expectation is, and maybe that’s what I usually say about entrepreneurship, but we are creating the self fulfilling prophecy that we say, oh, the dollar is gone anyways, right? So we all change our assumption about the next five years because we feel the dollar is not worth anything anymore, and then inflation just happens, right? So it happens because we lose faith and nobody wants to save anymore, and suddenly we have 10%, 20%, 30% inflation. Well, I think they’re all linked together, it’s a circle, it’s not a sequence where one starts and the other. So what I mean by a circle is higher inflation creates a weaker dollar, weaker dollar creates less confidence, less confidence creates higher inflation. So that’s how you get into these spirals. So there is, and to me, Bitcoin is a side issue from this because Bitcoin is not just the US investors, it’s a global phenomenon. In fact, Bitcoin enthusiasts outside the US probably vastly outnumber the Bitcoin enthusiasts in the US, a lot of people in Asia, for instance, are huge believers in Bitcoin, but collectively think about Bitcoin, it’s penny change in the global economy. Penny change, it’s a trillion, I mean, even at its peak, it’s a trillion dollars. That’s half the size of the largest company in the world, one publicly traded company. It’s more a symbol of people’s uneasiness than it is a real cryptocurrency, right? Because if you think about it as a currency, it’s a horrifically bad currency. It’s a currency that nobody uses for transactions. I mean, Tesla can claim that you can use Bitcoin, but I throw this challenge out. I’ve given talks at Bitcoin Enthusiast Conference, I throw this challenge out. Tell me how many of you have actually used Bitcoin to buy a house, buy a car, or even buy your lunch? It’s terrible. It’s digital gold, right? You can’t use it in daily life. But at least gold has two things going for it. One is it’s staying power. It’s been around thousands of years, it’s a collectible. And second, it moves in the other direction. It’s one of the few investments that have been February 14th and March 23rd when stocks were melting down that held its value. That’s gold’s enduring argument. You know what Bitcoin did between those five weeks? It was not 50%, it behaved like very risky stock. So not only is it a terrible currency, it’s a terrible replacement for gold because when you replace gold with something, you want it to hold its value, a Picasso collectible. And on both dimensions, Bitcoin’s fair, but how come people are piling into Bitcoin? Because there are people who’ve essentially lost faith, not just in currencies, but in institutions. I describe Bitcoin as designed by paranoid, for paranoid. Because it was designed in November of 2008 at the height of that banking crisis when we’d lost faith. And it shows in almost every aspect of Bitcoin, right? You trust nobody. That’s why we have miners mining transactions to make sure they work. So I think Bitcoin, what concerns me about Bitcoin is it reveals to me that there’s an underlying fairly large group, many young people, mostly 25 to 35 year olds, who’ve essentially given up on currencies, institutions, and everything we built up in the 20th century. But the thing is they haven’t replaced it with something else. And when you saw the GameStop phenomenon, you saw this play up, which is, there’s really nothing like, there’s no such thing as value, price is whatever we say it’s going to be. And I think that that is a very, very damaging development for both society and markets. It definitely will create a lot of volatility. And then I’ve been outlining this, I feel there is a market slowdown in opportunities for everyone who’s under 40 or 50 currently. And this has shown, and it’s not really shown in people’s psyche, at the earning opportunities, the opportunity to buy a house in the Bay Area. There is no opportunity for pretty much anyone, unless you’re a billionaire, which can happen. And so they can value, but it’s still relatively few people who get there by definition. They can’t be billionaires on this, then we have Weimar. And you can’t raise a family on most options that are readily available, right? There’s obviously exception. But I think for a huge chunk, and that’s almost 80, 90 percent of the population, they really struggle with this. And it’s probably, and I think there’s maybe a gender grab in this, certainly there’s more men have more issues with women, but probably we all feel these effects. And now that we kind of disassociate ourselves from these institutions, as you say, I think what I felt is going to happen in last June is we’re going to see a real revolution happening, right? So we talk about the capital storming of the revolution, I didn’t feel it was one. But I felt like all these institutions kind of, they either compromised or they’re kind of useless. There’s a lot of things that technology is changing. And I think we now see this in we giving up on the dollar. One thing that kind of almost convinced me the other way is someone said, there is way few large transactions because people buy less houses, for instance, right? We see at least there’s not necessarily a big growth curve there. The velocity of money is coming down. So money changes hand less often, which in turn reduces inflation quite a bit. So people might give up on the dollar. But that’s a narrow definition because it bases it on transactions. I mean, we use our credit cards on things. We never used to use credit cards on. I mean, think about it, right? For DoorDash, we used to walk to the restaurant, maybe pay with cash. Who does that? Everything is on DoorDash, Amazon. I think it’s a different kind of velocity rather than the old, let’s see how many transactions. Now I think that the mystery is, especially over the last 12 years, why hasn’t there been more inflation? That really is what a lot of economists are struggling with because if you look at old monetary theory, you keep printing money, it has to show up at inflation. And for the last 12 years, it’s not shown up. And the question, therefore, that many feel that needs to be answered now is, why should this time be any different? And I think what’s different about this time is, since 2008, we’ve had excess capacity in this economy, both the global and the US economy. And I think we’ve been able to do things that historically would have gotten us into trouble and get away with it. And I think the question is, where do we hit that capacity constraint? The second is, the US can do most… The biggest technology, if I may interrupt, the biggest technology we discovered was China. It was the 1 billion people who rose to a middle income company. And that is a ginormous amount of the private inflation in our country. In 2003 and 2013, it carried commodity markets single handedly up 30 oil, cement. You name the commodities, China was the answer to wire prices rising. That ended in 2013, 14, because China hit its growth wall as well. And I think that that’s the thing that I think is under all of this, which is, there’s only so much growth in the global economy. Let’s be real about this. The global economy can’t grow 10% a year, or we’ll basically, we’ll have climate change overnight. So we take the fact that the global economy can grow about 2% to 3% a year. In the old days, when India and China were non players in this game, you took 2 billion people, 2.5 billion people out of the equation, because they lived on subsistence wages. And the US and the Europe could basically grow at 5% was going to be okay, because you had enough growth to go around. If you let China grow at 10% a year, and if you add India to it growing at 7% a year, and there’s only so much growth in the global economy, it doesn’t require a mathematician to see that the parts of the world that used to be the developed parts of the world that got used to growing at 3% to 4% are now long term looking at growth rates of not just one, not zero, but perhaps minus 2% to 3% a year. Why is that? I mean, I grew up in Europe and that is it. That is a common theory in Europe by economists, and it’s accepted socially. And I always felt like there is an American exceptionalism. And I always felt this is a big part why I went to America. I felt like there is this positive why, but this self fulfilling prophecy of we generate enough growth out of either it’s usually comes out of population growth. This is obviously gone, but there’s technology growth, right? So this productivity growth can really bring us forward. We’ve used that to take advantage. So in a sense, the US has separated itself from Europe and Japan by using that energy that it gets from being a laboratory for disruption, for allowing young companies to start and change it. I mean, that still remains the US’s biggest strength. There isn’t another part of the world. If you’re a disruptor, I mean, I tell people if Elon Musk were, I mean, he was born in South Africa, but if you’ve been raised in a different part of the world and he was running a business, probably be in jail in any other part of the world simply because he’s a rule breaker. Now, Travis Kalaknik would probably never have been able to make it to having a company because somewhere along the way, somebody would have said, hey, you couldn’t have broken that rule. The US accepts that kind of entrepreneurial spirit, but the problem ultimately is no matter how much technology you create and how much disruption you create, you can change the way people do business, but there’s only so much wealth to spend globally. So after disruption is done, Uber might triple the size of the car service business, but it comes at the expense of other companies. So for an Uber wins in a strange way, GM has to kind of give up some of its value. So it’s not a zero sum game, but I’m saying it can’t be a pure positive sum game. Well, what technology does is create positive. For every plus that technology creates, there are minuses that it creates that might not be visible right away. I mean, I think of it as a positive, but I think ignoring those minuses has created some problem. I mean, I think of the political problems that come out of the disruption we talked about. And