Summation with Auren Hoffman
Non-obvious ideas that move the world. Auren Hoffman hosts leaders across tech, business, markets, and government.
Summation is the permanent home for the relentlessly curious.
Auren is CEO of NQB8, GP at Flex Capital, Chairman of Dialog; former CEO of SafeGraph and LiveRamp (NYSE: RAMP).
Summation with Auren Hoffman
Michael Batnick - Common Investing Mistakes
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Michael Batnick is a managing partner and Director of Research at Ritholtz Wealth Management. He’s also the host of the excellent investing and finance podcast network The Compound.
In this episode, Auren and Michael discuss:
- Mega caps, crypto and retail investors
- Impact of index funds on the stock market
- Fintech vs legacy financial institutions
- Investing mistakes and life lessons
World of DaaS is brought to you by SafeGraph & Flex Capital. For more episodes, visit worldofdaas.buzzsprout.com, and follow us @WorldOfDaaS.
You can find Auren Hoffman on X at @auren and Michael on X at @michaelbatnick.
Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com)
Economy and Stock Market Analysis
Auren HoffmanWelcome to World of DaaS . A show for data enthusiasts . I'm your host .
Auren HoffmanAuren Hoffman , ceo of Safegraph and GPFlex Capital . For more conversations , videos and transcripts , visit safegraphcom . Slash podcasts .
Auren HoffmanMichael Batnick is Managing Partner and Director of Research at Ritholtz Wealth Management . He's also the host of several awesome podcasts , including Animal Spirits what Are your Thoughts ? And Compound with Friends . Michael , welcome to World of DaaS . Thank you so much for having me . I'm really excited . Now we're recording this at the end of March . Crypto is like an all-time high . The stock market is roaring . I think NVIDIA added like $275 billion in a single day in February . Interest rates are nowhere near zero . What the heck is going on ?
Michael BatnickWhere do we begin ? It turns out that the world didn't end and in fact , the opposite happened . We survived 500 basis points of rate hikes . Of course , not everybody survived . There are certain areas of the economy that are in trouble , but by and large , the royal way we made it through . The economy is growing , inflation is cooling , people are spending , the stock market is working and there's not a gigantic disconnect between the market and reality . A lot of people think there is , but there's not . Now . It's not to say that the market isn't maybe a little bit frothy or extended or ahead of itself or anything like that . It's not in a bubble . We learned today that the fourth quarter GDP got revised up to a 3.4% annualized rate .
Auren HoffmanWhich is crazy fast for an economy of our size , right .
Michael BatnickNot bad , not bad . Delta said that they're having record bookings . You're seeing the same things from cruise lines . Las Vegas this morning , we found out gambling was up 12% year over year . These are the sort of things that happen when the economy is doing pretty well . Discretionary spending is there , despite the inflation . So how did we get here ? Yeah , listen , this was not on my bingo card . In 2022 , I certainly thought that there was going to be a recession . Now , in 2023 , I probably , like a lot of people , didn't really believe the rally . Ai certainly had something to do with it a big part of it . But yeah , here we are . It's been a hell of a run .
Auren HoffmanWhat's the logic for now , lowering interest rates . It seems like things are fine . Wouldn't you want to lower them to do some more stimulants or something like that ? Why lower them this year then ?
Michael BatnickI'm with you . The market is with you . The market keeps pushing out the forecast for the first rate cut . I think at first it was March and now it's June or July . I am with you in the sense that the economy is humming . We have digested these gains . Why lower them now ? Why do anything to potentially spark more spending , more inflation ?
Auren HoffmanYou only have so many bullets of lower and you save that for when we really need it later .
Michael BatnickThe reason for them to lower rates , in my opinion , is to save the housing market . First time , home buyers are sidelined . People that are trying to move are sidelined because it's really difficult to give up a 3.5% mortgage rate . So it's the housing market Outside of that . I don't know why they would be in any rush , and they're not . They're not for lower rates , yeah got it .
Auren HoffmanI guess you could potentially offer low interest loans . There could be other ways that as a society , we could help those people , or something like that .
Michael BatnickWell , yes , there is . The Fed could stop buying mortgage bonds if they wanted to get involved in the housing market . I guess the economics answer and I'm not an economist would be that rates are high and inflation keeps falling , and so that the real rate . Why keep things restrictive ? But does it really feel like they're restrictive ? Let's use some common sense . Given everything I just said , given the market's reaction , given consumer spending , does it really feel restrictive anywhere outside of commercial real estate ? No , it's not .
