All-In with Chamath, Jason, Sacks & Friedberg

Industry veterans, degenerate gamblers & besties Chamath Palihapitiya, Jason Calacanis, David Sacks & David Friedberg cover all things economic, tech, political, social & poker.

E101: Ye acquires Parler, Snap drops 30%, macro outlook, VC metrics, valuing stocks & more

E101: Ye acquires Parler, Snap drops 30%, macro outlook, VC metrics, valuing stocks & more

Sat, 22 Oct 2022 06:28

(0:00) Bestie intros: Brad Gerstner joins in place of Sacks, and brigadoons!

(2:02) Ye's current situation and acquisition of Parler

(14:17) Snap drops ~30%, corporate misgovernance, super-voting shares

(32:53) Macro outlook, Stability AI $101M fundraise, VC fund metrics

(1:05:38) The difficulty of active stock picking and valuing businesses

(1:21:38) Lyft vs Gavin Newsom on Prop 30, PSA from Chamath

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Welcome everybody to episode 101. David Sacks is on vacation sitting in Brad Gersinger from Altimeter group. Welcome back to the pod. Brad, how you doing? It's good to be back. Good to be back. I mean first you first you guys you know Tilted Friedberg and now a little bit on Sacks is skip tacked on Twitter and so you roll me back in when Yeah, we've got a little problem whenever the Brigadunes come out Brad Gersner I think Sacks will be okay by Shadow to Sacks. You know who probably hates the term Brigadunes? The knitwits that are in the Brigadunes. Brigadunes? Oh the Brigadunes. It's all gonna end at some point because I think the Brigadunes new ownership at Twitter is gonna change like the whole span. That's a Roger's and Hammerstein musical right Brigadunes? Brigadunes, yeah yeah yeah. But now I think Brigadunes could stick. I don't I've never heard anybody use that for the other bands. Yeah, calling the Twitter mob the Brigadunes is a good new thing. I like it. It's pejorative. It's funny. It'll give them everything a little bit. Cones it down. I like it. It feels goofy. It completely disempowers them. They really want to be taken seriously. But they're just a Brigadune. Brigadune. I mean to be a Brigadune though you have to have four or more accounts and you have to reply to each of those accounts as if it's an actual conversation. When you're solo Brigadune, when you retweet something as a social justice warrior as an example you're trying to join the Brigadune. It's just a different Brigadune. It's a Brigadune. Jake help. Are you sometimes a Brigadune right? You heard the Brigadunes, Jake help? No, I'm not part of any Brigadune. You're totally Brigadune. Come on. I do not. No. Brigadune. I've never I've never been a Brigadun. I've never been a Brigadun. I mean I mean I may have Brigadun once or twice for my burner account but that's it. I mean. I'm going to buy parlor which apparently Candace Owens husband George Farmer had created so he's going to buy his own social network. If you don't remember parlor is like a really shitty version of Twitter that never seems to have worked or been stable. It crashed the first 10 times I used it. Miraculously this steaming pile of garbage had raised 56 million in funding and Kanye is on a social media slash media tour saying horrific anti-Semitic stuff. He seems to be having a mental breakdown again. There's a big discussion now I guess. Should people be platforming them to the point that he's doing three four or five hour interviews with people and it does seem like it's acute mental illness. I break down. I don't want to like diagnose anybody from afar here and I'm not qualified to do that. He just did. Well I mean he has been public about his struggles with mental illness. It's not a huge leap for any of us that have had family members. Yes. Manic episodes. It's clearly a manic episode. That's pretty much right out of the textbook. So my question for you guys is what you have somebody with great wealth, great creativity. He's obviously a savant in so many different categories. With a huge social media following plus money, plus fame and then you add social media to the mix which is an accelerant and then all of these Tucker Carlson and every other publication, every podcast using this moment. I think in a way to I don't know get ratings off of this train wreck. I find it app-horrent to interview somebody when they're in a manic episode like this. I'll be totally honest. I wouldn't do it. What is your take on this? I have a family member, a blood relative that is in severe mental health crisis. If the emails and the text messages that this person sent were public, I read these things and they've severely, severely impacted me to the point now where I have like a rule that when they're in a manic episode, I just kind of harvest them and archive them just in case something bad happens. But I can't even take the effort to read it because it takes such a toll. Then I feel really guilty because I think maybe there's something in there where I could be missing something. This is what, when you're in the middle of a severe episode, this is what the family and the loved ones of that person is also dealing with. I have no idea what's happening with Kanye but what I would tell you is when you're in a manic episode, the thing that you need is for the people around you to try to step in to help you. It's really freaking hard. I can tell you that I've seen this person in my family say things and do things that are just so beyond the pale. It's part of when they're in that moment and the whole goal is to try to get them out. Get them back on their meds, get them rebalanced. It's a really, really complicated thing to deal with. The guy's buying a social media platform. I think it continues to support the point that I've made a few times which is I don't think that anyone has a monopoly in social media networks. We've seen every couple of years competitors emerge. People proclaim monopoly. Those monopolies get destroyed by the next thing. From a friendster to my space, to Facebook, to Instagram, to Snapchat, to TikTok. I think that the reality is the users of those platforms ultimately coalesce around a set of standards. They want to see happen on that platform. Those standards become the editorialized or produced model for how that platform should operate because that's what the users say. They don't want anti-Semitism. They don't want what they would call challenging an institution. They don't want fake news. Whatever the classification is, there is an editorial or an editorial board that editorializes what isn't allowed to be set on that platform. And ultimately, there is a fringe voice or a voice that feels unheard or feels like it cannot speak on that platform. What we're seeing now with Elon acquiring Twitter and Kanye acquiring Parler and generally a number of emerging networks, like what's it called, Rumbleer, as an alternative to YouTube? It's a real- communication. What's it called? Rumble, I think. Rumble. Yeah, it's a really clear supporting fact that there are going to be alternatives and that what we thought were monopolies and what kind of became digital town squares and almost infrastructure are really just application layers. They're editorialized and there are going to be competitors. I think there are folks that want to have a voice that feel like they've been editorialized out of the existing networks like Kanye, like Trump, like Elon to some degree, and there are those that have resources are changing that. And I think that speaks to a really healthy competitive market. So having folks like Kanye step in and try and create a new platform that has alternative voices, long-term, I believe in freedom of speech, I believe that we should have alternative voices, but I also believe that consumers and customers should be able to choose what platform they want to be on based on the editorialization that happens on those platforms. And I do believe that the owner of those platforms should have their own rules because it creates a different differentiated product. Jason, is that what you were hoping to get comment on or this idea of the media feeding on Kanye's mental breakdown? Yeah, I was talking about the media friends. That's the thing that I think is pretty app-oriented. In fact, YouTube just pulled a bunch of the interviews he did recently because there's so much anti-Semitic stuff in it. And when somebody's in a mental breakdown like this, which I think it's pretty clear he's in, they do this behavior and of course it's hurting them. To your point, I'm sure it's hurting his kids or ex-wives or ex-wife. Can I ask you to decide? What's that? Can I ask, who do you think it's to decide that? Because he's done interviews where he said, I have episodes and those episodes actually provide me with creativity and really, I think it's up to the person who is the host of that show who has to make an editorial decision. And so Tucker Carlson's going for ratings where if somebody else does it and they want the ratings because Kanye's a big name, that's, I get it. He's a great get, right? And if you're somebody who likes to interview people, that's like a lifetime get. That could be the get that makes people learn about your podcast. I just think it's unethical to do that when somebody is suffering like that, to then feature them and to platform them in order to get your own ratings. That's a personal decision. Let me ask you a different question, though. So I wouldn't do it. Would you hold them accountable for what he said? Well, this and this is the nuance, you know, and I think we do have to think about that because anti-Semitism exists in the world. He's got a big fan base. That means if he's got people in his fan base who are also having a manic episode, they could then be inspired by what he's saying to do something horrific and cause real world harm. And this is where, you know, the accelerant of social media, I think is particularly dangerous, Trimoff. You know, in the old days, if somebody said this stuff on a talk show, maybe they don't air it, where they say it, it's in the newspapers. But when he can have a continuing dialogue across many podcasts a week, he's done like 10 podcasts in the last week. He'll go on air with anybody. And then he has whatever tens of millions of followers. He's reaching hundreds of millions of people. All you need is one person who's mentally ill to then go do some horrible thing in the world that we've seen happen many times. And that's what I'm concerned about. You have to understand your, it's a law of big numbers, basically, Trimoff. There's a large number of people just to give you a sense of it. You know, when this family member of mine, you know, we've had to have interventions. We've had police. We've had the government get involved in Canada. We had had their driver's license taken away. Then, I mean, it is an unbelievably complicated set of interventions. And I am so thankful that she doesn't have massive social media awareness because it would just be chaos. And I would hate that, you know, because of their association to me that this person gets more attention than they should in a moment where what they really need is help. And I think that that is should be the governing principle in moments like this where a bunch of your family members or your health care providers or whatever can raise your hand and say, hey, hold on a second, this is completely off the rails. You know, freeberg to your point. I don't think that editorial freedom matters in that point. I think there's just a more humane idea around get this person off the airwaves and allow themselves to get out of that loop, settle down. Yeah. Yeah. And typically what happens is that, you know, these folks, at least again, in just in my experience, will have titrated medicine well. And then when that titration fails, their ability to regulate their emotions fail. And this is the loop that they enter. And, you know, you really have to find a way of like taking all of these mechanisms off the table so that they can re-regulate themselves. And I think that as a society, we have to sort of move towards that so that if, you know, family members can call Twitter or Facebook or Instagram or whatever and say, listen, you're the doctor, you know, here's the doctors note. Like, you have to be able to shut this stuff down because you have to mute all of these other things so that this person can then get