much of what we’ve seen in politics over the last decade, I think comes from not being willing to look under the surface and saying, what are the costs of letting technology kind of win this game, disrupt businesses, and how do we mitigate those costs? We might not be able to go away. How do we help those people who’ve been paying that price of technology winning? I mean, simplest example is I love Amazon as a company. I think it’s the most amazing company ever created and built up. But I also think that as Amazon has gotten to where it is, it’s created a lot of side costs for society, starting with those empty malls, the parking lots, the people who used to work at those brick and mortar stores who really don’t have any technological know how to go work elsewhere. And I think that is something that we’re still coming to terms with economically, politically. And I think that that’s, I think for this coming decade, that’s one of the issues we’re going to have to wrestle with is what do we do about those costs? And how do we make those people come back into society? Because many of them have given up to, they’ve said, nothing I can do. This is a different word. So whether it’s through Andrew Yang’s guaranteed income, which I don’t think is going to go the distance because it’s not just a loss of income. It’s a loss of self worth. If I take your job away and you have nothing to do, I could pay $1,000 a month, $1,500 a month to say, oh, but you’re not made whole again. It’s part of how we define ourselves is by what we do. But that’s what you know that, like, when we look at this as a digital revolution, there’s an industrial revolution, the parallel tool will be very befitting, right? So we might lose 6% of jobs every year, but we might win 8%. There’s not the same people and they’re not the same skills. So there is a time lag and there’s lots of difficulties. But this, this is the only way, you know, when you look at these long terms, technological growth rates, they seem to be pretty stable and they translate into productivity. So I think this change is unstoppable. I’m not saying we can, we need to stop the change or even slow it down. I think we need to take care of the debris that the change, because even the industrial revolution created a whole host of costs. But in Dickinson, in the England of the 1700s and 1800s, you were not, you know, 30% of the population, you know, you are no longer needed, no cares. And I think we can’t do that. I think we need to kind of think about, you know, as this change happens, even though it’s, you know, I agree with you, it’s not good. I think it’s going to happen anyway. We have to think about what can we do to kind of at least reduce the pain of those people be left behind because there are people being left behind. Yeah, I agree. I agree. I mean, I became a big believer, David Orban actually convinced me in the prior episode that UBI is something we should really take a good look at. And whatever the number is, if it is 2,000, 5,000, 10,000, 2,000, 1,000, that’s probably something to be figured out. But when we take that example of people working on a farm and worrying about food that they wouldn’t have anymore because they’re not on a farm, they’re very far away, the industrial revolution has shown us that there’s an anxiety and the rise of anxiety because we are further away from food production centers, but we rarely had issues with food production or even distribution the last 100 years. It’s not always been the case, but I think we’ve gotten pretty good at this. And I think the same will be true in this revolution. So there will be certainly a big anxiety because you don’t have a job and you only have money and you only have shelter and you only have food and you only have 24 hour entertainment. But maybe you don’t have a purpose anymore in that moment, but it will come back because there’s going to be you going to train AI. I’m a natural optimist. I think, you know, 80 years from now, we were put back on this earth. It is going to be, it’s going to have been changed dramatically by technology. In fact, I was just reading this morning about the smart cities that Toyota is building in Japan. They’re going to test out AI and automated driving and it’s going to be a self contained city of 2000 people. And my guess is that’s not going to be a city of 2000. That might be how society looks 80 years from now. So I think the question is, as we make this transition, we need to make sure that we’re doing it in a way where we don’t destroy ourselves. Because you see it in the way we become, we become every, the way I describe it is every argument now becomes personal and political, you know, and I, you know, because now I tell my students, you know, disagree, but we can disagree, but without being disagreeable. And I think that that’s, and part of that disagreeable nature of every single conversation now is this us versus them, you’re on the right side of the wrong side. And some, I mean, we can’t blame technology for this entirely. It’s something that society overall has been evolving towards. But I think it’s something that we have to fix because we want to get to that Nirvana 80 years from now. We got to get there together. We can’t get there as two tribes at war with each other, which unfortunately is what we seem to have become. I don’t know, I mean, maybe that’s what’s required. I don’t know if you said that I heard that on a podcast the other day. It’s really maybe time for a couple of states to drop out of the union. You know, it’s like a Brexit in the US. Would it be such a big deal? Probably not. You know, they will speak the same language. You might have to get a visa to get there. And then a couple of years later, we see if they’re more successful or less, you know, it wouldn’t be such a big deal of California drops out and takes, I don’t know, New York weather, for instance. So I grew up in Eastern Germany and I saw like one country that was the same split up and then you could pretty quickly see what competition and market forces do to one country and what they didn’t do to the other. And that was very obvious only 30 years in, right? So I think you could defend being a communist in the early 70s in Eastern Germany, but by the early 80s, it was basically a position no one would share with you anymore. And so I see a similar thing right now. I think some people just need to try out. We have a similar lots of parallels that we have a big societal change driven by technology. Maybe some people just need to try out a little more socialism, which is great. And then, you know, maybe it works this time, maybe 20 years of partisan on both sides and they’ll experiment and both sides and discover that being in the middle is probably more productive than or finding some melded new solution is the way. No, maybe that’s, you know, politically, maybe that’s the end game. That is, I think the optimistic side of me hopes that that’s what will happen is we will find a way to come up with a new consensus that might not reflect the consensus of either side right now. And that might take time. So, you know, I know, overall, I am an optimist, I believe we will end at the right place, but I want to minimize the kind of side damage we create getting there. And to do that, I think we need to, we need to think about at least some of the consequences of technology because technology, I think, has created. And it’s not something it set out to do. It’s a nature of technology. It creates some, the kind of economy technology creates is very different from the kind of economy that the old industrial economy created. And we have to think about what, given that economy and things like, you know, universal basic income reflect this new economy that might be coming. What are the best policies that we can think of adopting? How will markets evolve? How will, you know, and I think that’s something we’ll have to make mistakes and learn. Well, talking about the end game, there’s another end game, I really want to pick your brain because I’m probably not smart enough to understand that. I feel like what we’re doing with the Fed, and that is modern monetary theory. And I understand the gold standard doesn’t serve us so well anymore. Do a Bitcoin is basically a gold standard, maybe even stricter gold standards, or gold basically is out of production for most of the time. But the Fed is around a policy that seemingly has created the zombie economies of lots of old companies where airlines is the prime example of lots of debt, but are not allowed to go out of business ever. Banks cannot go out of business. Even small pieces of that chunk are not allowed to go out of business. So we created this zombie economy and give them free money basically at negative interest rates. Sometimes even they get the money just to hoard it and hopefully pay it back. But if they don’t pay it back, that’s okay too. It all sounds like socialism to me. The airlines and socialism, they all government funded, they’re terrible, but they’ve run for hundreds of years. The hotels, the restaurants, they’re all terrible, but they will never go out of business. I feel it’s something that the Fed, that maybe it’s policy and maybe it’s actually the administrations that have done this. So I’m really at loss to describe why are we so crazily focused on keeping these old companies in business instead of getting creative destruction and getting competition? What do we do in the restaurant industry? Why can’t we do it to banks? Why is it so scary? Well, I think it’s funny that when you talked about the Fed, you feel that it’s the old more zombie companies that have benefited from Fed policy. Because when I talked to old time value investors, you know what they tell me, right? They feel that the Fed is what’s allowed tech companies to soar. So that’s true. Well, that’s the side effect, that’s true. And I think that there are a couple of things. One is we are still the most creatively destructive economy in the world. More companies go bankrupt in the US than the rest of the world put together. Europe is, of course, the haven for zombie companies. And it’s a haven for zombie companies because not only