Auren HoffmanYeah , it just seems like crazy frothy right now . What's driving the market ? Is it retail investors ? What is driving it ?
Michael BatnickUntangling where the gains and flows are coming from is a little bit tricky , but what's driving it ? I have to center this back to the fact that it's fundamentals . So just things are good . Corporate profits are at an all-time high . There's no conspiracy like who's doing this , Guess what . Corporate profits are at an all-time high . The stock market follows earnings . These are businesses , and when the businesses are at an all-time high in terms of earnings and margins yeah , they're probably not trading as a ratio against earnings .
Auren HoffmanThey're not trading that crazy because their earnings are so good .
Michael BatnickIt depends what markets you're looking at . But even something like NVIDIA , which is like certainly , how much gains have NVIDIA pulled forward ? That's the trillion dollar question . Is 80% of this legit and 20% is froth ? Is it 20% real and 80% froth ? I don't know . What I know is that , listen , look at NVIDIA's numbers . They're wild . The earnings growth has been explosive . They're creating a new category out of thin air that didn't exist . But if you look at where they're trading next year's earnings , the stock is cheaper today than it was a year ago because the earnings have grown so much . So it's 35 to 40 times forward earnings insane for a company that's grown like this . Where should it be trading ? Should it have the same multiple as a Colgate-Palmolive ? Of course it shouldn't . So is it expensive ? I don't know . Probably Is it a bubble that has to pop ? I don't think so . It can , but it doesn't have to .
Auren HoffmanIf you're just an average person saving from their retirement , how should you be thinking about this ? Should you just not even worry about it and just follow your strategy ? You ?
Michael Batnickshouldn't be thinking about it . There are people who get paid lots of money to spend their every waking second thinking about it . You should not be competing with them . You wouldn't step on the football field and try and go over the middle . You wouldn't step on a basketball court . These are actual professionals
Investing, Consumer Sentiment, and Crypto
Michael Batnick. What the normal person should do is divert their attention to things that actually can move their needle , like improving their career situation , learning , friends and family . The goal in life is not to be at the stock market , so it is the distraction at best and counterproductive at worst .
Auren HoffmanSo someone has under a couple million dollars of investable assets . Should they even be spending any time at all thinking about it ? How should one be thinking about some of these things and their own investing strategy ?
Michael BatnickIf you enjoy the market as a hobby , that's one thing . If you are just a normal person outside of finance who's contributing to their 401k , maybe you've got a taxable brokerage account that your dollar cost averaging into . You should spend less than pick a number two hours a year thinking about your investments . You should be working as hard as you can , or as hard as you want , to save as much money for the future .
Auren HoffmanYeah , lower your costs of living probably helps you way more than any investing you're going to do .
Michael BatnickYeah , I'm not a big fan of lowering your cost of living , or getting more higher rates instead of getting a 6% raise you work hard and you get a 9% raise . Yeah , that is where you should spend as far as your personal finances go . That is where you should spend your time not thinking about should I have 5% in micro caps or small cap growth ?
Auren HoffmanThat's not the thing , and for a lot of people it's almost like investing is less , investing more , just like a saving strategy . I'm going to put a certain amount of a year away for saving for a rainy day fund for my retirement , for maybe my kid's wedding one day , whatever it's that type of thing .
Michael BatnickThat's exactly right . People say I'm saving for retirement in my 401k Now it's splitting hairs , it's nomenclature . But people don't say I'm investing for my retirement . They say I'm saving , so your retirement account is a savings vehicle . And what has that done to markets and market structure ? And it's not a stretch to think that that has had some influence on asset prices . Now , it's not to say that the market is divorced from reality because , again , it's not All-time record highs in profits . In other words , stocks should be at all-time highs . That is rational , that's how the market works . But stocks are trading with higher multiples than they have in the past . It's not just for one reason , it's not just because people are auto-investing every two weeks . The nature of the stock market is very different today and does it sound like this time is different ? Yeah , you're damn right , it's different . Amazon , apple , google , these companies Now , there were other versions of this earlier , but none of them were this size , this innovative , this dynamic , this dominant , with these margins at a sustainable rate . These companies didn't exist in the past .
Auren HoffmanThis enormous weight of these mega caps in the US stock market . Is that a bad thing ? A good thing ? How should we be thinking about it ? There's so many people's wealth that's tied into like an S&P 500 .