back into a mode where they re-regulate. That should be the priority. Yeah. Compassion for the person. Yeah. It's not forgiving what they say, but it is having maybe a little bit more compassion that moment to get them back to their to their child. This one's a little easy to say, hey, Kanye is having a mental breakdown because he's talked about mental illness in the past. It's a lot harder to make these, you know, supposed determinations as a reporter or podcast host. If someone says something crazy and then it's easy to raise your hand and say, hey, they're crazy. Cut it out. Or there's some mental issue going on here. But freeberg, if he's not, if he's not having a mental issue right now, then he is a horrible human being who is an anti-Semite who is spreading just the most vitriolic horrible things you can tropes you could ever imagine. At a time when, you know, there's enough division in the country and somebody could get hurt, you know. So either in either case his accounts have to get paused if he's going to say anti-Semitic stuff on them. I mean, I mean, that's the, I mean, there's really clear guidelines across all these platforms on what's inappropriate. And certainly, I think folks will start to adhere to them. I guess if I had anything to contribute, I mean, I think Chimass said this well about a mental health angle. But what I would say is I actually think that the social platforms have done a reasonably good job. The fact that he's buying parlor, I think, is evidence of the fact that there actually isn't editorial layer that's doing a reasonable job. It's a tough decision. There's always going to be a long tale of podcasts. Somebody will, you know, somebody will go grift off of, you know, an episode or whatever. But I think, you know, a few years ago we were talking about no editorial standards. And I think today, you know, across these platforms, obviously, there's a tension. There's a tension that's existed for 100 years plus around free speech. On these platforms, I get that tension. But I think a little credit where credit's due. We're seeing, we're not seeing these memes spread like wildfire in part because the platforms with the most reach are doing their job. Snaps down 30% today. Do you guys see this? I think it's, it's related in the sense that everyone historically talked about social networks as being these, you know, the network effect where, you know, multiple people get on and they link up with each other. It's harder and harder to break the network and gets bigger and more valuable and can generate more revenue. Clearly not happened over the years with Twitter to the degree that people thought it should have. And now clearly it's not happening with snap. I think it also speaks to this idea of fragmentation. I don't know if you guys want to talk about snap, but pretty significant decline from, well, here's the here's the 60, there were 160 billion market cap and today they're trading at 12. They're down 91% from peak to track. 91% here's the important thing to note, which is that if you look at the MAU growth of snap, it's actually been extremely steady and they've had an incredible march forward. And I think that they're roughly around 350 million. Nick, I'll send you the, the D.I.U. I'll send you the link. Yeah, I think it's like the Dow is incredible. It's incredible. It's incredible. So it's yeah, it's a service that is incrementally every day more relied upon than the day before. And it's a service that's providing a set of features that is incrementally more important to a larger and larger group of people. So how do you then square that with its stock performance? And in my opinion, I'll just be really honest with you. And I don't know Evan Speagle and I've never trafficked and snapchat at all. Okay. But it is the most glaring example of corporate misgovernance that has ever happened on the internet. And the reason is when you look at what happened in the IPO, it basically created a governance structure where the common shareholder had all voting power taken away. So 100% effectively the de facto voting power stayed with the class that was held by the founders. And so you do not have a normal check in balance. And it was egregious. Other companies would have voting programs where it was 20 to one. And you would sometimes say, oh, it should only be 10 to one or it should be 50 to one. This was like 100 to zero. What you have now is no real feedback loop because there is no person who can own enough equity with enough say to sit across the table from that CEO and say, here's what you're not seeing. And here's what you're getting wrong. And I think you're always better off by having those kinds of people be able to get a meeting with you in the first place and have a vested interest where you take them seriously. But how would you receive a meeting when you're sitting across the table from somebody in the back of mind, you're like, wow, this person has literally no say in what I do after this meeting ends. Literally none. You can't vote even to even different than alphabet and meta attend a one because they both have dual class, right? I think zero is in my opinion a deep sign of disrespect. I think you can agree that there is a separation between the voice of the comment shareholder and these companies and the direction of the companies. But I think it obscures what's going on. Jamath, I totally agree with you. If you look at usage, the number of customers walking into the store snaps gone from 265 to 360 million DAUs Twitter 190 to 240 meta from 1.8 to two over the course of the last three years. They're all growing. More people are walking into the store and using the service. The story here is all about pricing. How much is each of those users worth? Apple is the apex predator of this entire market. We wouldn't be having this conversation, but for the fact that apples changes with IDFA literally pick pocketed the industry $2 billion this year under the auspices of privacy. If you look at these companies usage up, pricing or RPU down. Recently, apples come under a bunch of pressure. Now they're out with SCAD-4, which is their update to the ad policy post IDFA. That allows you to target advertisers or individuals with 10,000 attributes instead of 100 attributes. We're going to see some realignment. I expect that the real question is what happens to RPU next year. But to me, the story here is that the usage into health of these core platforms is remarkably sticky. For all the things we say about Instagram, TikTok has had explosive growth, 30% growth each of the last three years. But even the incumbent platforms are really sticky usage. This is about how they're monetizing those users and the real story is Apple. Yeah, and if you, for people who don't know IDFA is the identifier for advertisers. Some people refer to it as made mobile ID at ID. I'm sorry. What that does is it lets you track a user anonymously across the phone. Have you ever owned any clicks to a cell? Have you ever owned Snapchat stock? No. Why not? Certainly governance is a key component of it. But the second thing is, do you have any belief that you could even get a meeting with the CEO and management where they would listen to you appropriately? We've certainly got meetings with management before. So yes, I believe we could, whether or not that impacts how they build product, how they run the business, the influence, etc. But again, I think that's not really the problem here. But the point I would totally agree with you on Chema. We've had 10 years of where the cost of capital is zero. 10 years of hyper growth for the social networks. Right? In each of the last five years, Facebook has hired more people. In each of the last five years, then they had 10 years after the company was founded. Okay. So as we've seen this growth begin to turn over, I have seen the companies really slow to react to right size their behavior that they had over the course of the last decade to put themselves in a position to compete for the next decade. So it's one thing just to throw your hands in the air and say, well, this is all Apple. We couldn't do anything about it. But we really haven't seen leadership in terms of cost control. We really have, we all know these companies could run. Yeah. Of the major companies, Brad, snapped into a 20% riff that had 6,000 employees or so and they cut 20%. Facebook is the one that's perplexing because they seem to be massively overstaffed as you talked about. And they have been massively, they've had a massive decline in their stock price and they are the one who was affected most by what Apple did in terms of app tracking transparency is I think that there's a perception, though. I mean, I'm still stuck on this issue. I really think that stock prices tend to have been flow based on sort of like friction or momentum. And when there's momentum, more and more people can easily underwrite it. And when there's friction, fewer and fewer people can underwrite it. And so I think that if you are a CEO of a public company, you have to think about how many headwinds do I have and how many tailwinds do I have all the time and some of them are in your control and some of them are not. At least in the case of meta as with Apple and Google, they meta is forced to copy the best decisions of these bigger companies. Why? Because they were one of those biggest. Now they may have been the smallest of the biggest, but it's going to be very hard for meta eventually to not converge on those same set of decisions. And the most important one is what Brad just alluded to, which is that there was a point in 2016 and 2017 where you literally could not give away Apple stock. And the big turn of the dial and you know, some say it was Carl Lyconn, who knows, was this theoretically this famous dinner that Carl Lyconn had with Tim Cook, where he laid out a plan and it's like, listen, you need to start managing costs better, managing off X better, return a ton of cash, buy back the stock and you'll be a darling and Tim Cook was rewarded. And he's been rewarded with an incredibly performant company. And so, you know, Google is slowly inching towards that plan. Microsoft is in that plan. And so the only big four horsemen that hasn't really gotten the script yet is meta, but they will. It's just we're just debating when. And so there's a perception that you know, meta will copy what the rest of these big guys do. But these other long tail companies, the headwinds are just greater. And so when you, you know, don't have a company that can be broadly owned by intelligent thoughtful investors, that's a headwind. Right. When you give nobody votes, that's a headwind. And so that's why you see a company that's continuing to grow impact, not being able to translate that into economics. And if I were the board of that company, that should be a wake up call because eventually that'll flow into the morale of the employees and the ability to retain and then the ability to invest in the future. And I think the simple answer is enough with all these, you know, gymnastics around control. You know, if you looked at Elon, the most incredible thing from day one was there's common stock. You know, and his whole thing was like, I'm just going to do the best. And you know what, if I'm not the best, I'm going to be out. He's literally said he has you ever want to vote me out. Vote me out. Vote me out. He's never ever played these games. So in this funny way, control is a symbol of a lack of ability to run the business. Masterful mastery of a business, you can translate that to being, I'm just going to have common stock. Well, I mean, if you think about historical argument, but definitely tracking back to the high voting class for founders was that they would be challenged by the investors in the market. And you can see the things that Carl I can and others ask for. They say, we want to see you cut off X. We want to see you pay dividends. We want to see you buy back stock. And we want to see you grow. And so the trade off then in the mind of a founder that started this business and scaled it to billions in revenue is, well, that means I've got to make short-term decisions over long-term decisions. I've got to make, I got to give up some of my long-term opportunities to trade for my short-term opportunities. That's that's that was the argument, I think, originally