does it keep them alive, it actually actively makes it more difficult for young disruptive companies to come out of nowhere and challenge them. So in the US, if you think about brick and mortar retail, think about how much of brick and mortar retail has gone bankrupt already, right? And obviously I was reading Fry’s electronics. Now, I remember going to Fry’s when I taught at UC Berkeley, I mean, this has been a technology retail. It’s almost ironic that you live in the heart of technology and technology. But Fry’s announces going out of business. I will wait you’re coming out of COVID that two thirds of brick and mortar retail is going to be gone. And it’s going to be gone not because the rates are too high, it’s just that the business is broken and they can’t even make money. Forget about paying debt. They can’t make money. Has the Fed spent too much time trying to save companies? In February and March, I was concerned about how much of the focus of both the first Baylard package and the Fed’s announcements were about saving Boeing and the airlines. Now, Boeing and the airlines, we put them together collectively as a part of the U.S. economy, are a tiny piece of the U.S. economy. They’re a big part of our daily lives. But I think that a lot of the initial energy was, let’s save these companies. These companies need to be saved. And I think that might have been the initial reason why the Fed announced its private lending support, the backstop that it announced March 23rd, but I think the actual money that the Fed has spent on that backstop is trivial. The amount of money the Fed has spent. You know what it did though? What the Fed said that they were willing to do this, it opened the doors to private lenders to lend to these companies. Maybe they’re falling back on the assumption that if things go bad, the Fed will bail us out. And that’s not healthy. That’s the reason lenders are lending to Boeing and the airlines. You’re creating a subsidized economy. And we don’t have enough money in the world to subsidize bad companies that can’t make money and keep lending the money. So am I concerned about the Fed? I’m concerned about how central it’s become to almost everything we talk about in markets. I’m sick and tired of talking about FOMC meetings. Frankly, everything that people want to talk about, they don’t want to talk about earnings. So cash flows are growth, they’re business models. They want to talk about, hey, what’s the next federal open market committee going to do? That’s a very unhealthy place for an economy and a market to be. I mean, look at how much time congressmen and senators are spending trying to tell Jerome Pauli should keep rates low. As if that is going to be what drives the economy back to growth. But I think it reflects, I think, this fixation, this obsession we have with the Fed as the movers of all things. But the Fed has itself to blame because it’s made itself, hey, we’re the saviors. We’ll decide what lives, what dies. And that is, I mean, you called it social, it’s in a sense, it’s antithetical to almost everything I think of in a capitalist economy. We have let competition play out. The winners and the losers basically get picked by the market. You shouldn’t be out there trying to change this. And the broader scale, what the Fed has done is it’s enriched borrowers at the expense of lenders. I mean, that’s the generic thing. And the US had trouble with people saving money before 2008. If I were a person, why would I want to save money? What’s the point? No, and I can borrow money at 1.5%. Why would I bother saving money? So long term, we’re doing severe damage to the things that we need to do as an economy to grow is we need people to save more money. We need them to think about investing as a way of preserving and growing what, not as a way of getting rich. And that’s not the lesson a lot of people are getting from this market. Well, I always feel the Fed has become this bullet bureau, as closely you are to the Fed, as more you can guess it, as more you can figure out where the next, where the new money is coming from as much will stay in your pockets, right? So as Goldman Sachs, they don’t care about trading anymore, they care about being close to the Fed meetings. That is definitely not healthy. What I can’t figure out, what is really going on is the Fed has become so powerful because it can and we have the reserve currency, we can print as much money as we want. But on the other hand, we could have done this 50 years ago. So what happened, and this is kind of like Peter Thiel’s theory, and I’ve been thinking about it a lot, is we have this low productivity growth that started in the 70s. And since then, we have, it slowed down quite a bit from what we’ve seen the years prior, at least 45 and 75, and also, you know, earlier in that century. And what was really interesting to me was to see, and this low productivity growth is low growth rates of the economy because our population hasn’t grown that much either. So the question is, are we kind of band aiding this low productivity growth? In most sectors outside of technology, obviously, you know, Google and Facebook, we have to exclude those and also China, they’ve grown like crazy. But outside of this few success stories, and they’re getting pretty big, but they’re still only 10, 15% of the whole GDP, is the problem that we have low productivity. And that’s why the Fed is like painting over and printing more money and band aiding until everyone is waiting for the end game for the big bang until, you know, big inflation gets rid of the Fed, basically, and we all go to Bitcoin. Or is it the other way around, is the Fed the evil power, so to speak, you know, when you look into a lot of conspiracy theories, the Fed is the evil power who kind of tries to ruin the American economy and with this cheap money. I don’t know if this is even, if you can do this, but is the Fed policy the originating problem or is our low productivity growth where we don’t have explanations for the problem? I think the low productivity growth is the starting point. I don’t think the Fed is, in fact, most institutions, in my view, are too inept to be evil. You know, there’s investment banks, hedge funds, I mean, I’ve been there, I know exactly how decisions are going. These are not, I mean, if these were villains, they’re more like, you know, Wiley Coyote, not Joker from Batman, I mean, they’re not capable of having that kind of, but I think the low productivity started, I mean, I think that’s the start of the question is why is productivity low? Why isn’t it increasing more? One reason, I think, is at some point you hit a ceiling. You can improve productivity only so much in some businesses and many of those businesses where you see low productivity, it says that you hit a ceiling. There’s not much more to go with the kinds of existing ways of doing things. And that’s why technology, in a sense, is disrupting those businesses is those businesses are so stuck in their ways. In fact, I think Tesla’s today’s price is vastly overpriced. But as a company, let’s face it, it’s changed the automobile business, right? I mean, in a sense, it’s kind of reinvented the business and said, look, you know, maybe we don’t need to build these huge assembly plants that produce, you know, that have the capacity to produce a million cars, even though we’re going to produce only $250,000 because I’m sorry, the old auto companies, because they thought economies of scale are going to kick in and our productivity is going to improve, but it turned out and didn’t do that much. So maybe Tesla’s looking at it saying, maybe that’s not the way to go. Maybe the way we get more productive is to have low capital intensity models that try to get production at the margin by investing in whatever we need to. So I think we might be in a transition phase on productivity and that’s part of what we call disruption is that the old models have kind of hit their end game and we’re trying to replace them with newer models, which is an upbeat component to it because as the new models come in, you’re going to see productivity kick up again. The question is where are the gains from productivity going to go? They’re going to go to the capital providers, they’re going to go to the labor that goes in. So you’re going to go back into the old question of who gets what part of the pie, but at least the pie will be bigger. It’s really interesting you mentioned Tesla, which I call my favorite accounting fraud. I always feel it’s a major accounting fraud out there, but on the other hand, there’s so many accounting frauds now that I would say are an accounting fraud that if I would have to give someone my money, then I think Tesla and Elon Musk would be my first choice. So maybe that’s what investors think in the skyrockets so much, everyone bakes that in. You’re the accounting expert, what do you think of Tesla? Is it a fraud or is it really dreading the line? They play a little close, fast and loose with the rules like every young company and you take Airbnb and you look at the numbers, when you add back stock based compensation, of course you’re playing again. Don’t tell me it’s not. I mean, basically you’re paying your employees with stock because you don’t have the cash. It is an expense. So why would you add it back and say it’s not an expense? So I think from that perspective, they play fast and loose with the rules, but the reality is if you want to do, you could fix them. If you’re looking at it and you don’t stay with the proverbial earnings per share, which is a lazy analyst, no one number that you watch and you look at the whole thing, they actually give away the fraud and say, if you want to call it fraud, this is what we’re doing to play games with earnings. You can play along with us and act like we made money, or you can do it yourself and discover we lost money. So to me, the bigger problem I think with Tesla is not that they are playing fast and loose with the rules, it’s what I call, it’s become the ultimate story stock, which is nobody gives you a tangible reason anymore why they buy Tesla. Yes, and why do you buy Tesla? It’s a greatest company in the face