Michael BatnickIt's not a bad thing . These companies make up the lion's share of earnings and earnings growth . They are the dominant companies . They deserve a dominant weight in the index . I'm not a blind bulb , by the way , so I want to preface it with this . I'm not somebody who doesn't see downside risk . It's all I think about is the downside . That being said , I would be nervous In 1999 , if you looked at the internals of the stock market meaning look at the 500 companies , not just the index what you saw is a lot of companies rolling over , meaning that they were in drawdown . The price was going down , but the index was being propped up by the Ciscos of the world .
Auren HoffmanEven GE at the time was doing incredible .
Michael BatnickYep . If that dynamic were to exist today , where you had the rest of the market rolling over and it was just NVIDIA and AMD and Meta , I would say timeout . I would let my listeners know that maybe we should mentally prepare for a pullback . That's not what's happening now . The rest of the market is rallying to materials , industrials , things that are very tied to the economy , and Capital One and Discover companies that are very exposed to the consumer . If you listen to earnings calls Visa , mastercard , bank of America the consumer is doing really well and the broader economy and the broader stock market is doing well . So is it a bad thing ? Not right now . It's not .
Auren HoffmanWhat explains the disconnect ? Because , yes , people seem to be doing really well , yes , the economy seems to be doing well , but when you ask the person , the man on the street , it doesn't seem like people think things are as amazing as they are . So what explains that All ?
Michael Batnickright . There's a few things . One , it's not a mystery it's inflation . People really don't like higher prices . So what you're describing is the gap between soft data , which is surveys like how do people feel , versus how the data actually is , and there's a gap . Usually they track one another pretty closely . The gap exists for one primary reason it's inflation . People hate higher prices and even though real income has outpaced inflation , for a lot of workers it doesn't matter . I deserve a raise . I'm working my ass off . I deserve a raise . I don't deserve higher prices and you adjust very quickly to your pay raise . Right , like it's cool , great .
Auren HoffmanI got an 8% raise . I'm going to buy that really nice TV I've always wanted .
Michael BatnickYeah , exactly the sugar high from the raise . You get used to it really quickly . But you can't get over the fact that every week when you go to the grocery store or you go buy a bowl at Chipotle , you can't believe the prices .
Auren HoffmanAirline prices are just through the roof . It's just insane yeah .
Michael BatnickSo it's really difficult . Also , surveys are bullshit , so there's that as well . Okay , I've always been an anti-survey guy . I just don't think that they tell you anything . Don't ask people how they feel . Watch what they do , watch what they do , not what they say , just look at the data , look at the data .
Auren HoffmanSee how they're doing things .
Auren HoffmanYeah Right , if they were really worried about it , they would be cutting back their spending . They'd pull back .
Michael BatnickLook at what people are spending dining out . Look what people are spending on the airlines , on cruises in Vegas , on vacations . This doesn't happen in a lousy economy and nobody's saying that the economy is lousy . But it is interesting . Now Consumer sentiment is ticking up and again that's directly a result of inflation coming down . That's all it is . Consumer sentiment is right now basically 100% correlated to inflation going up or down . That's it .
Auren HoffmanInteresting Anything about crypto . We've had these Bitcoin ETFs for a few months now . We're seeing very high trading volumes . How does the ETF affect the price ? How should we be thinking about that ?
Michael BatnickYeah , so let me just share where I come from as a crypto investor . Maybe some biases in here , just to listen to some context , because this is a very polarizing area . I was not an early adopter . I don't believe in a lot of the ethos of crypto that the Fed is destroying our currency . I don't like betting against America . It seems like a lot of the evangelists seem to want crypto to replace the dollar . Seem to like the idea of inflation and all that bad shit happening . I don't ascribe to that . I hate it , and so , in order to protect myself from feeling rage if Bitcoin went to $100,000 , I bought Bitcoin as a personal hedge Personal hedge Okay , got it .
Auren HoffmanIt's like when you bet on the team you hate to win because , like , okay yeah , that's exactly right .
Michael BatnickSo , as a hedge against myself going insane , I bought crypto in 2020 . So , with that being said , I'll use Bitcoin specifically . Bitcoin is a religion . If you look at the number of active wallets or the number of sellers , people don't sell . I think something like 70% of the Bitcoin supply hasn't moved over the last 12 months . People that really believe , really , really , really believe .
Michael BatnickAnd so when you had the ETF launch , I did not believe and I wrote this down , so this is not hindsight . I did not believe that it was going to be a sell the news event . I think a lot of people did , because the run-up was so severe into it and you got a little bit of a sell the news . But here we are back at all-time highs , and the reason why is very simple the way that I think about Bitcoin , just from an investing perspective Just no sellers and new buyers To me , that's all I think about it .