for the voting class. And you can read this in Google's founders letter as well. Does that not apply any founders at Google don't even show up at the company. Why do they have to have super voting control? They don't probably even know what's going on inside the company. But let's talk about that argument. Like, I just want to hit on Zuck's point because Zuck has said, look, you know, this VR, AR, metaverse stuff in the future is everything. This is where I want to invest our resources. Look what happened time. But look what happened. They made a mistake. They said we're going in this direction. Investors, really smart, thoughtful, supportive investors, including Brad, we're like, hold on, check your roll. And they capitulated. Now, to your point, did super voting control come into play there? No. Of course, he could have said, you know what, guys, Poundsan, I'm going to do what I want. Instead, he's like, I'm a smart guy. These guys are smart guys. So I'm going to make the smart decision. So in my opinion, all of these things are red herrings. These are indirections. Right. So this idea of, I'm just going to take my toys out of the sandbox, like a crying baby is what super voting control means to me as a shareholder. Brad, okay? Maybe era of super voting control for founders taking companies public is over. No, should it be? You know, I think it's again, when Facebook was doing really great and Snapchat was doing great, nobody complained about super voting stuff. Okay. So I think that, you know, my preference would be that I partner with a company where I know the founder, whether irrespective of their votes, right, listens, cares, and has the mental flexibility to make course corrections. Right. And the reality, when I'm trying to point to, we have lived through a decade of excess. Everybody knows all these companies could do exactly the same revenue. David, this is the pushback to your point, unlike what the Google argument was, exactly the same revenue with vastly less investment in terms of people, et cetera. Right. A 20% riff at Metta would literally only take them back to where their personal expense was in 2021. Yeah. Nobody argued in 2021. And they said they were going to do this too, Brad, right? And just hasn't happened yet. This is, this is part of the problem, Jay, Cal. Everybody. So why 10%? Why 10%? You've doubled the number of people working in the business over the last few years. Right. There's nothing magical about 10%. The real question is, what is the optimal number of employees to produce the best outcome for our customers and our advertisers? And what Bill Gurley has pounded on, and we've all talked a lot about, there has been in a zero cost of capital world, a unilateral march, two more, more of everything, invest in everything, hire more people. Silicon Valley would do itself a favor. These big companies vacuumed up every single engineer in Silicon Valley. They ought to return that pool to the startups that are actually inventing the future. They don't need this money in place. I mean, last night I read a report came across Bloomberg that the Elon's talking about 75% reduction at Twitter. Yeah. So that would leave Twitter just to give people some context here. That was that originated in the Washington Post. That would take them from around 7,500 workers to maybe 2,800. And so he's starting from first principles. How many people do I need to build the next generation of Twitter? That's the question. Start with a blank sheet of paper and ask that question. You'll come up with very different answers. Back to the governance question. I think that you can correlate these kinds of governance overreaches with zero interest rates. That dog doesn't hunt when rates are at 4 or 5%. I don't care who you think you are. But when you try to go public in over the next four or five years, if rates are sustained, you know, 3, 4 or 5%, that will be the check on all of these people's overreach because you will have, you know, liquid alternatives that on a risk adjusted basis seem better. And when rates are zero and everybody was forced to own tech, we all gave up our standards. We all stopped saying, you know, oh, you know, the things that we used to think were important before, like one person, one vote, you know, a check between the board and the CEO, a check between the executives and the shareholders. They'd all went out the window because when interest rates are at 0%, you have to remember, right, how does the structural basics of the financial markets work? It is meant to make money on behalf of every single entity and person and thing in the world from a pension fund to a university, to a research lab, to a government, to an individual. But in that ability to make money, when we took interest rates to zero, 40% of what we all used to own bonds yielded nothing. And so we just completely whips on to the other side and said, we need to own anything that grows. So tech got a disproportionate amount of attention. But in that, we lost our standards. And we are now going to go through the hangover of dealing with it. And so, you know, snap will be an example of where investors are going to abandon that company. Because it's just there's no point. There's no governance. There's no ability to have a conversation. It's in the too hard bucket. So people will just leave it. It'll be stranded. And it'll be a refugee in the public markets. I think meta will be fine eventually because I think that they will revert to the mean. And the mean is Microsoft Google and Apple. And we already know what that playbook looks like. So I think what Brad predicts is more likely than unlikely. And I think in the future, to David Friedberg's point, I think it'll be very hard to justify these things. You know, bankers will be able to push back because the buy side ultimately, guys like guys who have to buy the stock when these things go public will say, no, you want to have these, you want to have these dumb governance games? No, not for me. I'll just go buy something else. I'll go buy more Tesla where it's one person one vote. So it's hard when the best CEO in the world is like judge me, keep me, fire me on an equal basis. And everybody else is like, I'm smarter than this guy. And so you know what? Let me make sure that whenever I feel like it, I can throw a temper tantrum and take my toys out of the sandbox. And let's use it. There's a analogy here. That's a work. Look at Steve Jobs, ousted from his own company, company made a huge mistake asking him. Some people argue it was a learning experience for Steve to get better at his job. He comes back and he absolutely turns a company around. So there's an example thus far you've proven that the two most impactful and important CEOs of the last 50 years had the courage to basically say, let my performance do the talking, not my protective nanny control. Correct. And Steve's performance was light in that first period. He had some problems and he learned and he still won. But this is what the greats do. The greats know how to perform, not you know, use some no trade clause to make sure that you can just sit there and underperform forever. Do we think Brad when we get to the sort of macro look at this? Let's assume we're in this this four or five or three four or five percent interest rate for some extended period of time. Let's call it a decade. What does the tech industry look like? Because it does seem if Elon does with Twitter what seems to have been leaked here correctly according to all reports. And there's a 20% riff at Facebook and we start to see people take the medicine. Is that the ultimate setup for now? Hey, these companies are being run to throw off cash. And we have some way out of this. What people think is going to be a very hard landing. Well, I mean, you know, first just let's talk about, you know, where rates are, you know, today, you know, where four three on the on the 10 year, I mean, technology is performed incredibly well for a long period of time with rates in this in this range. So the adjustment period is very difficult, right? And so when you when you look at the convexity and going from zero percent interest rates to four and a half, like that has been a shock to the system. It has been destabilizing to multiples. Multiple were basically infant last year. And now multiples have come back to reality. And so I don't question. In fact, I actually think free capital was a weapon of economic destruction, right? Free capital hurt good companies from being great companies. They hired too many people. Their margins were too low. You know, soft bank funding all of these right share companies around the world to compete with Uber met that Uber, even though they were a market leader did not have market leader ship economics. And so the ringing out of the system of that excess that grift that stupidity that's going to be good for the fundamentals of these business, but the transition from, you know, that low rate environment to the high rate of environment is dislocating for investors. It's dislocating for management of these companies. And it's going to be this is not, you know, a six month phenomenon. We're going to have two years of ringing out, right? Because there's no bailout here by the bed. There's no V shape recovery for these companies. This is now going to be I heard somebody say this week. If the last 10 years was about beta, the next 10 years is about alpha. Not all companies are going to do well. Not all companies are going to bounce back. This is going to be about what companies have the courage to build great products and to drive a great business model that allows them to compete and continue to invest at high rates in the next wave of innovation, whether it's AI, etc. And so, you know, to me, the markets, J. Cal have largely put in a box at this point, inflation and rates, right? Rates have come up 65% in the, you know, from 2.7 to 4.3 in the last 60 days. And the markets basically sideways. It's down 5 to 10%. Rates are up another 10% in the last two weeks. And Google and Apple are up. That tells me that the markets got in, you know, gotten its arms around rates and inflation. What the market really is worried about now are two things. Number one is earnings. And number two is the long tail of risk. On earnings, there's kind of a conventional wisdom emerging from a, from many folks that 3,200's the bottom, or maybe 2,700 the bottom that we're going to go from 2,25 and in S&P earnings back to 200. That seems to me to be, you know, again, a lot of people making that bet. I don't see any evidence in Q3 earnings. United health care, United Airlines, Schlumberger, Tesla, etc. Their earnings are up on a year over your basis. They've guided now to Q4. Their earnings are going to be up on a year over your basis. And the consensus expectations in Q1 are that earnings are going to be up on a year over your basis. To go from 2,25 down to 200, we, it can't just be a slowing of the rate of growth of earnings. You have to reverse course entirely. So we have to see something we're not seeing yet. So on an earnings growth, that's where the market, there's some tension in the market. Then finally, what I would say is there are a lot of big brains in the world who look at this level of dislocation. Rates going on the front end of the curve from 0 to 4.5 and Druckin Miller or Soros would say negative reflexivity. Shit breaks when you have this much volatility in the world. The world is not equipped to deal with these exponential moves. And so there's a lot of concern in the world, whether it's about Ukraine, Taiwan, UK bonds, the Japanese, yet nobody knows what it will be. But they're just saying demand a higher margin of safety because the propensity, the likelihood that shit breaks when you have this much dislocation is higher. So the perfect. I don't know. Black Swan could come any minute and could I look at another down draft. But last year, we were all sitting here and said asymmetry to the downside. Multiple at all time high, interest rates at all time low, we saw that starting to roll over. We saw smart people, Elon, basis, et cetera, start to sell into it. As I sit here today, yes, we're going to have harder times ahead economically. But it feels to me like a lot of it is priced in. I don't think we have huge asymmetry and skewed to the downside. I think