of the earth. It is going to be the future, it’s going to be automated driving and you push them on it. They can’t give you specifics because there are no specifics. They’re letting a story drive their decision and the reality is they want to buy Tesla because they want to make money and they’ve seen other people make money. They’ve been left out. They can’t think of a good reason why you should be buying at 800. So they’ll give you a story instead. And I think it’s as old as time and people really want to do something, you really can’t stop them from doing it. And they will find ways to convince themselves that they did it for all the right reasons and a lot of people on Tesla have convinced themselves that the right reason is this is the future of automobiles, that it’s going to find a way and I don’t see how that story actually plays out in the numbers and we justify what they’re paying up front. Yeah, I have serious doubts that this ever will make money, but it will stay the story stock, so to speak, because Elon is good at this and he has the following and I had another podcast guest and he was almost like a disciple of Elon. They’re not related. They’re not even at the same company, but he literally knew every word Elon has said the last three years. I’m like, isn’t that a little much? I mean, you’re an intellectual yourself and you’re successful what you’re doing, shouldn’t you be more critical? He’s like, yes, I thought about it, but he’s absolutely right. I’m like, okay, so much for that. I mean, he’s very convincing, right? So there is a lot of energy that has come together. I’m really amazed, you do a lot of valuation analysis for companies that have very interesting business model. You did a bunch of blog posts about Uber and I felt like there is so much in Uber that certainly is a company that generates revenue out of nowhere, but it also burns through billions of dollars. So it seems like a dot com business. I was involved in a bunch of dot com startups 20 years ago. And what happened is you could basically generate $10 billion in revenues tomorrow. You only needed two companies, right? So they used swap revenue around and you kind of disclosed this somewhere in your IPO report, but nobody really cared at least in the beginning. And you suddenly both went IPO 400 billion dollars and everyone was like, wow, this is a solid business, right? And then the other company fell apart and you had zero business and then well, you had some business, but it wasn’t much. And I feel this is true for a lot of these IPO generations and I criticize them a lot. It’s typically a soft bank investment. It poured an amazing amount of money, way too much than it seemed that that particular niche should have. They poured in a billion or 10 billion, it didn’t really matter. And then took them IPO. And to me, they all seem bogus. To me, it’s still Uber seemed bogus as a business model. Yes, I use it every day and it’s wonderful, but as a business model, subsidizing drivers, subsidizing rights for the eternity until seemingly someone else can take over that business tomorrow. It seems to be no real network effect and they pay a lot of money to get everyone inside that I was in and getting the customers in. And I’m amazed how you value those because you have to value the story, right? You have to value this business model that’s obviously not proven because I would value Uber at zero, but you value that what I listened to 20 billion dollars. In a sense, I think you might be a little too harsh on Uber. The thing, I mean, I agree with you about the basic business model being flawed. It’s not just Uber, right? Sharing, if you look at it collectively, there isn’t a single player in this game who makes money. Uber doesn’t, Lyft doesn’t, DD doesn’t, Grab doesn’t, OLED doesn’t. So none of those companies make money. So I think that to me is a problem. But Uber has changed the car service business. It changes the way we use car service. I look at my kids and how they use Uber and it’s clear that they use Uber for things I wouldn’t have used to taxi cab for 10 years ago. In the Bay Area where Uber and Lyft have their deepest roots, they’ve tripled the size of the car service business. You look at how much revenues the old taxicabs and services we used to make in 2007 when you compare to the Lyft in the ridesharing company revenues in 2017, they tripled it in 10 years. So from that perspective, they’re succeeding and pulling people away from a different way of travel. And I said, every winner has losers. By doing that, there are a lot of people in the Bay Area who don’t own cars. They just use Uber and Lyft, it’s so convenient. And that is lost sales to the auto company. So I think that from that, so they’ve done that well. I think that they’re biggest, and they also arbitrage, they created money from arbitrage, the fact that taxicabs are to operate on district rules than they did. So initially at least, the guys who regulated the taxicabs did an incredible disservice to the taxicab companies. I mean, in New York, for instance, I remember taking a taxicab from the airport to the city and it’s a 45 minute ride, and I said, are you going to pick up somebody from here and take them back to the airport? And he said, we’re not allowed to pick people up in the city. And I said, what? He said, I’m at an airport taxi. I’m allowed to take people only from the airport. And I said, that’s stupid. You have to drive your car back empty. And he said, that’s a rule, or they’ll take my license away. So they arbitrage stupid rules like that. And they also arbitrage a failure of human beings to price that time right. And what I mean by that, an Uber driver is driving for way below minimum wage. If you factor in the cost of the depreciation on his car, the expenses, the other costs. But he doesn’t realize it because he says, I’m making $11 on this fare for an hour. You didn’t factor in your time, your expenses. And I think that they’ve taken advantage of that in a sense to get really low cost labor. So that though is in the reason I, those are both temporary is at some point in time, that model breaks down. And with the drivers, you’re starting to see it break down legally because quotes are saying, these guys are not independent contractors, they’re your employees, you got to pay Social Security minimum wage. So I think that period of arbitrage is coming to an end. The only thing is, even if the cost for Uber and Lyft go up now, what do you go back to? I mean, one way I track whether these businesses are getting viable as businesses is I track how much because in the normal spring, I fly to New York probably 20 times over the course of five months back and forth from San Diego, I land at five a.m. in New York airport and I take a car into the city to the village and I keep track of how much it costs me to take Uber or Lyft. And it usually takes about $36, $40 for that ride and support if I’m not right. There’s no way. Those guys are making any kind of living ways. There’s no way Uber or Lyft is making money on it. So one thing I wrote when I, when I wrote my Uber post, I said, you know, if I’m as an investor in Uber, I want that fare to be $65 or $75. That’s a viable business model. And if that doesn’t happen, then I’m selling my Uber stock because I don’t see this as a long term viable end game. So I think it’s, they’ve done some things well, but when I compared Airbnb to Uber, I think Airbnb is a much more solid business model to build off in terms of moving to what’s probably the problem with it. And I think that’s one thing that I noticed about the company when it went public is how much further along it wasn’t the way to at least thinking about making money. I think Airbnb, and that’s what a lot of people have probably overestimated that they definitely have a similar acquisition cost, if not higher than Uber to get drivers and the owners of the properties and then the individual renters online, but it’s pretty much they expended on the monopoly. Nobody is able to really get into the same market globally. They really own that market. And then there’s a networking effect because as a potential person renting your house, you don’t have Airbnb, VRBO, and then you start to run out of options very quickly because everybody else is so small. So I think that from that perspective, but they’re going to face the same friction, which is you got to keep hosts and guests happy. And what you do to make one group happy is probably going to make the other group unhappy. It’s very difficult to see how you thread that needle without pissing off one group with the other. Yeah, but they don’t have a lot of maintenance costs. Let’s put it this way. So once you put pictures on and you set up your own property, that’s kind of all the interaction with the hosts they need and then the host hopes for money. So I think Uber has more to do, the car needs to be maintained, the driver needs to be active. So I always felt Airbnb is a much better business. There’s one big thing and one big notion that I keep talking about on this podcast is entrepreneurship is what do you think the role is entrepreneurship in the US in say the last 20 years of what happened to it? Do you feel, and you said that earlier, we’re still the best nation out there in terms of economic disruption, which is done by entrepreneurs typically. Do you feel that’s something that we could do a better job? Because from my point of view, and that’s even true being in the valley, there is definitely a discount on the entrepreneurial values, not just in popular culture, but the popular culture I think goes towards people’s actual decisions, what should they do in their life? So the question is, is there less opportunity because we have less opportunity? So is it because less entrepreneurs create these opportunities by interacting with each other, creating better products and eventually selling it to the public? I think it’s always been an ebb of flow. I started in, I came to the US in 1979, there was almost no entrepreneurship in the early 80s. Why? Because the economy had basically shut down, people were in their shells trying to make their way through. Then people gave