Michael BatnickI don't think about it through the lens of monetary supply or M2 or any of that stuff . I just think about supply and demand . The light bulb moment for me was the great investor , Bill Miller said Bitcoin supply is coming on the market at 1.5% 2% a year . Do you think demand is increasing slower or faster than that ? I was like that's all I need . So I am a bit surprised that we're not so far removed from the mania of 2021 and that we've got the meme coin mania again . The fact that we're memeing again so soon after we had inflated and burst that bubble , that surprises me .
Impact of Index Funds on Market
Auren HoffmanMost people I know when I ask them , even very wealthy people , when I ask them how much Bitcoin you have , the most common answer is zero . Most people have zero , a small number of people . It seems to me like it'd be prudent to have at least a tiny piece of your portfolio in there . It seems like it's often either zero or a ton . It doesn't seem like there's a lot in between . Why is that ?
Michael BatnickI think , rightfully so . A lot of people have been thoroughly put off by the crypto bros . I think they've earned that perception given all the grift and the FTX nonsense . And now I'm not suggesting that there aren't good people earnestly trying to build a better future and all that sort of stuff , but there's just way too much bullshit and I think people were really scared off by the FTX debacle and it was an absolute debacle . So I don't know if those people are ever coming .
Auren HoffmanWith ETFs it's like you don't have to go open like a Coinbase account or something .
Michael BatnickIt's like oh , it's easy yeah .
Auren HoffmanOkay , I'll put 1% of my wealth in Whatever . I'll try it out , I'll see what's going on . I'll force me to learn a little bit more about it , so that may just expand the number of people . If somebody lost someone's like I have nothing . I'm like why don't you just buy like $20 and see what happens , something that won't affect you at all ? I'm like , oh , you know , it's kind of annoying or it's too hard . Are you a big Bitcoin guy ? I'm not a big Bitcoin guy , but I like it . I'm not , like , a huge believer , but I own some . I've owned some for quite a while and it's something that I don't know what to think about it . Even with tech people , most tech people own zero . I feel like if you're in tech , it's like why don't you just try it out ? Even if it's a tiny percentage , all right . Well , this is a data podcast . What are your favorite metrics when it comes to look at just evaluating the economy ?
Michael BatnickI'm going to give you a cop out of an answer . A lot , and not a lot of esoteric ones . The economy the stock market is so complicated , the stock market in particular ones . The economy the stock market is so complicated , the stock market in particular , so well followed . I think that it would be a mistake for casual investors to look at fundamental research . Honestly , I think for most people it's a gigantic waste of time , unless it's like a passion of yours . So I'm not talking to you . If you love this , then by all means . But to think that you're going to power up Yahoo Finance and look at the price to earnings ratio and think that there is any signal , let alone information , in that you will learn a hard lesson very , very quickly . I mean , listen , I look at the economy , I look at inflation . I look at interest rates . I look at stocks . Way too often they're always on my screen . I'm addicted to the game , but there's not like one thing that's a hidden gem hiding in plain sight that you should be aware of .
Auren HoffmanYou wrote this interesting piece about index funds . You said that could be like breaking the stock market . Break that down a bit for us .
Michael BatnickYeah . So there have been a number of pieces over the years criticizing index funds . There was a magazine cover , remember the magazine ? Somebody said like index funds are worse than Marxism .
Michael BatnickIndex funds are , for most people , a great way to invest . I don't even like getting into like the active , passive debate . It's just like pretty stale at this point . I think that people should invest and if you want to invest in mutual funds , fine , great , wonderful , as long as you invest . I think that's the most important thing . So I think that this is a fight for nerds . Whether or not , again , your mutual fund outperforms by 30 basis points , underperforms by 90 , if you stay invested over the long term , you're going to do just fine , all right . So getting back to the question on hand what are index funds doing to the market ? I would say what is a 401k , what are automatic deposits into the market doing to the market ? I think it's fair to say that they are contributing to higher valuations . Whatever metric you're looking at , valuations are higher than they have been in the past , again , for good reason . It doesn't mean it's a bubble .
Auren HoffmanThere's money coming from all over the world into the market too , right Into the US market . All over the world . The rest of the world's market is not like the .