that's like fighting the last battle. It's not to say in this distribution of probabilities, one of those events can't occur. But from my vantage, when stocks, the average stock down 20%, stocks like meta down 50 to 60%, a lot of stocks down 70, 80, 90, that doesn't seem like the time to call the big short. That seems like a time to be like neutral to positive. Should we go to TVPI, DPI and talk about the private streamers? I just want to say one thing about your prior question, which kind of ties into some of what Brad said. But you asked the question about, does this mean that these companies are now going to cut costs and start spitting out cash? I think there is certainly a market incentive to do that, to keep share prices up. The companies that can do that are certainly taking action with the headcount reduction across some of the big guys. What I think is going to be interesting and what a lot of people are watching is how many of the small and mid cap guys can actually do that. Those that can't will become pretty evident pretty fast and they're going to end up in the shitter. You're talking to a palaton or something like that. It doesn't matter across SaaS, across consumer, across D to C, across hardware. Everyone is now saying, can you actually earn? And at this point, you should have enough scale that you should be able to earn. And if you cannot, the market will punish you for it. And that's certainly what seems to be the incentive and the pressure on the buy side to the executives across all these organizations today. So I think that's a big trend of what's happening right now is everyone's going through their portfolio spending time with management and asking, can you earn? Can you actually get this business to generate cash? What is the path? Show it to me. Prove it to me in the quarterly results. And if you can't, then you're not fitting in a bucket that I can own you. The only irony there, Friedberg, is that that comes as a surprise. God forbid we should actually expect companies to prove unity, economics, and to make profits. Yeah, but when you're interest rate zero, you divide by zero, you get infinity. So you were able to kind of explain everything away into the future. Now you actually have an interest rate at 5%. I got to be making, I'm not going to pay a lot more than 20 times earnings. And I want to see that that's really my earnings. I want to see that you can actually earn. There is a person at Brad's investor day, who Brad interviewed. And I won't say his name, but he's a star of stars. He's a bit of a goat. And he had, I don't know, just say the generalized version of what he said. And said the following, which is so true. It's like we've gone through an entire decade of under training, an entire generation of people in Silicon Valley. You know, we have under, under trained and under meant toward the product managers, the engineers, the senior executive management, the CEOs, many of these people unfortunately are not, they don't have the skill set to execute at a high level. At any point in the cycle, except when rates were zero, like many business models. And now that rates are not at zero, these people are turning out to be extremely underdeveloped and unable to run these businesses. And when he said that, it really struck a chord because he's right. And you know, he was also saying it just got even more exacerbated in this era of remote work. Because now there is even less opportunity to mentor and to coach and to talk one on one. And people think, you know, that this is a boon. And it's not. So, you know, we are going to deal with also the aftermath of an entire generation of highly underscilled companies. Because the executive and senior leadership and CEO ranks of many of these companies are not in a position to win. If I may, there was an interesting moment this week when we talk about this discipline that has been lacking the last couple of years. A hundred and one million dollar funding led by KOTU, light speed venture partners. At a one billion dollar valuation, first ability AI, this is a for profit company built off the backs of the open source project, stable diffusion. They have no revenue. They have no product. They've been around for, you know, a millisecond. Any thoughts on this type of funding happening pre product, pre revenue on an open source project? I mean, there's still there's always going to be. Yeah, free world. Not mine. It's going to be these asymmetric bets that people think if it works, it's worth a hundred bucks. Yeah. And they'll price it as they price it. I think that I think what we were just talking about is a little different, which is how do public markets rationalize evaluation? These businesses need to start earning for the public investors to be able to represent to their investors that they're doing their job and making sure that they're holding management accountable to demonstrating earnings potential. But these early stage bets, you can see valuations range depending on the asymmetric outcome potential of the. And you know what the upper and you know what the upper bound is? The upper bound is that when rates were zero and governments were printing money more than they could get their hands on, the top five tech companies represented a quarter of the S&P 500. But there was a pretty steep fall off. And everybody else represented the next, you know, about 10% of the market cap. So the point is that we had bounded outcomes when rates were zero. The average market cap of a successful company was around three or four billion dollars. So I'm not going to judge this company at all. And those investors are very smart investors, light speed and co-tube. What I will say is at the end of the day, there's a terminal buyer of these companies. And we had a period of time that we can look back on to understand that when the party is absolutely rip roaring, the alcohol is free, you know, everything is going well. We know what the upper bound is, which is the average company if you were able to get out, would be worth about three to four billion. And then there was a very, very steep dispersion where then there was four companies that were, you know, a quarter of the market cap and a few in between. So if you do a deal at a billion, the overwhelming odds is that the terminal exit multiple is going to be somewhere between a three X and a four X X of dilution and X of all of the other capital that comes in and all of those features that may be attached. So I think everybody should be allowed to make different kinds of bets. And you'll see over time, which kind of deal can generate which kind of return. This will be a really interesting data point. The common thinking was these kind of deals were not going to happen in this kind of a market. So when you saw this kind of deal happen or some other that we've talked about privately, what do you think's happening in terms of discipline of private markets? I think maybe you should tee this up with Brad because I think that what I have to say follows on with him, but there's a macro view of the venture industry that again, it's like everybody wants to never look at the past. Everybody wants to assume that this time is different. And there's some work that he did, which is really instructive, J. Cal, to help answer this question. I think so. Maybe you should ask him and then I'll jump in afterwards. This is the TV PI study. Yeah. So I mean, Brad in relation to my stable diffusion and DPI. Maybe you can. We share this with our investors at our investor day that you guys are at this week. There's a modern industry. It's only been around since the mid 90s. So the history of venture is you've got to look at when you look at returns, it's to say, by the way, what an incredible chart you guys put. This is so good. Let's describe the chart for people who are the truth hurts. So break down. Go ahead, Jake. I'll do. Just for people who know, we on Spotify and on YouTube, you can search for all in episode 101 and you could see this chart if you're watching the video. If you're listening, the video describes 1997 to 2020. There's an orange line across it with the DPI average. So why don't you define DPI for every? What we did is we took the top quartile data from Cambridge associates who invest in all across the entire venture industry is widely used as kind of industry data. And we just asked a simple question of the top quartile, top 25% of venture capital firms. What were in those vintage years of the funds? So funds raised in 97, 98, 99. What were the average cash on cash returns? Right? TvPI is what your mark is. That's where you're carrying the marks, total value to pay to capital. So this could be just so we're clear, because it's a little confusing to people. You have a company on your books that on paper is worth 10 billion. You had put in that a billion. And on paper, you've got this 10x return. Right? Correct. Right. DPI is actually cash distributed to your investors. So that's cash on the barrel head. So the reason if you look on this chart. Sorry. Just to just to build just to be very clear for everybody. The whole goal is to be able to convert your TvPI. So what your theoretical book is worth into DPI, which is here's money back to my investors. And what you want on this chart is the blue line to catch up to the gray line. So you want the gray line to be as high as possible. And eventually over time, you want the blue line to come up. Correct. Right. So the blue line here, if we're looking at 2010, just for one example, you have a 4x for the TvPI. You 4x, everybody's money. But the blue line only got up to it looks like 3.5x maybe or something in that. But let me just point out because that's an interesting year Jason. Yeah. We were coming out of the 2008, 2009 period. Everybody was despondent. They said, I'm sure they said what you just said about stable diffusion. Don't invest in anything. Everybody's stupid. But there were incredible companies that were invested out of that vintage, right? Snowflake and Mongo, out of our vintage shortly thereafter. So maintaining this duality that yes, the world sucks. But the secular curve of innovation continues. So that is a vintage where people actually got things sold, got them public, distributed the cash back to investors. The real question is this on the ventages between 2011, 2012 and now. How much of those gray lines, how much of those marks? Look, those are historical marks. Marks have never been this high. How much of those marks will actually return turn into cash on the barrel head? And how much of those will actually just be mean reversion? It'll all get marked down. And the returns at the top quartile will look much like the returns did in the period between 2000 and 2007. My hunch is that by the time the cash is actually distributed, the returns are going to revert to that orange line mean, which means there are hundreds of billions of dollars in markdowns sitting in LPs and GP's portfolios that are likely to come because nobody really thinks that the deals done in 15, 16, 17, 18 are going to be that far above the mean return. And so people also understand this. These are vintage years. So these are funds formed in that year. And so this trails, a venture fund takes about 10 years. They're formed without concept in mind to become realized. So if you're looking at the year 2016 and 17, these are but five-year-old funds at this point, right? Correct. Yeah. So they do need time for these companies to grow. How much of this, Tremoth and Freiburg do you think is attributable to entry price? Because entry price during 2017, 18, 19, 20 is going to be extraordinarily high entry price. IE, the value of the company when investors invested in 2008 to 2011 when I had a lot of my hits was pretty low. I invested in Uber, Thumbtack. And you invested in Uber? Calm. Those three were $15 million combined. The three valuations. You invested in Uber? Yeah, maybe third or fourth investor. I can't remember. I didn't get in there. I got in there slightly before you did. Maybe years. You should write a book on angel investment. I should. You should call it angel. You should call it angel. But let's talk about entry price because entry price does matter, Brad. Maybe Tremoth, you want to take entry price for Freiburg? Well, look, there's this, I think what that setup is, that's probably a chart