up in the 80s, people said, this is the end of the old technology, we’re going to go back and then you got the 90s and you got its fresh wave. I think each wave has its peak. I think the social media user platform wave is, in my view, peaking, which means, and I think that it’ll take a while for the next wave to kick in and when this wave peaks and starts level off, there will be a period of quietness because people are looking at what do I do? And things like AI, I think are too, it’s not something that the average person, I’m going to start an AI business and it requires a little, the hill is a lot, so if you’re an MIT grad, maybe you’ll start an AI business, but if you’re somebody dropping out of a KPMG job, you’re not starting an AI business, it’s just too much. So I think it’s going to take a little while for that next wave to kick in. I think one thing, though, is you’re in California and I’m in California and this is not a state that is particularly friendly. Forget about entrepreneurs, anybody who owns their own business, a small business person, right? I mean, the rules you’ve got to, the holds you’ve got to thread through to get a business going. I’m amazed that anybody actually ends up running a business here after the kind of rule, and forget about, I’m not even talking about the tax issue, I mean, that’s almost entirely different issues you still have to deal with. I’m just talking about running a business and staying on the right side of the law, given how many laws keep getting passed and how much time it takes for a small business to kind of follow those laws. So I think that that’s where the lab experiment kicks in, you’re 50 states, you’re going to see states saying, hey, you don’t have to do this, and that’s part of the reason, I think, I wouldn’t be surprised if, I always think Silicon Valley is going to be the heart of technology, but I think you’re going to see Austin and Boston and I mean, other cities basically, I mean, New York has become a pretty active hive for startups because people find it actually a little more friendly to businesses than, and I never thought that would happen, than Silicon Valley. Yeah. Oh yeah, it’s terrible. I mean, the enmity between any kind of entrepreneurship in California, especially the coastal cities, it’s just a block where you could make a blockbuster movie about that. And it kind of feels like Eastern Germany, I can just say that again, it’s this, anyone who makes money, if it’s not a big tech company, and big tech companies, there is a special relationship because the idea is we can extract money from it, that’s what you’re kind of, there’s some love there, but it’s the, everyone who is an entrepreneur, is an entrepreneur you’re feeling, it’s just, there’s no representation in any city hall, it’s like the furthest away from this. Like that, soon there will be this law that if you make, I don’t know, a certain amount of money, you need to register and you need to, you need to apply for a permit to even make more than $100,000, if it’s not Google or Facebook. So that’s, there’s got to be a popular culture that, and we can always say, well, these are the crazy leftists, right? When I live in San Francisco, I don’t, I don’t, you know, I take it like Jesus, so to speak, I go where the sick people are, I don’t go where people are healthy. So I’m trying to figure out how this extreme success story Silicon Valley has created such a backlash from people in the area. And obviously there’s high rents and there’s high prices that were created somewhat by tech companies and that explains part of it. But to an extent, I feel there’s a deep seated, almost religious zeal against capitalism. And capitalism as a way to improve life seems to have lost it in most of these coastal communities. And I don’t know why that is. I think part of it is that we’ve become a world where the rich, some of the rich have always behaved badly. That’s been true through the centuries. I mean, in every, in any group, people behave badly, but when the rich behave badly, it’s conspicuous. They, they do things that, and 50 years ago, 100 years ago, when you behave badly and you were rich, maybe there was a story in the New York Post about you behaving badly. People read it and moved on. Today, when the rich behave badly, it’s on social media, you can see it over and over again. I think it feeds into preconceptions about what rich people do, that they all do what that badly behaved person does. And I think in a sense, it’s feeding into this, I, I agree with you, it’s a very unhealthy attitude of if you’re rich, you either must have cheated to God there because that’s what I saw in the movie Billions and the, or the TV show and they seem to all get rich by breaking the rules. Or now that you’re rich, you’re probably doing all these terrible things in your home because that’s what I see other people. And I think it’s very difficult to kind of say, look, I’m not that kind of rich person. I didn’t get here because somebody allowed me to break a rule. I got here by working hard and creating a business. And I, and I continue to hope that we start to separate those people who are obviously rich and got there the bad way from the people who actually worked and make, I mean, but as long as we view them as kind of leeches on society and I listen to congressional hearings and I hear people describe people who are rich as essentially, you know, you can disagree with Jeff Bezos and say, you know what, you know, I don’t like the way, but to argue that, you know, that he doesn’t deserve to have a hundred billion, you know, what has he done? We missed the fact that not only has he built one of the most valuable companies of all time, that he probably employs more people in the U.S. than any other company now. I mean, I think a number of employees, Amazon exceeded Walmart last year, that this is not a man who’s living off, you know, and he’s given you a hundred prime for nine. There’s nobody in this country who is going to look at that prime for one 19 and tell me that they’re not getting the greatest deal ever offered. I mean, I get more from my prime membership than any other subscription I have. It’s not even close. And every day when I use it, I think about, hey, thank you, Jeff Bezos for making it available to me. But there’s this argument. I think there’s a lot to it. You know, it’s instinctively, I always agree. If someone says nobody needs more than a hundred million, I say, you’re absolutely right. Everyone basically a million is already stretching it. You know, it’s this Buddha’s idea of giveaway everything you’ve got, and you will be better off in the end. It plays out a slightly differently for everyone, but it should be someone’s own decision. And that’s, I think, totally forgotten in this. You know, you can’t just use the state to take property away because I’ve seen it happen in Germany. It’s not a good idea. You can’t be generous with other people’s money. I mean, that’s basically it. You can’t be charitable with other people’s money. I mean, I think if you look at people like Warren Buffett, Warren Buffett has pledged to give away most of his wealth before he dies, and he’s been working hard. Think of Bill Gates, right? And people disagree with him. They might not like what he does, but he’s actively tried to spend the money you made at Microsoft. So that’s why when people say, well, what’s the gain here of having people buy companies, would you rather that Bill Gates have gone into, I don’t know, the Peace Corps in 1981? But he have actually done more good for society as a member of the Peace Corps for the last 40 years than he did by building this greatest software company of all time, cashing out and using the tens of billions he got to do whatever he does. So I think this notion that you either can serve society or you can build businesses and get wealthy is a false one. I think that a lot of people who do a great deal that’s good for society are able to do it because they did so well at building businesses. And I agree with you. It’s not something I heard when I first came to the US in the 1980s. Today I hear it more often and often in places I don’t expect to hear it in the middle of a Senate hearing or in the middle of a congressional debate. And I’m surprised and I’m troubled when I hear that because it cuts to the heart of what made this country, what it was in the first place. Yeah, I think it’s a really dangerous game because that always seemed to be the engine to deliver peace and happiness, let’s put it this way, because when people think about socialist countries and say, oh, well, they had cars too. And I’m saying, yeah, that’s true. We had the same technology as in Western Germany, but you had to wait 20 years for it. And the damn thing would never work. So you can call it a car, but it’s not really a car. And it seems to be for housing or food or anything. It’s true you probably won’t die because of starvation, but if you only have one, you will die of scurvy. Most likely because there’s only one food available. So this is a long term thing, and I obviously understand people’s short term frustrations, but I think it’s a really dangerous game. And I hope it’s not falling out that way that good part of the US turns super socialist. I don’t think it will. Some states probably will have to play this game out. One thing, we talked about all these things that are wrong and things that should go better. And a more positive note, where do you see our really great investments that most people don’t see? And you’re the dean of evaluation. You really see what’s out there, what maybe hasn’t gotten the attention or hasn’t gotten the evaluation. Where would you send or what direction? You don’t have to spill all the beans, but what direction would you send people right now? And in terms of classes of investments or particular… Classes of investments or particular investments. I tell people to go where it’s darkest. I mean, that’s my advice always, is go where it’s darkest, where people have given up, where people know whether it’s regionally, whether it’s in some sectors or in terms of industries. Now, for instance, I agree with you, the airlines