Michael BatnickUS market no , and the rest of the world is investing in the US market . Uk investors have more money in the S&P 500 than they do in the FTSE . For sure , I don't think that index funds are breaking the market or distorting the market . Now . They are absolutely impacting the market in certain areas , like when traders have an inkling that a company is going to be added to this B500 , the price goes up before it gets added and then it comes down once it's in the index . So is that impacting things ? For sure , but is the market as a whole distorted ? Listen , mutual funds a lot of them . They're closet index funds . That's what they were . They're closet index funds charging 20 times the price . So if you're going to get index-like returns , what happens ?
Auren Hoffmanwhen these funds own collectively extremely high percentages of these companies ? Do the companies operate differently ? I mean , if it's something that helps let's say you're in all the airlines and something that helps one airline but really hurts the other four , that's actually bad for you . In a way , you want them all collectively to do well .
Michael BatnickI think that you just hit on a really interesting aspect of it . That's the part that is highly impactful . Is the companies , these vanguards and iShares , vanguard blackrocks of the world owning a large percentage of the companies ? By the way , just for the listeners , that's us . Vanguard blackrock , that's you . That's not like some Maleficent corporate America . That's index funds . That being said , they vote on your behalf . I guess what vanguard would say is well , who better to be a large shareholder than this very , very long-term capital they're buying , they're holding , for better or for worse ? So I don't know enough about corporate governance to really say , like , do you really want Vanguard voting on behalf of America for these companies ? That's just outside my lane , but for sure that's a legitimate area where people could say all right . But the thing is like has it gone too far ? Well , what do you do about it ? Do you force people out of index funds , right ?
Auren Hoffmanexactly ? Do you say no one fund at some point ? If Vanguard or BlackRock got so big , they could own 20 , 30% of these companies each . At some point they have to cap and then in some ways you're capping the Vanguard business because they can't own more than a certain percentage of and you just have more index funds , I guess .
Michael BatnickI don't know what to do about this trend , but index funds passed . They're more than half of all assets under management and it's going higher . Now you could say like , well then , if this gets to a point where there's more passive price takers , then price setters will step in and maybe they'll do better . But who knows ?
Auren HoffmanI don't know . I think that you need much less price setters than maybe conventional wisdom beliefs . I'd love to get your thoughts on fintech . In some ways , I feel like it's been a lot less disruptive than most people predicted . Why didn't fintech disrupt more of these legacy players ?
Michael BatnickSuch a good question . My friend , howard Linton has learned
The Future of Fintech Investment
Michael Batnicka lot about this . There were such high hopes . That fintech would maybe eat the bank's lunches is way too strong , but have some influence . And you're right , they haven't , and why . I don't know if it's lobbying , if banks are too entrenched , if there's too much at stake , I don't know . But it still seems like a lot of the things that we were hoping to be able to do just basic stuff in terms of moving money quicker and more securely that really has to come to fruition , and maybe a lot of it's been adopted in the back end Even you would think , like the big banks would have to I don't know respond with better UI , but their UI is still horrible .
Auren HoffmanTheir customer service isn't that much better , but they're still super entrenched , super profitable , like people are not leaving them .
Michael BatnickYeah , so neobanks are obviously a lot larger than they were in the past , but there's just I don't know if it's because a lot of the wealth is still concentrated by the boomers and they're still happy to write checks and go into bank branches . But , as a whole , as far as an investor perspective , there's been pretty lousy returns on the venture side investing in fintech , Big winners notwithstanding .
Auren HoffmanNow there's a narrative that venture capital over the last decade went from kind of an investment business to an asset management business where a lot of the deals were really just consensus and more of assembly line . How do you think about ?
Michael Batnickthat that's exactly what happened , and the good news is that we're on the other side of that . I don't need to name names , you know who they are the hedge funds that were providing growth capital at the series F round that were just writing $3 billion checks . Whatever it is , they're gone . No , they're not gone entirely . But if you look at , logan Bartlett from Redpoint Ventures just put out a great deck on the state of things and one of the slides that he shared was he called them tourists , and the amount of money they're allocating is I don't know if it's 80% of the highs , but it's a very small fraction of what it was . So they were definitely causing the music to play a lot longer than it probably should have , forcing a lot of people to dance a lot quicker and looser than they wanted to Distorting prices . And now the balance of power is tilting a little bit back towards patient capital , back towards the founders , investors that didn't have to write a check in 40 minutes .
Auren HoffmanThat was a pro-founder thing .
Michael BatnickYeah , right , right , right Back to the other investors .