that most VC organizations don't even look at. Because if you looked at that chart, you'd have to take a real investing approach to things. So if you were looking at that chart as a GP, there are two takeaways. The first takeaway is, oh my gosh, what is the sum of the invested dollars above this orange line since 2012, 2011? Because all of that stuff could just basically get whacked if we mean revert. And the answer is about five or six hundred billion dollars of paid in capital. So then you would say, oh my gosh, well, if there's five or six hundred billion dollars of impairment coming down the pipe, maybe more, maybe it's going to be seven hundred and fifty million. Because the other thing to keep in mind is over time, the orange line has a tendency to go down, not up, right? Because as you add more and more of these things and slump slight performers, you have a general decay function in every asset class as its scales and size. So this orange line theoretically goes down, which means more of those great bars get destroyed. Okay, so let's just call it six hundred billion or seven hundred billion. The most important thing you would want to do is now look inside your portfolio and try to answer the question, oh, how likely am I to see that impairment in Jason? This is a proxy of answering your question. The important question for a venture fund, which then has a downstream implication to the entrepreneur is now what do I do knowing that all of these great bars could get destroyed? Nick, go to the next chart. Well, I calculated it for you guys. So I'll give you the answer. Here's a simple thing and you know, this is publicly available data. Now, why did I do this? Because when Brad showed me that chart, my immediate mind went to how do I make sure I'm not susceptible to losing a ton of money? Well, what happens in markets is that when things go down, the things that are highly correlated go down the most because they are the things that are the most highly trafficked, which means that they are the things that have the most investors, which means that in an up market, they have the propensity to have the highest prices. So we put, we pulled all this data from pitch book and we just started to, I just took a smattering of firms here and Dresden index, graylock, benchmark, Sequoia, GC, founders fund tiger, Excel, Clienter, Cozla and us. You could pick anybody because this data is publicly available. And I started to calculate the overlap coefficient. So how correlated are you with other people's portfolios? Trying to estimate at the upper bound and at the lower bound, what will happen? So Jason, this is a proxy of answering your question. What about entry price? Well, if you have a very low correlation, which touch would we have, you're less exposed to bad entry price because it wouldn't have been a bidding war to get into these companies. Exactly. You picked your right spot. You went into areas that were earlier. So you were able to risk manage a little bit better. But if you have a highly correlated portfolio, now your marks become very susceptible. So my guess is if you take the $700 billion and you calculate it for all the VCs and you look at their correlations and their overlaps, you can probably guesstimate where that $700 billion of impairment will come to. And you can lay it out across any organization that you're interested in trying to find a solution for by just stack racking them and by looking at these correlations. And this is by the way to be clear, nothing about the quality of the organization or the people, but this is just simple portfolio mathematics and how portfolios tend to play itself out in moments like this. Well, and there's some interesting data in here as well. I, a free bird, you probably are aware of where some fund like, let's say founders fund and Kosoah have a close relationship because Keith Roboi was at Kosoah and then he moved to founders fund. So you see that nice dark purple there where they have a high correlation investments. Interestingly, index seems to just follow benchmark and build girl these investments and blower into them. That's the highest correlation. But see, here's the thing. If you had to steal man the defense of that strategy, Jason, I would say in an up market, benchmark is a $500 million fund where I get no allocation. If I was a smart LP and I did this work, I'd be immediately knocking on index's door saying, can I put money in you because in the back of a mind, it's basically getting leverage on benchmarks portfolio. Yeah, you figured out how to follow them. Yeah, but when the cycle reverts, you know, you're not the only one that wants to copy benchmarks portfolio, everybody does. And if these correlations are too high and the overlaps are too high, then you start to get into a cycle where you put yourself in a position to actually suffer from the market beta much more, even when you can benefit from the market beta and up cycle. Free bird, you want to analyze this chart and Jamat's thinking here is dairy. I don't know. I mean, I just think this has become a pretty competitive market and a lot of the values been competed away. I mean, I think for a layperson, please. The long term value creation of technology, of new technology is going to remain high. The market's going to pay for that. So, you know, new market value creation, new market cap is going to continue to be built every year. What's happening when venture has a low multiple is that number one, the good companies end up, the founders end up owning more of the company and they end up, you know, having a higher percentage ownership when the company ultimately gets sold to goes public because they were able to get VCs to compete against one another and as a result, pay a higher valuation and as a result, buy less of the company. And then number two is that because the VCs that couldn't get into that company still had a bunch of money to manage, they went and put money into crappy companies. So, you know, it's a lucrative business. You guys are rewant to know that business because it's a lucrative business and that certainly it takes a decade to realize whether or not you're good at it. So, you know, you have this period of time as Brad shows that's maybe a decade before the LP market learns who is and who isn't bad. And meanwhile, those folks who got competed out of the good deals, you know, they don't look very good and the folks that are left in the good deals own less of a company and their returns get diminished. And, you know, I think ultimately this market is probably going to end up being a multi-decade cycle of capital in and capital out. We're probably at peak capital being managed in venture funds right now and we're likely to climb for the next decade. Brad, how would yeah, Brad, how would LP's look at Chimatsu analysis there and how do they look at the clubbing nature and overlap, you know, writ large in our industry and then whatever other insights you have? Yeah, no, I mean, I think very much disagree with David that all the returns are getting competed away. The huge difference between the venture market and the private equity market or the public market is that the venture market is unquestionably a power law market. 90% of the gross profits and the returns go to 10% of the deals and 10% of the investors. Right. So, we just showed the average of the top quartile. But if we show benchmark one or two or benchmark six or seven, it's ridiculous. Right. The cash return over 20 X on those funds. Let's just wasn't explained that to folks. Yeah. Most venture firms here are getting two X on average. That's the average. And is that average for the top quartile or all VC firms? It's the top quartile of VC firms. Their average is two X. Yeah, this is an upper 25%, the 25% percent. So, if we include the 75 bottom, what would the entrash? Brad, let me ask you a question. What if instead of looking at the top quartile, you just looked at the top 10 venture firms. Because the number of venture firms has exploded over the last decade and a half. Let's see. But the way I think the point that you're not getting is the top 10 changes every vintage. And the problem is if you are aping the wrong portfolio in that vintage, you'll get run over. Right. And so the real goal of this, and I also tend to disagree, free, broke with what you say. I don't think the returns are getting competed away. I actually think it's more alpha than ever. Correct. And you got to be a good picker. And if you're a momentum investor, you just need to be aware on the way in that you are going to put your portfolio under tremendous pressure in drawdowns. I think the other thing, the other thing it does. This idea of the industrialization of venture, the soft banks, the tigers, like, like it's a myth. You can't industrialize that you can invest, you can build an index fund to the public market because you can buy every company. You might even be able to build an index like fund in private equity because everybody can go bid for every company. But venture, the founder chooses you. That early GP chooses you. And so if you try to build an index fund that misses the best deals, and I think there's adverse selection, the bigger you get, the less likely you're to convert the best deals. Now you're really in trouble. Brad, do you think an index of first time VCs outperforms kind of that top core tile index? So there's some LPs that select in to just solo GP, first time fund manager, first time fund, or maybe second time at solo GP. But it's kind of like first into the market before you really scale up, that's where so many of the returns are found. A lot of funds like MIT, they look for emerging managers because you tend to be younger, hungrier, you have experience, you've got a lot on the line. But certainly, if you look at the hundreds of startups in VC land over the course of the last several years, 99% of them are probably garbage and will fail and won't work. So the all stars will be all stars and the rest won't. Somebody asked me, I use this animal. They said hundreds of new people have come into venture. And I said, yeah, it's like it's kind of like a marathon. You're right. We have 500 runners and now we have a thousand runners. But from my vantage, it's the same five to 10 runners competing for the podium, weekend and week out. In that top 10, in that power law, it doesn't change a lot. Yes, there have been people break in. We know how hard it is to break in to Silicon Valley. Nobody invited altimeter to the dance. Nobody invited social capital to the dance. Nobody invited Jason Carcannus to the dance. It was the opposite. They look quite ours. They were like, trust me, because it's a highly lucrative business dominated by some incumbents that had huge brands. They didn't want to share the fruits of that. We showed up. We worked hard. We built incredible teams. We had conviction. Right. And we were, we also had good fortune. Right. Yes, we were smart. We were, we placed them good bets. But you also have to get lucky in this business. We were lucky to be born at this point in time, lucky to start when we did in Silicon Valley. I'm going to finish just with this one point. This whole experiment of venture capital is less than 30 years old. The modern age of venture capital is 30, less than 30 years old. We're going through this period where everybody wants to shit all over the industry, you know, TVPI is going to come down all this other stuff. I think that venture, my dad, when he went to start a business, had to borrow money, mortgage the house. Think about the friction for somebody with a young family. If the cost of failure was losing your house, putting your family in harm's way versus some young startup in Silicon Valley today, where the consequence of failure, particularly if you, if you conduct yourself with integrity is that you learn a lot. Right. There's no losing a house. There's no cataclysmic outcome for your family. So to me, when you look at the economic unlock that we have in this country, by reducing friction to invention, by reducing friction to experimentation, I am incredibly bullish on the future of venture. I think founders are the engine that drives the world forward. Right. That's where we get electric cars. That's where we get rockets at land themselves. That's where we get mRNA vaccines. And so there will be