for the most part are zombie companies, but I also believe that we have to get on an aircraft to fly and that this is not the kind of business that an Amazon or Google or an Apple wants to enter. It’s heavy infrastructure. So I do believe that there are going to be airlines that come out of this mess, looking much better and performing much better than the airlines that went in. I mean, from my perspective, I own Singapore Air that I bought recently and I own Southwest. Neither of them looks good on a financial basis, but I believe that when this shakes out that you look at the winners coming out on the other side, these are two companies that I’ve always respected for running the business solidly. I mean, they did the right things. I mean, they got whipsawed by things out of their control. So I would suggest looking through businesses you don’t like because often we look at businesses we like, we latch on to companies we love, and we pay prices which are too high, is look at businesses you don’t like and then look for companies within those businesses that are actually trying to do things better. The retail business, for instance, brick and mortar retail is a terrible business, but clearly Costco and the dollar store have figured out ways to create niches in this business to still succeed. So what you’re looking for are bad businesses, but still very big businesses that we all need, but you’ve got companies essentially looking for better ways to do this business, not waiting for Amazon to tell them how to do it. So I think that that is a big part of what value is, is looking where nobody else is looking and essentially looking past the damage right now and asking what will happen. Because I talked about stories, there’s nothing wrong with investing in stories. We’ve always invested in stories. We want stories backed up with numbers. You’ve got to do your homework, tell a story, make sure it’s a probable, plausible story, build in the numbers, invest and then sit back and see how it plays out. I should have listened to you and bought some GameStop, I don’t know when you put it out like two weeks ago, and you said it’s worth 40 and then it just jumped again to 200. I think the problem with GameStop is there is a plausible story. It’s a plausible story for reincarnation, especially with the Chui CEO Ryan Cohen being on the board and pushing for change, but it’s not going to be easy. GameStop is not going to become an online retail giant overnight because they’re going to be competing against other online retailers, a much better edit. They can’t become a gaming platform overnight either. It’s a very different business, so could they get there? Yes. That’s why I don’t think, I think people were selling short and saying there was nothing. I think we’re missing that potential transition, but when you pay $200 per share for the company, there is no story I can tell you, that’ll get you to 200. This is this pipe dream. You’re not buying on value anymore, you’re buying because you hope you can sell it to somebody else at 250. How did you come up with 40, I mean, I know it was like nine for the longest time. What I looked at is I looked at the fact that if they stayed a brick and mortar retail store, they’re going to end up at about 15. One of the things that came out of COVID that was good for them is they did pivot to online retailing and they discovered that they had a strength, which is they had this database of everybody who went to the GameStop and my kids used to go into GameStop and you bought a game, you gave them your number, your phone number, so basically they accumulated this database that they could use and your address to actually mine based on what kinds of games you bought in the past and sell online. It’s a strength they did not know they had. My optimistic story is not a really upbeat story. I see them coming back to positive growth. That to them would be a huge plus because of the last five years, they’ve seen the revenues and store shrink. I think they can rediscover growth if they can build the online. The advantage of the online platform is you don’t have to own stores, you don’t have leases, you don’t have the kinds of fixed costs you had with the traditional stores, a higher margin business. You bring in online retail with higher margins, that is the extra $15 or $20 in value per share you’re getting. It’s not going to be easy, but it’s definitely doable. Actually, my base value was $30, my best case was $47, so you can see even within that with the range and the values. One thing, and I don’t know if you know about that, is there a way to, when we see these short squeezes and the way they happen, and I know the float was very low with GameStop and it looked like a great candidate, and I didn’t see the post either when I looked back to the original post on Reddit, and it was like, they recommended at the time buy a long dated option because we don’t know what’s going to happen, but it was only $50,000 shares. That’s $500,000, that’s like two people can buy a whole float and then there’s nothing left for the short sellers. Is there any way to predict Navi Young, the second stage of this short squeeze, is there any way to predict these short squeezes or they’re completely random? How did they not happen for a month and then they happened immediately? I think what made the GameStop short squeeze so unusual, the short squeezes have been around 160 years. The very first short squeeze was in 1862, Cornelius Vanderbilt, the New York magnet, used to short squeeze to essentially get control of the railroads coming to New York. He squeezed somebody who had shorted one of the railroad stocks, drove him out of business, bought out his business, 1862. And if you look at the history of short squeezes from 1862 to the last decade to the 2007 Volkswagen, huge short squeeze, poor share derivative. Usually you had a big entity that was causing the squeeze. So basically you had Volkswagen, you had Vanderbilt buying shares effectively with an end game. End game for Vanderbilt is you didn’t want to control the company, you wanted to control railroads. You were using the short squeeze as a pathway to a bigger game. What was different about the GameStop squeeze, and perhaps we shouldn’t be surprised by it, this wasn’t a single person. It was a collection of people, each individually not wealthy enough to do anything, but collectively. That’s why I called it the first crowd squeeze in history. And in fact, what they were following was a template that Tesla stockholders have followed for the last 10 years. There have been three short squeezes in Tesla in the last 10 years. And all three have been created by these groups of buyers pushing up the price rather than a single buyer. The promenade of groups of buyers is crowds are tough to predict. So if you ask me what’s going to cause the next short squeeze, it’s whatever catches the crowd’s eye. So if I’m a short seller, you know what my end game from this point on is now that I’ve seen what happens to GameStop, stay out of the public eye. Don’t pick on stocks in a way that draws, because the old short selling rule book was here’s what he did. He short sold the company, then you went out on a platform and yelled as loud as you could about how terrible the company was, how it was going to go to zero. It’s Andrew left, for instance, Citroen, one of the company. That’s his playbook. He does a lot of research, he publishes 100 page thesis on how terrible the company is. You do that now. It’s almost like you’re attracting the attention of a crowd. And they’re going to latch on, and if they latch on, then you’re in trouble. So I wouldn’t be surprised. One of the things that comes out of this is the way you do short selling is going to go under the surface. You’re not going to see people be open about it. And if the short ratio starts right, because that’s the other trigger that can draw the crowd, short interest went up above 100%, you’re going to keep an eye on that as well. You don’t want to be short selling companies, but that number gets to be high enough that you get on somebody else’s radar. So I think it basically, if you were a short seller, the lesson you learn from this is don’t draw attention to yourself, because you don’t want the crowd to notice you, because the crowd notice you. It won’t work if I short sell Apple or Google. I mean, let’s face it, collectively these Redditors control about $20 billion on a really, really, really amazing day. All the robin would happen. $20 billion is nothing in this market. It works on a GameStop because it’s a small market gap company. It won’t work on Silver. So when I heard they were targeting Silver, I said, you guys don’t know your history. How many times people have tried this on Silver? The Hunt brothers did in the 1980s, went bankrupt. But I think that’s, I think the broader lesson from GameStop is don’t make yourself the target of the crowd, especially if you’re short selling a small company, because they can take you down. Yeah, I’ve been always very careful with shorts, simply because of the fact that your losses are unlimited and you have a very limited upside. So it seems like a really bad deal. Because you don’t control your time horizon. That to me is the big, big, big difference between being long and short. Long I control my time horizon. I can hold and hold and hold. You can’t force me. You have opportunity costs. From a fund perspective, you have opportunity costs to be long, and they might develop, and there’s drawdowns that you are not able to stop, or you’re investors. For the shorts, typically it’s for automated strategies that you hold for a couple of days or for a week. But so the time horizon is kind of the same in most liquid markets, unless the market breaks down. But then everyone is in trouble. So you won’t be blamed for this. But I always felt the risk ratio is really tricky with shorts, the way they’re set up right now. I only learned with the GameStop crisis about this really archaic system that runs behind and actually enables us shorts. Because it’s actually really complicated. I had no idea. I’ve been using it on a daily basis every two seconds. I ran it