Auren HoffmanYeah , it's interesting because valuations as an investor valuations are still incredibly high . It doesn't seem like all over the tech sector Series A , series B , series C , the C deals , oicc deal is getting done at $25 million per year or something . It doesn't seem like we've seen a lot of changes in some of these things . There was a brief time where it came down , but it was very , very brief .
Michael BatnickI run a small venture fund we invest in mostly in wealth tech deals . I think that companies that take too much money are shooting themselves in the foot . They get attracted to the high valuation . Obviously it's a nice little trophy you get the announcement , but what happens next ? If you can't grow into that evaluation , you're out of business . So I had somebody saying to me like hey , I've got somebody who wants to talk to me at 55 . I've got somebody who wants to talk to me at 30 . And I'm saying listen , all else equal . I think a lower valuation , given where this company is in their life cycle , makes sense , because if you can't really scale , quickly .
Auren Hoffmanthere's not more money behind that 55 . Sure , but if you're an entrepreneur I can see why you would take less money . That kind of makes sense . But why would you take it at lower valuation ?
Michael BatnickSo the money that you raise on that round , if you need an extension or you weren't able to deliver it or deploy it or get to where you need to be , you're out of business . So at a lower valuation maybe you'll get an extension , maybe you get more money . If you raise that too high evaluation , you're cooked Because you think psychologically , you have $30 million and $60 million .
Auren HoffmanYou raise it at $60 , then later on it's really worth $30 . Psychologically it's too hard to take a down round , or something .
Michael BatnickYes , exactly , not just psychologically , but a down round or something ? Yes , exactly , not just psychologically , but investors aren't interested in that . There needs to be room for investors to make money .
Auren HoffmanIt just makes it harder . But like most entrepreneurs , it's only going to go up . It's kind of like almost in their DNA to think that .
Michael BatnickI think that 2022 sobered people up and also in that Logan deck , he showed that the valuation premium for private to public companies is coming way down and it got so out of control . It got so so out of control I was seeing deals pre-revenue at 100 get filled ultimately at 25 or 30 .
Auren HoffmanYeah , yeah , yeah , interesting . Carta ran this marketplace for secondary shares in private companies . They just kind of like exited the market . For that it does seem like a good idea . Do you think it's going to be easier or harder in the future for people to trade their less liquid private shares ? Yeah , easier .
Michael BatnickThis is not news to anybody listening . Companies are staying private for longer , and if you've been at a company for eight years and a lot of your wealth is tied up in this illiquid stock , it doesn't mean that you're bearish on the company . But for goodness sakes , if you want to take out 15% to buy a house or pay for a wedding , then absolutely you should be able to get liquidity and I think the market's going to supply that liquidity .
Auren HoffmanYeah , it's very cottage . I remember one of the best deals I ever did was this guy who needed to buy a home . He was at a super great company and he sold me 15% of his shares . It worked out great for him , but it was just like very cottage . Like I just kind of found him through a friend and there wasn't like easy price to discover . It wasn't easy for me to find him . It wasn't easy for me to find him . It wasn't easy for him to find me . You would think a better marketplace would solve a lot of these things .
Michael BatnickYeah , I know there was an announcement . I don't know if it was two years ago , but I think it was . Jp Morgan , Nasdaq and Citi , and maybe a few others are building these secondary markets , so it's a little bit out of my lane so I can't speak to the specifics of it . I would believe that there's going to be more in the future , not less , and these companies .
Auren Hoffmanthey're very worried about who gets on their cap table totally understandably , and if they have too many people on the cap table , it might lead to a lot more regulatory things that happen . Yeah , no , it's complicated . What effect do you think new investors in this kind of like general private equity asset class are going to look like ? Are we going to have more investors in the future ? Are we going to have fewer investors ? How do you think about that ?
Michael Batnickand look like we're going to have more investors in the future and we have fewer investors . How do you think about that ? There is a lot of demand for private assets these days . The giant pension fund just announced that they're putting even more money in . Private credit is all the rage right now among asset managers and wealth managers , so the impact of more money into any asset class is higher valuations , and you've seen that over time . One of the reasons why private equity used to be able to easily , using air quotes , outperform the S&P was they were paying significantly lower multiples and using a lot of leverage , and that's a great formula .
Auren HoffmanThe high competition for these assets .
Michael BatnickYeah , the valuation spread between private and public is a lot narrower than it used to be , and so that is ultimately going to lead to lower returns . I don't see how it doesn't .