cyclicality. There will be industrialization. There will be big funds and small funds. But the reality is that this ecosystem is a massive competitive advantage for this country. I think when we look forward at the information age over the next 30 years, the power of this ecosystem is more strategic advantage to this country, even the natural resources. I'll say something orthogonal to this, which is in order for that to happen, just to build on the point, Brad, of your guess that you're thinking, we have an entire generation of financially enumerate general partners adventure firms. And venture needs to be a pillar of growth in society. And I think people need to have more financial tools and underpinnings to do their job. Why? Because over these next 10 years, when maybe you have 500 to three quarters of a trillion dollars of value destruction. And it's because you didn't think about portfolio construction properly. That entrepreneur that needs your money, you will have to say no to them or reneg on a deal or let them down. And the reason is that you didn't think about that on the way in. And so these are practical skills that every other part of the financial asset infrastructure has to learn. We are taught the hard way. You know, we are taught in the public markets how to think about dispersion, correlation, alpha beta. You're taught in private equity how to do it. You're taught in every other asset class. And we romanticize venture to think that none of that matters. But in a moment like this, you will see how much or how much it doesn't matter. And if you're going to live up to the to the actual commitment you make to an entrepreneur, you better get financially smarter is what I would say. All right. Let's move on. Do you want to go to stock picking or lift versus Newsom on this prop 30? I want to hear the freeberg die triples talk to you. You do? Okay. I want to hear it. Well, anyway, there's a bunch of people talking about index funds versus buying individual shares and being a stock picker. Elon and Kathy Wood got into this on Twitter. And we all know the arguments for passive versus active. And there's large active funds out there that are just programmatically buying and Elon and many think that active would be better for society or a bit more active. Freeberg wish or take a business is a over time. It's supposed to be a machine that takes money in and puts money out. And then there's money left in the machine. It's like a box money comes in money goes out. And over time the objective of the money coming in, which is sales or revenue exceeds the money going out and the box grows right the assets grow. And the best way to look at that is in the financial statements of that business, you know, the income statement, the balance sheet, the cash flow statement. But we and then there's this narrative that can be layered on top of those metrics, that measurement of how well that business is performing over time. And that narrative is what drives a lot of investment decisions today. Right. I see whether it's an analyst, writing an analyst report or portfolio manager or an individual picking a stock. Everyone's got a reason why they're buying the stock. And they say, here's my thesis. And what happens is everyone looks at that box, looks at that business, looks at that thesis from a different angle. And there's always something you're missing. So there's some element that is driven by imperfect information. And in some cases, it's just heavy bias. You know, you look at a stock, you're like, hey, I really like Disney Plus. I really like the subscriber growth. But the question fundamentally is over time, what is the revenue generation and the profit generation potential of that one thing you're looking at? And what are the hundred other things that are going to contribute to that business, that box, taking in more money or spending more money? Is that box going to run into a regulatory problem? Is it going to run into a customer problem? Is it going to run into a content problem? Is it going to run into competition? The number of issues and opportunities that any one of these businesses can and will face is infinite. And every participant in a market is looking at some different set of those opportunities or threats. And every participant in that market is making a different value judgment. And so very often people will buy a stock because they see their sliver. They convince themselves that based on the sliver of the perspective that they have, that this is something I want to own, they don't do the work on what's the income statement, balance sheet, cash flow, going to tell me over time about the quality of that business. And they don't do the work on what the valuation of the business is relative to comparable, relative to future earning potential. And I just wanted to have this diet ride because I see so many individuals doing stock picking. And over time, because of this myriad of things that could go wrong and will go wrong or may go right or won't go right or the regulatory thing or the market thing or whatever interest rate thing hits that stock and the stock price goes down. Eventually, everyone gets hit on the head and everyone reverts to mean or below mean, meaning the average of the index over time or underperforms that index over time. And so, I mean, for me, I spent two years, I know we all went through some sort of investment banking training. I spent two years out of college without a, I had no finance, econ or business background. I worked in investment banking, learned how to read an income statement, balance sheet, cash flow, learned to understand how business performance ultimately translates into financial outcomes and spent a lot of time on valuation and figuring out just because you like the story of a stock, you like the story that the CEO is telling you doesn't necessarily mean that you're paying a fair price. So if you, if everything they do goes right, this price could still drop. And I think that this is a really important set of lessons for people that are individuals that are doing stock picking, which is to number one, there should be this message and this diet tribe is specifically targeted towards day traders retail, correct? I don't know if it's just them. I think it's just generally like make sure you understand how to read an income statement, balance sheet and cash flow statement. Number two, make sure you know how to assess valuation. Make sure you know that when you're buying a stock, you know what the total value of the company is based on the price you're paying. And how do you justify that that total value makes sense relative to your model of the future outcomes for that business? And then number three, recognize and be cognizant of the fact that whatever one thing you're seeing that you think you've got some edge or some advantage on because no one else is seeing it. There's 99 other things that you're not seeing. And this is where everyone learns this lesson over time and everyone gets bonked on the head at some point in making these decisions. And it's why every stock picker or nearly every and we can talk about the greats at some point here and where alpha can be generated and so on. But generally, most stock pickers over time underperform the index. And it's just, particularly with the retail movement of the last couple of years, I see a lot of thesis. Here's my reason for buying the stock that excludes understanding the financials, understanding the valuation metrics and also excludes the whole litany of things and all the diligence that goes into thinking about all the other angles you might be missing. So that's more about all or generally, it turns out that it's hard to be good at anything. Insert the blank takes tens of thousands of years of practice. In investing, I think what I have learned is that it's very easy to get caught up in the mania. I have also learned in the last decade that we really benefited from zero interest rates. It was a tie that lifted all boats. And I have learned how to think about correlation and the difference between alpha and beta and how to construct portfolios that I think can be all other portfolios. To Friedberg's point, those are nuanced long tail skills that you'll only take up if you're really passionate about the craft. It's not dissimilar to a person. I'm just going to use golf as an example who learns how to hit a fade versus a draw and who learns how to really manipulate their wedges in very specific ways. These are all long tail skills that come in when you decide you want to master something. And it's just important to note that that mastery is required to be really good. Because otherwise, there'll be times where you'll go out on the golf course and you'll crush it. But then there'll be other times and most other times where you can go and get run over because it's hard. So that's my only comment is that this is like everything else. It's not nearly as easy as it looks like. Brad, you pick stocks for a living should retail. How involved should retail investors be? Should they just buy an index? I don't think it's fair to say retail. I think my point was really about, no, his point is everybody. Okay. Sure. Everybody. My point is saying a thesis and excluding all these other factors that are critical in making a decision about what you're buying and whether you're paying the right price means that you have to make sure that you're expanding your point of view on whether or not a stock is worth buying at the market price today. And I think having that broader perspective is what I see missing in 99% of the chatter on Twitter, 99% of folks talking about what thing to buy and they're buying it. And I think it's very critically important. You're saying that most investing that you see is very narrative driven and that narrative can sometimes be so powerful that it overpowers all the other elements that one should be doing to get a full picture of why you should be buying something. Is that? I think that's a fair summary to mafia. Yeah. And I think it's just about how so much of what goes on on CNBC on a lot of Reddit boards, not all of them. There's some very sophisticated folks there doing very sophisticated financial analysis and looking at all the angles of a stock, assessing the valuation. But so much of these conversations exclude what you're paying and what you're getting and exclude the broader context of all the things that could and may not happen with a particular business. And as a result, at some point, one of those things, box you on the head, you lose 50% and you're like, oh my gosh. And sometimes if you try to inject that logic into those channels, you'll get Brigadunde. Brigadunde. Absolutely. Brigadunde. Brad, what do you think in terms of people's access to markets, I guess, would be another way to look at this and people's propensity to just gamble. Let's call it or maybe not make thoughtful decisions. I kind of think if our friend Bill Gurley was here, he'd be like, this is a five-minute conversation about the statement of the fucking obvious. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. This is stock picking TARD. Really? Is that the theme of this section? Yeah. Yeah. Stock picking. Stock picking TARD. Very little alphas ever been generated in a sustainable way, even by the greatest people of all time. I think maybe something that is a little bit useful to add two things. Not all good companies are good investments. Price of entry matters. Okay. So I hear a lot of people saying, one guy buy that because it's a good company. I don't even know what that means. Exactly right. Good relative to the price of entry. But the second thing is the single greatest power we have is investors. The greatest single source of alpha. Right. Other than stock selection. So choosing the right company. Time arbitrage. Okay. So do you have the ability to own something that is a growing asset over a long period of time? So that if you got number one wrong, you bought it at the wrong time, shit happened in the world, they miss a quarter, et cetera. That you're not forced to lock in those losses because you overallocated to that. So this idea around portfolio management is a principle component of overall stock picking. It's just absolutely critical. So I think, you know, I don't really, I love the fact that I put myself through college, I put myself through law school, through business school, day trading stocks out of the back of the classroom. I'm grateful I live in a country that let me feel like I had some alpha and that I could do that and I could go read the newspaper and sort it out. And I wasn't building sophisticated financial models. So like, you know, I think there are ways that folks can do this. There are a lot more ways to lose money than there are to make money in a sustainable and durable way. Right. And so as investor, what we try to do, you know, we've got 90% of our portfolio in our top five or 10 companies. Okay, I'm not an index. And the deal I have with our LPs is I'm very transparent with them. They know that we're going to own companies in size. And it's that portfolio concentration in our time arbitrage holding companies for three years or longer. That is a strategy they choose to believe in and sign up to. But I know a lot of greats who would never subscribe to that strategy. So no your strategy, execute it, allocate a reasonable amount of capital. So when all of these unknowns that day, freeberg talks about come along, you can react accordingly. And you know, the final thing is if it's not fun for you, right? Like if you're actually not passionate and curious about like studying this stuff and learning about it, not everybody is, then don't do it. Right. Then don't do it. Then just put your money in and you're not going to be good at it. For you to decide who is the analytical depth and rigor that the greats employ to be successful at picking stocks, at picking businesses and investing in them and selling them at the right time over time. It does not make for good TikTok content. It does not make for good short form content. And I think that's why we've seen this dumbing down and this kind of short form thesis-driven narrative approach to content creation around markets and stocks that ends up causing a lot of people a lot of harm. You know, you watch the Jim Kramer's of the world. I don't mean to disparage anyone individual, but that sort of content that's like, this is a great company. We should buy it. Like let's go. And the depth and rigor takes a lot of time and a lot of effort to really do right. And then you get hit in the head. You know, when we, um, and that's what I've observed lately in a really kind of flurried way, particularly across social media and so on, that's, uh, that's why I just wanted to talk about this topic today. Just to build on top of what you're saying, Warren Buffett made this very famous bet in 2000. It was him versus a bunch of hedge fund managers and they were able to pick a basket of hedge funds. And he said, I'm not even going to pick myself. I'm going to pick the S&P 500. And the low-cost ETF, the Vanguard ETF, and he said, we'll check in like 20 years later. Anyways, you know the punchline of the story. Buffett won. He won like a million bucks that he donated to charity and these hedge fund folks lost. And so to build on your point, Jason, time and time again, the smartest investors in the world, i.e. guys like him have shown us that the most predictable way to make money if that is your goal is to own the S&P 500, which is, you know, a dynamic index of the 500 best companies in the world. So there are these people doing all the hard work for you. And they have very strict criteria of who's an S&P 500 company or not. Now, yes, if you cherry pick other companies that are not or you concentrate in some, will you generate better returns? Absolutely. But systematically over time, that thing has lurched forward at 8% a year, you know, 9% a year. If you invest dividends, you can approach 10% a year. And so if you really want to just grow your wealth, that's a very simple, steady, eddy way to do it. And to take a small amount and then go and, you know, experiment with it to learn makes sense. But I think it's important to make sure you're going their eyes wide open to try to actually learn. Buffett, of course, says the index works really well. But then he's got 50% of his public portfolio in Apple over the last few years. So he clearly believes in Alpha as well. But, you know, back to Friedberg's point, since we brought up Buffett, you know, somebody asked Munger, why can't, why can't people just copy what Buffett does? And he said, because nobody likes to get rich slow. Nobody likes to get rich slow. If you want to, what did a 0% rate environment remind us all over the course of last few years? Everybody had a grift. Everybody had a get rich quick scheme. I don't care whether it was crypto flipping or whether it was house flipping or whatever it was. Everybody thought, you know, this was easy. And frankly, looked at guys like us oftentimes and said, you're the dumb ones. You're playing the game that's really hard. Why don't you just, you know, flip some crypto? And I think we're back to a world that if you really want to, you know, by the way, yourself, how dumb did you feel? I felt so stupid. All these tokens, minting, minting billionaire billionaire billionaire billionaire billionaire. And I just, I just sat on the sideline to your point. It just made you, it made me feel so stupid. I felt stupid. I was just like, I, I, who's the customer? And how much do you charge him? And when you can't get that basic answer of who the customer is and how much it costs for them to buy the product or service? It was like the Brad's point. I think the punchline is. And then, you know, at the 11th hour, it's like, there's a tendency to just capitulate and say, okay, forget it. I'm in. And that's when all the money gets torched. Real quick, there's a proposition here in California where we vote on specific ballot measures. Not every state has this, but we have prop 30 coming out. This is a 1.75% tax on income earned incomes earned over 2 million for the next 20 years in California, which by the way, had a hundred billion dollars surplus that would go towards clean energy. This was proposed originally by environmental groups, but Newsom has come out to battle against this, which would seem counterintuitive because he's so pro environment. What this would do is spend about 80% of this hundred billion in new tax revenue over the next 20 years, 80% would go towards charging stations for EVs and motivating customers to buy EVs. 20% would go to combat the crazy amount of wildfires we're having here. He Gavin Newsom, that is called this a cynical scheme devised by a single corporation lift to funnel state income tax revenue to their company. Lift has provided almost all of the 40, almost 48 million in funding for this prop 30. The reason is because California is going to require 90% of right-charing miles to be traveled by zero emission vehicles in 2030. You know on top of that, that California is going to not let you sell anything other than EVs in 2035. Of this continues. Now you've got a bunch of people on the other side of this doing anti-prope 30, including the California Teachers Association because they want the money. Read Hastings over at Netflix, Meritz over at Sequoia, Sam Altman over at OpenAI. What do you think of this freeberg? I'm curious. Sorry, what side are they on, Jacob? The side of lift? Altman, no, they're saying don't do this because they are trying to control taxes in California. They're on Newsom side. Newsom side, hey, this is a grift by lift because lift is concerned that they're going to have to bear the brunt of 90% of miles. So I guess the, I don't know if it's original sin, but the, the, one of the levers here is lift is got the majority of their rides are in California. Uber has stayed out of this because they don't have as much exposure because the number of rides in California is a smaller percentage of their overall revenue. Brat, Brad, you have some of those two here, I think. It's a freeberg or Brad. I'm just looking at the border directors that lift and thinking to myself, good God, what are these people thinking? Steve. Spending 40 to 50 million dollars on this, it just seems that they've totally lost this script. The company has way bigger problems, way bigger problems to focus on. Then, you know, this measure, have a little faith in the system that if we don't get to a place where this is reasonably practical over the next 10 years, then I'm sure we will evolve, right? The legislation around this, you know, kudos to Dara and the team at Uber for not running scared on this, right? For not trying to push this through. These corporate governance initiatives, guys, disreferendums in this state. I mean, this is just bad politics, bad policy. I mean, we got Valerie Jarrett on the board of this company. You got political sophistication on the board of this company. I want to, you know, I wish I was a fly on the wild and know the conversation that went down and who raised their hand and said, this is the highest and best use of 40 million dollars of our money. Crazy. Yeah. Right. Makes no sense. Freeberg, you have thoughts on if, I mean, you've talked before about how you think the free market should solve these things. What is the, what is the governance structure that lift guys? I knew that was coming. I knew it was coming. Did they have super floating shares? Yeah. Anybody look? I don't know the answer to that. So, I think that the tax rate in California is high enough now that we all have friends, friends in our poker group who have left for the state of Texas or the state of Florida, where there are lower tax rates and where they feel like they're getting more value for their tax dollars. There's certainly a calculus going on with Newsom, I believe in, you know, the impact that having higher tax rates would have on what is clearly not just a theoretical, but an actual evidence, you know, Exodus from the state of wealthy and high income earners. This could be like, you know, at some point, there's a tipping point that looks a lot like France, where you raise the rates high enough, enough wealthy people leave, and the net tax dollars actually go down like what happened in France when they introduced their wealth tax, then they reversed it and everyone came back. I will say I don't, more important long-term point. I don't see a world where we don't have over 60% tax rates on the wealthiest people in this country at a federal level. If you look at, if you assume a 5% long range, call it 15, 20 year horizon for interest rates, even 4% on $30 trillion of outstanding debt, and you assume that the voter base will never vote to reduce social security or Medicare entitlement programs, and obviously the defense budget won't get cut. We are not going to see a situation in this country on a federal basis where we can actually meet all of our fiscal obligations without incremental tax revenue. And I think it is much more likely that, you know, look, whatever happens with the state initiative happens, but I think it's very likely that over time, the only way for the United States to bridge its fiscal gap is going to be to raise income to increase the tax rates. I don't see another solution because I don't think that the federal government or in our kind of democratically elected Congress, we're going to see a system that's going to say, hey, let's go for austerity measures, let's reduce entitlement programs. Both sides will say that. It's just not going to happen. So tax rates, higher tax rates, I think, are coming. You know, maybe California will skip over this particular generation, but I don't see how the United States continues to thrive over the next 15 to 20 years without tax rates that will today seem extraordinary. Well, in the last 20 years, we blew through a debt to GDP that was, I think, 57 percent and it basically doubled. And so David, to your point, when we wanted to feel prosperous, what we did was we financed it. We went out and we put out a ton of debt in order to make sure that our entitlement spending or our defense spending or whatever the things were that we needed as a population to feel like we were growing and moving forward as a society we had. So that is the practical nature of what happens. And look, a lot of people think that there is some upper bound to debt to GDP. And I'm actually of the opposite view, which is I think that, you know, the quote unquote invisible hand justifies us moving debt to GDP to higher and higher rates. So the first time