short, and I’m like, holy smokes. This is like 15 different interactions. So the time you actually had to get the shares, borrowed and delivered, physical shares. I mean, those days are long since it’s gone. But no. Well, you don’t think of it like you said. I always felt it’s the same as a long. The longs are complicated enough with the archaic backdoor infrastructure, the backoffers infrastructure that most brokers have. So that was really interesting. That’s what taught me a lot from the GameStop, reading all these articles and research about actually what happens in the background. Anyway, I have a couple of quick questions for you, if you don’t mind. What do you think of Stephen J. Dopner and Stephen Lewitt, the free economics authors? What do you think of their style of teaching economics? I love it. I think, you know, I think we need to bring econ down from the abstract to things we do every day. I mean, I tell people, you know, when you say you don’t like econ, you don’t realize you are practicing economics every moment. You’re practicing finance every moment of every day, every decision you make. It’s a financial decision. You can choose not to view it as a financial decision. So when I teach finance, I try to make it as close to things. So I don’t talk just about companies making debt decisions. I talk about how that plays out in your individual decisions. I talk about agency costs, big issue in finance. They say, what does that mean? So when you borrow money from a bank, your incentives and the bank’s incentives are not the same. The bank’s incentive is to make sure you pay the bank back. Your incentives might be to take that money and take big bets with it because you get a big upside. You get to keep the upside. The big downside, you declare bankruptcy and you walk away. And banks know this. So guess what? They write covenants. They write protections. They try to make sure you don’t do this. And by doing that, you’re, in a sense, saying, this is not. So when you talk about bond covenants, it sounds like this fancy abstract thing that only, I think it just reflects this problem of incentives not being aligned. So I like the fact that, you know, that thing. And that’s one of the things that behavior of finance is also brought to finance that I think is good, which is accepting the fact that we’re not robots. We are human beings. We make decisions in bad ways sometimes because that’s what human beings do. So I think both bringing economics down to the basics and tying it to actual human behavior makes economics more interesting, making it more interesting means people learn it more. Is there a theory that describes economics? And I know the rationality of human is the basis of more economic analysis. Is there a similar theory that’s been developed for the emotional human, you know, the one that’s where the limbic brain is being motivated by Facebook and by social media? I mean, in the 1970s, and, you know, if you look at his books over time, it was essentially taking things we knew in psychology and looking at markets and saying, that explains it. It’s not stupid. We hold on to losers too long, just a well established fact. Why do we hold on to losers too long? Because the act of selling a stock is an admission that you screwed up. So what do we do? We delay it. It makes you human. And I think what you get out of that is essentially the recognition that you need to put in systems in place to kind of fight your humanity, which is you need to put in a short sell at the time. So let’s say, you know, or a limit sell, when you buy something, let’s say you buy something at 50 because you think it’s worth 80, you put in the buy, and then you put in the limit sell at 80, at the same time you put the buy. Here’s why. If the stock goes from 50 to 80, you will find a way to convince yourself to keep holding that stock because it’s made so much money. What if I wait a few more weeks? So one of the things I’ve learned is my weakest links as a human being and how to automate processes so I don’t get in my own way because I know I will. And I think behavioral finance is fascinating because it gives you insight into yourself and if nothing else, it strips away the delusions that we have of what rational human beings, we do everything for a good reason, because a rational human being is an oxymoron, where human beings are rational, we can’t be both. Yeah. It’s Spock Verzyskirk. What’s your favorite city in India? I grew up in Chennai, it remains my favorite city. So it’s the most conservative of the Indian cities, it’s throwback in time, it’s become more modern in the last 40 years. But it is my favorite city because that’s where I grew up. I went to school in Bangalore, I loved Bangalore when I went to school there, but I haven’t been to Bangalore since 1979 because I’m afraid of what I’ve heard become, which is a city where the traffic never moves, it’s so incredibly overcrowded, they’ve ripped out the trees and the gardens that used to make it such a beautiful city, but I love Bangalore as a city too. I spent a lot of time in Gorgon and Delhi and became really, I really liked the city, that was back 20 years ago, I went back a couple of years ago and I couldn’t find a single, I couldn’t remember a single building, so it looks like Singapore now and it’s amazing, there’s freeway snaking everywhere and that’s like China, so it’s the same development that happened there. And that part of Delhi, there’s parts of Delhi that haven’t changed at all, but there’s metros now and I’m like holy smokes, that really went quick, there was only 15 years that I missed and it’s like going back to Shanghai. That’s the thing about Asia, I left Asia in 1979 and people keep asking me why I don’t write more about India and I said it wouldn’t be right for me to write about India because the India I left is not the India you’re in, it would be extremely patronizing of me to talk about India now as if I knew it well. It’s a different country, it’s changed so immensely in the 42 years that I have to be cautious to bite my tongue when I feel the urge to say something because I first have to check it out to make sure that it’s still true. So I think that all over Asia, especially in India and China, of course the change happened before India, but I have a feeling this is the decade where you’re going to see massive change in India and I’ve mixed feelings about it, there’s going to be good stuff that comes out of it, but there’s also going to be stuff that won’t lose, that’ll be gone forever. Considering going back and running for public offers or becoming an economic ministry joining them? I’m not a politician and I’m not a bureaucrat, I’m a teacher. If I didn’t teach, I’d have no oxygen, I mean I need to be in front of a classroom, I need to be teaching, I’ll do that until I’m not able to do it anymore. So I have zero interest in changing public policy by directly running for office, but who knows? People might go through my classes and they have and they’ve become ministers and run for office and not always push things that we talked about in class, but maybe indirectly I can affect policy that way. The thing about teaching is you can affect, I change lives in my classroom and they go out and change lives that live facts, kind of spread around the world. That’s going to be a deeper question. How much do you think can leadership influence these big, really big entities, like how we think about economics, but also how politics work, how our leadership influences the economic history of a country and I’m using the example of Singapore, so it seemed to me single handedly be transformed from a fishing village to the richest country on the planet in less than 40 years. Would you attribute it as an economics attributed to leadership or this is something that the leadership was basically just in for the ride and it really doesn’t. It’s certainly with Singapore, you’re looking at the exception to the rule, right? Not only did you have a leader, you had one of those rare leaders who really had no hidden agenda other than making Singapore a world class nation. Just like you and teaching, right? Well, and I think he did and it’s tough as a leader to be able to do that because power usually goes to people’s heads at some point. You start with the best of intentions, but after about 15 years, power goes to people. It never happens, Lee Kuan Yew. That makes them, I think, almost exception. I can’t think of another country where you had that, I tell people Singapore is the only country and because he did it that way, he created a group of politicians and bureaucrats who actually thought the way he did. I tell people Singapore is the only country where I’ve talked to an official in the ministry or in trading where the person talks about a 25 year plan and actually means it. They’re actually thinking 25 years ahead and saying, what do we need to do? And they will make sure that even if they pass on to the person next, we’ll keep working on that plan. And I think that so can a person make a difference? Absolutely. It’s easier to do that when you have a small city state than a country. It’s easier to do that when you have a homogeneous population than when your population’s diverse, pulling in different directions, different cultural perspectives. But I think that it does make a difference. But I think ultimately change comes from below. I think ultimately real change doesn’t come from the top down. Top can set an example, but it has to come from people. I mean, I tell my kids, look, I know you want to change the world, but if you can change one person at a time, one thing at a time, it starts to add up. It starts to add up. We all did our incremental piece. I think we would do a lot of good, even if it’s the small things. Yeah. And Malaysia is not far behind Singapore right now, right? So it’s certainly in GDP, it’s still a little bit away, but in growth rates, it’s really closed. And it probably has one of the most corrupt country on the planet, corrupt government on the planet. It’s been flagged by scandals, but it’s still really closing in on Singapore. Sometimes countries succeed in spite of their leaders, sometimes