Auren HoffmanYou made this really great blog post where you made these out there predictions for 2024 , where kind of quarter into 2024 ? Now , as we're taping this , which of those are you still super bullish on and which of those do you wish you or you want to revise ?
Michael BatnickOh , I feel pretty good about some of them , I think . So far , so good . So I predicted I think I wrote that this was going to be the one that aged the worst . Quickest , because I said that the streamers were not going to merge , that Paramount Warner Brothers , they were not going to bail each other out because they're both in a lousy position . I still feel pretty good about that ,
Investing Mistakes and Life Lessons
Michael BatnickI think . What else did I say ? The stock market was going to gain 20% . I think I said something like that . I think so . Yeah , it was up 10% in the first quarter . Again , we'll see . Yeah , we'll see . Yeah , I should say all of these predictions . I said Bitcoin was going to get 100,000 . I think I said that All of these predictions were sort of it was me having fun . I don't invest this way .
Auren HoffmanYeah , yeah .
Michael BatnickYou're being provocative . Yeah , exactly , Next time% I probably would have put that .
Auren HoffmanI don't know plus 270 .
Michael BatnickI'm just making it up Next year . I'll do that just to give listeners or readers a sense of how much conviction I actually have on this trade or this prediction .
Auren HoffmanThat makes it more fun and then people could at least argue with you on the odds , or something like that .
Michael BatnickAnd this way I can say well , it was plus 1100 .
Auren HoffmanThis is a long ago , which I really loved called Big Mistakes , and what I really liked about it is you really talked about the best investors of all time . I mean , you didn't go for the terrible ones . Here's some huge mistakes that they made . So you two mere mortal , be okay when you're making these types of mistakes . What do you think are the commonalities of the mistakes that people make , even the greats like Warren Buffett ?
Michael BatnickProbably the biggest one is overconfidence . I've seen this movie before . No , you haven't . It's overconfidence , and it's interesting . What sort of commonalities . What did people take away from this ? It really is all over the place . Because some people said I'm going to change my style , I'll never do that again . Some people said I knew I was making a mistake at the time . Stanley Druckenberg said well , what did you learn ? He said nothing . I knew it was dumb at the time . I just couldn't help myself . And to that specifically , he's one of the greatest to ever do it and he went all in on the tech bubble at the peak . Others were carried out .
Auren HoffmanWe've all done stupid stuff and we knew it was wrong at the time and somehow we still did it , like it's so human to do that .
Michael BatnickYeah , so Michael Steinhardt was one of the biggest hedge fund managers in the 70s Really one of the pioneers , along with Julian Robertson and Soros and his mistake ended his career . He like packed it up , and so the thing that I was trying to give to the readers is that it's okay to make mistakes . Investing is really difficult , but it's important not to make a mistake that's going to bury you .
Auren HoffmanThat's really the thing , and so if you do something bad it's like the LTCM mistake , is a mistake that it's like a compounding mistake that's going to bury you .
Michael BatnickYeah , it can't come back from that . There are certain things you can't come back from Selling at the bottom in March 2020 . Those in March 2020 . Those are the type of things that you have to avoid . You have to have to have to avoid that . If you buy Nvidia now and it goes down 20% of your sell , fine . If you risk half a percent of your portfolio , life goes on . You're going to do dumb shit and lose money . But don't do it . Don't do it with leverage . Don't do it with all your portfolio . Like , don't go all in on anything after run . That's the type of stuff that you absolutely , absolutely can't recover from yeah , yeah , yeah .
Auren HoffmanIn some ways it's just having the right Kelly criteria in a way to actually allocate your portfolio accordingly .
Michael BatnickAnd I think everyone's got their own mental or financial line in the sand that they can't go over , and it's personal . My line is different than yours . The only way to find your line is to take a step over it , and so we learn through mistakes . The earlier you make them , the better off you'll be . Obviously , less money is better than making it in your 50s , and so that's the journey that every investor eventually goes through .
Auren HoffmanNow , we make investing mistakes . We also . Everyone makes life mistakes . What do you think are if you had to write a book almost about people's life , life mistakes , not like money mistakes how would you write about that ? Obviously , people marry the wrong person or they get involved with the wrong crowd , or yeah , so many life mistakes .
Michael BatnickI mean , I'll just speak to me personally . I had this weird irrational internal confidence in myself that everything would work out fine . I don't know if I was born with it or that's just like my natural disposition , and not even just to me specifically , but I'm not really a warrior Everything will be fine . Everything will be fine . I know and you live in New York I mean you're completely out of place . Yeah , that's how I treated my education . Guess what ? It wasn't fine . Everything was not fine .