the United States went past 100 percent, we thought it was the end of the world that turned out it wasn't. We'll eventually go past 200. Somebody will clamor and, you know, be anxiety riddled, but they'll take some SSRIs. They'll be okay. We'll keep moving forward. Then we'll get to 300 percent. We'll keep moving forward. So we are in a debt spiral that is a feature, not a bug of how democratic societies work. As a companion to that, I do agree with you that taxation kind of is a pendulum. It it ebbs and flows. And you know, we're in the part where it's going to go higher before it goes lower. But I want to tell you a story, which is that in the beginning of this summer or so this fall, I was in the middle east and then I was in Asia. And they have very different taxation schemes, right? And many of them have zero, capital gains tax and, you know, sometimes zero income tax. But then the opportunities for them to be able to invest in driver turns is also commensurately lower, meaning there's not as much alpha in most of the opportunities that they see. Whereas if you go to California, you have to pay 60 percent tax. But then you know, you could be an angel investor in Uber, you know, and all of a sudden take 25,000 and turn it into a hundred million, which is un, ungodly. It's incredible. So I think that in my opinion, actually like there's actually this beautiful symmetry where even if taxes are high, your earnings potential is commensurately higher such that the net that you're left with is the same as if you were in another place where taxes may be zero, but you're just not going to get exposed to the same ways to make money. And I think obviously there's corner cases where that's not true. But I don't think sweating taxes is a really important way to spend somebody's time. I just think it doesn't matter. Brad Fennel. I would just say the beautiful thing about federalism is we get to A B test in real time. Different points of view. And so we're seeing the biggest A B test maybe in the history of federalism between the state of California, the state of Texas and the state of Florida. And it's not just tax rates, right? When Elon leaves to go to Texas, we have the head of the California General Assembly, right, changing or Twitter profile to say good riddance and flipping the bird to Elon, right? There is a hostility toward business that is emerged in California that I think is commensurate and related to the tax rate, but also separate. At the same time, we have the mayor of Miami texting us asking us to come down for a visit. We have friends in Texas who are literally politicians who are marketing their state to people in California. And we're going to be able to political scientists will look back in five or ten years. And they'll be able to answer those questions for you, but I suspect that that makes us a much stronger place for experimentation than countries like France where it's all or not. Yeah, and just to give people an idea to Chimaltzport about point about debt to GDP. Here's the chart. Early part of our lifetimes, 50%, 1990s, 60%, 70%, after the Great Recession, the pandemic, 120%, Japan's at 200%. I think so there's obviously it doesn't it doesn't mean anything. I know that your payments might not be on some point. I really don't think so because I think what will happen is you'll just move the yield, you know, the yield to maturity will move out and you know, we'll issue again, you know, this is the funny thing we talked about this last night at poker like, you know, Trump's idea, some of them were actually very brilliant. They were just packaged through this lens of being a total goofball. So you could take it seriously, but 100 year bonds when rates were zero now looks like, oh my god, what a brilliant move. Well, you could take a 50 year worldview about climate, about nuclear energy, about semis. We didn't get to semi-conductors again this week. We got so much good stuff, but we do need to take very long multi-deck, I look at investment and why not make a 25 or 50 year bond for semi-conductors? Can I actually just do a small PSA? Sure. Public service announcement from Chimaltz, the more you know, go. I went to Bluebottle coffee today and I asked for a latte and they gave me a latte with oat milk. That's their default, which is disgusting. And I find out that is now their default and bro, and I said, there's a lot of normal people that don't want to ingest that chemical spew into their body. And so just a shout out, like just a comment to Bluebottle, like, can you please realize that a lot of us are normal? We want to come to your store and then not have to ask for the long tail alternative. Can you just serve the thing that's first your signaling? It's the people's shopping shop. Most of the people still drink milk. Okay. I'm not trying to bring a doon you, Bluebottle, but I'm not going to go to you anymore as a customer because I find this stuff really dumb. Like, can you just have milk so that I can ask for the oat milk if I want to versus giving me chemical stuff that I don't want. I don't want that. Yeah. And and and and and complaining about oat milk. Is that what's going on? No, it's this is where we are. This is where we are moment. It's just like, I just want milk. I want a latte. I mean, I want to go and support you guys. I want to maybe the cow doesn't want to make that milk for you after it's baby was ripped away from it. Oh boy, here we go. Here we go. It's day we we we survived 90 minutes and here comes is the point, you know, did the cow agree to be in service to you to make your milk? You think I need to have a verbal contract with cows? I mean, well, I mean, are we going to do the olive fed beef next week or not? Who's the translator of the cow human protocol? Who is it you? Beep. Boop. Is it one of your friends? Like what? I don't know actually. I am working on a noroling for sure. I'm not sure that the default assumption that the cow should be there to do whatever you want it to do is a fair assumption. I think that'll change over time, but it'll take some time. I think that that's completely fair and reasonable. But what I'm saying is right now while there's an entire, you know, economy and people, well, there's an entire economy of people that shouldn't get rolled over because you want to impute the emotions of cows. I'm allowing you your freedom to want to impute those emotions of cows. Well, I would like to support the dairy industry and buy milk. So can I please do that? No, I want to impute the freedom and rights of the cows, but that's going to take some time. But sure, go ahead. Have your milk for now. And you're allowed. But I right now will take the side of the dairy farmer. I just want to know. I just want to know. Did you want to get your chakaran outrage, your trim off-caron outrage, your chakaran on tape? Is this trending on TikTok yet? When you admonished the breeze stuff? It's not the breeze that's fault. I just think it's I didn't make a scene or anything. I just got I just I just said, can I please have a latte assuming that it would come with milk like most most normal places? Yes. And now I have to actually ask for milk because they think that this chemical composite stuff that's called open. Have you looked at the ingredients adonate? We had this conversation. Yes, we got we got we got anybody listen. We didn't even get to male chimps CEO Ben Chestnut who is, you know, like one of the kind great CEOs of our generation getting Yeah, his memo is his last name really chestnut. I believe it is. Yeah, it's just Ben. It's chestnut is a great guy. I just remember him so many times incredible human and he's been asked it. Should we do outros? Because you didn't do intro to Jakel. Did you have a right here? All right. So here's the extra. Yeah, for for the Sultan of science, the queen of Kinwa himself. Climbing the stray cat leaderboard as we speak. David Freiburg follow him on his Twitter handle. Well, you can get all kinds of hot takes from science to Ukraine at Freiburg is the hand talking about. I never tweet. I know that's the joke. Okay. So with with us again, the anchor he'll be doing a twitch streaming where he translates the emotions. I'm actually doing my cooking show which has a base of oat milk. It's my oat milk top 10 beverages tonight on Twitch. Just follow stray Freiburg. Get it? I don't want to get Brickardooned by the oatmeal clubbers. They're coming. They're coming. Milk stands are coming for you. Listen, I don't want that chemical stuff in my body, but I'm not going to stop you from doing it. I'll do a diet tribe on chemicals in oat milk next week. What should we drink? If you did have a choice, Freiburg, if you didn't want to drink the chemicals in an Oli, what would you drink? What would you do? What do you drink? Nothing drink soy milk, oat milk, whatever. Okay. But you're okay. And bringing that tasted milk. I drink the beautiful glass jar. No, I'm asking Freiburg to upstress. Yeah, of course. I have to try some glass bottle. Three dollar returns for each glass bottle. I return them and get them from good eggs. Freiburg, have you tried? Have you tried? I'll tell you what is going to happen in the next, he's never had milk. In the next 10 to 15 years, most of the milk you buy at the store will be identical to cow's milk, same protein composition. It will be built in a slurry. You can make fun of it. You can make fun of it. You do work in the tech industry, but yeah, I mean precision fermentation is the future of making animal proteins. I know you Freiburg. I'm telling you, there is an economic model that will work. That's great. Between now and then, can I just do things? Number one is there's a taste and a flavor profile I've grown up with that I would like. And I don't think I'm a bad person. So I just like to have that and not be made to feel guilty about it. And number two, I don't want to put chemicals in my body. So if I can find a natural thing that I like, can I please just drink that? Can I just please blue bottle have that in my coffee without having to explicitly ask for it? Yes. You will get that. And number two, there's short and binessly and they're the largest dairy breads. But Chimath still has a short on only. So let's just keep this going for just two more weeks. Okay. Let me ask you an ethical moral question. Not joking. He does not have a short, I don't even know if vote least public. I'd rather you ask me an ethical moral question than a political one. So I'm going to yeah, I mean, we got to play from Ukraine this week. Would you have a if the synthetic version of milk or steak was made like and is a protein that is exactly the same to a cow. Would you have a problem morally with eating and or drinking it? No. So the objective of what's called precision fermentation or some people call it bio manufacturing, you take the DNA from the cow or from the chicken, you put it in a yeast cell or bacterial cell and you put it in a fermenter tank and put sugar water in the tank and the yeast cell or bacterial cell eats that sugar water and it spits out that protein. So you've programmed, you've programmed that organism to make that protein. And instead of growing a whole cow or growing a whole friggin chicken, you're growing the protein. So no moral issue. No moral issue. I got no because no animal died in the making of the process. You know, you're taking can I quote Dave ship out here? Go ahead. Yuck. All right. And it's going to it's it's identical to the protein you beat otherwise. It's tastes the same. It's the exact same compound. Oh, like there's nothing about it that's different. Thanks to the dictator, thanks to the Saldar science. And for the fifth bestie coming in and doing a great job today on behalf of our friend, the sassal David Sacks, who is busy in a secret clandestine piece making junk it to Ukraine. I have the world's greatest monitor, editor, and calcana. We'll see you next time. I'm all in. Love you boys. Well, let your winners ride. Brain man David Sack. And it said we open source it to the fans and they've just gone crazy with it. Love you. I'll be queen of king. I'm going on. That's my dog. Take it away. I wish you drive away. Sit next. Wait. I'm going to have to ask you to meet me. I'm going to have one big huge or two because they're all just like this like sexual tension that we just need to release our own.