countries succeed because of leaders, right? I mean, if you have an entrepreneurial people who are hardworking, they can survive bad leadership. The problem is, if leadership stays corrupt and inept for long enough, the incentive structures get changed enough that the people who are the best people in your country tend to leave. They say, I don’t want to deal with this anymore. In which case, you’re ending up with a selection bias. The people that are left behind are not the people you wanted in your country. But that’s, I think, the danger. And I think Africa’s faced this problem. I think it’s a challenge for Africa is, for the last 40 years, I’ve been told that this is Africa’s decade, that this is going to be the natural resource they’re going to find away. And at the end of every decade, we look back and say, what happened? And I think Africa is a classic example of how, if corruption and bad behavior get rewarded, long enough, you essentially lose the very best people in your country to other parts of the world. If you would have to pick a winner for the next 10 years out of those troubled African countries, which top three would you pick? If you have to? Well, Nigeria and South Africa, Nigeria and South Africa don’t win. Africa’s not winning, right? I mean, in a sense, there’s such disproportionately large parts. So I’m going to go with Nigeria. I keep, I love Nigeria as a country. I have a lot of good friends with Nigerian. And I think that Nigeria’s potential has always exceeded what it’s produced. And I keep hoping that this will be the decade when things change. So I would put Nigeria in there. South Africa, I think in spite of, again, in spite of its leadership, I think has the most diverse economy of all of Africa in terms of different businesses. It’s not just natural resources, the collection of things. And it has some very, very bright, well trained people in every discipline if they’re allowed to do their thing, South Africa. And, you know, if I had to pick a third country, I’d probably pick Ghana. Okay. They seem to be on everyone’s list. Well, I had Ruby Alcantara on and she just impact investing and she says, you know, those are you typically the darlings, Tanzania used to be part of that and Kenya. What about Ethiopia? Do you feel Ethiopia is on a good trajectory or it’s going to drop? Well, well, I think, I mean, I don’t know enough about what’s happening within the country. But clearly, I mean, I remember when Ethiopia was opposed to Chad for everything wrong with the world. I mean, it’s a, and to see how far they’ve come is gratifying. So they clearly come a long way. So I think we need to remember that they’ve moved a lot. I think that they have the pieces in place. Again, when I look at a country, I look at the education system because without a good education system, you’re not going to get the train. You look at the infrastructure for development and how that’s working. And you look at the entrepreneurship, what’s the capacity for entrepreneurship? And much of Africa, two out of the three are all three are not there. And I think at the OPA, you have the pieces in place for all three to come in. The infrastructure hasn’t come in, obviously, to take a while. But infrastructure is often the easiest of the three. Ultimately, you just need to find people to invest the money. If the other two come in, I think the third will come in. The problem in Africa is you’re almost never, if you’re a small, one of those sub Saharan countries, you’re almost never complete in control of your destiny. Because your neighbors, or two of your neighbors go into a debt spiral, their troubles spill over into your country. You can’t even avoid it anymore. So it’s not easy. And that’s why I picked Nigeria and South Africa, among mine, because they’re the ones that are most able to kind of insulate themselves. The smaller African countries, the trouble is you can start with the best leadership and the best plans, but the whole thing can spin out of your control very quickly. Yeah. It’s an extremely multi, there’s so many factors to keep in mind. And I always have that impression that there is, in the end, you just have to find that right factor to tune, but obviously the timing needs to be right. And we see this with South Korea, which went from really poor to really rich and like a heartbeat, it seems a less than a generation. And I always feel, isn’t it a shame that there’s so many other places in the world that have a blueprint and they can just copy it, like China kind of copied, you know, what Taiwan did, so to speak. But it doesn’t seem to be that easy, right? I’m very naive. I have to say, I feel like, given all that knowledge and you just switch on YouTube, it should be that everyone just copies that blueprint, and we too don’t have to debate about it. It’s just in five years it’s done, right? The problem is it’s not just the pieces in the blueprint, it’s the sequencing, right? We know that what goes in the blueprint is good education, good infrastructure, all those things, but if you do the education first and you don’t do the infrastructure, what you end up with is you end up being the supplier of employees to the rest of the world, right? We take Hungary, for instance, you know, you go to Budapest, this place is full of universities. I remember walking through every other building was a university and I said, where do all these graduates find jobs? And they told me, they said, they find jobs in Paris and London and Frankfurt. We’ve lost our young people because, you know, so I think it’s not just what you need, but to make sure that the sequencing works, that as one supplies, there is a place for them to go work, because if you have a good education system and your business environment is not being developed simultaneously, the sequencing is off. You’re going to end up with an education system, but it’s going to basically be the rest of the world that benefits from it. But I think the key though is education. I think without, and that’s where technology might be a huge plus in this, where you don’t have to build big universities, you don’t have to go out and hire thousands of faculty. And when I talked about disrupting education, the person I’m looking at is that analyst in Myanmar, you know, who there is zero chance that he’s going to be able to raise the money to come to a business school in the US and end up in my classes, but he’s value in companies and he has very limited resources, you know, he’s not had a CFA, there are no special seminars around that he can go to. I want to reach that guy, you know, and even with the language barrier, if I can get there, then I am doing my small part because that infrastructure, that education base is what’s going to allow these countries to kind of find the growth path. I think you’re onto something there and I feel, and maybe this is just the hope of my generation and we’re going to look down to Africa in 20 years and say, oh man, we just had this high expectation that didn’t work out, but I feel this time it seems to be happening because all you need is a smartphone and a battery, you don’t even need electricity, you need nothing, all you need is a little bit of internet. That’s why I was pulling so hard for Jumia to explode as an, I would love to have seen Jumia as a 100 billion, $200 billion company because it’s not just Jumia’s success then, it’s the fact that a company like Jumia was able to, because if you look at the big South African companies, they’re either mining companies or natural resource companies or big manufacturing companies. It’s very difficult to think of a big successful African company that is technology driven. And Jumia offered that promise of, hey, look, we might be from Africa, but we can tap modern technology. I still think Jumia can come back, but I think because they were so, I mean, they just wanted to look too good too soon, that’s the real problem. They played with the numbers to make themselves look better than they were in the sense it blew up in their faces. So I’m really pulling for, because one company succeeding like that will do, I mean, I remember in India, what triggered the shift towards, because India was never an entrepreneurial country. It’s very top down, caste driven. What triggered the growth of entrepreneurship in India was the success of Infosys, one of the first technology companies in India to come out of nowhere. And people said, no, Narayan Murthy is not your classic family group billionaire. He built this company, he took it public, he’s made it into a company larger than most family group companies, and he did it with an engineering degree. And I can do that too. And I think that that is the kind of success that creates change from the bottom up that can be real change that’s long lasting. I totally agree. If you get, and I feel we’re more on the side of entrepreneurship as a, I think it’s more of a pull, like you have that role model, but you also have, you pull yourself basically out of your bootstraps and you use all these tools like education, because education is already there. I feel like in Africa, you have to use it and you have to apply it. And you got to be a risk taker. And it says you have to accept it, if you’re an entrepreneur, risk taking isn’t a problem. So there’s taking not a problem. Nigerians are classic risk takers. I mean, they’re made for entrepreneurship, right? So I think that, I think that that is so format from an African perspective, I think that the ingredients in place, if they will allow you to keep the fruits of your success and entrepreneur Nigeria succeeds, should be allowed to succeed rather than have bureaucrats step in and try to extract rents from him or her. Yeah, that is a, that is a ginormous problem, the political, political risk. Well, anyways, that’s what I, I thanks a lot for, for taking the time. I learned so much. I’m, I’m, I feel much wiser already. Thank you. Absolutely. I’d like to do this again one day and maybe if you look back and say, oh, we were so wrong five years ago. That’s fine. I’m okay being wrong. Awesome. Thanks a lot. I really appreciate that. Take care. Nice talking to you. Talk soon. Thank you.