Michael BatnickI got kicked out of college twice because I thought that it would be fine . I thought that I could just show up to class and take the test and be fine . And it wasn't fine . And I learned that 20 , whenever I graduated like I'm not even really joking around here when I said , oh , this is why those nerds paid attention in school I know it sounds beyond idiotic I just didn't think about it . I thought I would be fine . And when you graduate into a financial crisis with a shit ass degree , with no skills , with no prior work , yeah , it bit me in the ass . So I don't know if that's a combination of procrastination or whatever it is , but that was a mistake that I made , that I definitely paid for .
Auren HoffmanSo many people that I've talked to on this podcast are late bloomers . Not particularly good at school , maybe later got like this passion later for learning , but I believe now that there's so many potential late bloomers who never were given that opportunity . They never actually were able to bloom because of different things that hit them in life or they didn't have the right support system . Since you're kind of a late bloomer yourself , what are your thoughts on it ?
Michael BatnickI'm not kind of a late bloomer you described me . If circumstances didn't unfold the way that it did , I could have been working Fast food . Yeah whatever , I don't want to even name disrespecting it , but I really was that close to just throwing in the towel . So you know , tim Urban has a great like . Your life could have taken a million different paths and you are here , but it's just a million different squiggles .
Michael BatnickI landed on the right squiggle . I was a late bloomer and I didn't discover my passion in life , which is the markets , until 25 , 26 years old . I made $415 my second year out of college . I was deeply , profoundly screwed . The only reason why I was even able to remotely support myself is because when I got kicked out of college and I was at home , I was working full time as a waiter for several years , so I saved up some money to cushion myself . But I also being a late bloomer , has served me very well in life because I so deeply appreciate where I am professionally . I don't take any of it for granted when I say that things could have gone very different for me . They could have gone very different for me .
Auren HoffmanI believe there are millions of people who are like you . I don't know . A lot of 17-year-olds are just dumb . They're just doing their thing , and that's what it's like to be sometimes 17 . And I'm not no one's like on it and like has to-do lists and everything at that age . But how do we harness that potential of those people ?
Michael BatnickLuck is luck , and you're right . There are millions of people that never so . I met Josh Brown at the train station and he threw me a life vest , and you're right . Millions of people never meet their Josh Brown , and it's a shame . I don't have any great fix for one of life's most difficult problems , so it's just dice roll . I'm one of the lucky ones . I think general advice for how to expand your surface area of luck is put yourself out there , take more shots at goal .
Michael BatnickYeah , just take more shots on goal . Don't send the resume . Walk into somebody's office with a resume , all right , this has been great .
Auren HoffmanWe have two questions . We always ask all of our guests what is a conspiracy theory that you believe ?
Michael BatnickOh man , I read that in the doc and I forgot to think about it . This is the first thing that comes to me that the CIA was involved with Kennedy's assassination . Is that even a conspiracy theory anymore ?
Auren HoffmanI feel like that's like pretty it would . So many people say that , which is so interesting . It's like ingrained . I don't know that much about it , but I love that it is in people's head . It's a fun thing to talk about .
Michael BatnickI know this is literal fiction , but the Stephen King book 11-22-63 , was a fun read . I haven't read it , it's worth reading .
Auren HoffmanYeah , it's fun , okay , okay , yeah . When I was a kid I watched the JFK movie I was like , oh , this is amazing .
Michael BatnickLike it's so great . I'm not a conspiracist theory guy . I feel like they're so compelling because we're so like hardwired to believe that shit , and oftentimes they're just so dangerous , so I just stay away from that .
Auren HoffmanYou don't have any conspiracy theory about , like the markets , like people manipulating the market , Obviously all these Bitcoin conspiracies and other types of things .
Michael BatnickNo , I think you know why People are deeply uncomfortable giving into the idea that a lot of the world is random and outside of our control . We have to think that there's a them , a they . I think that are there things that we don't know about ? Where there's , of course there is . I'm not naive , but I think that there's far less than a lot of people believe .
Auren HoffmanAnother question , because you seem to generally have a very optimistic demeanor . Why do you think that is ? And Daniel Kahneman recently passed away and gives this very famous quote that if you could wish like one thing for your child , it's that they're optimistic .
Michael BatnickYeah , it's balanced optimism I had as an investor . I'm always nervous , so I'm not like a wild bull by any stretch of the imagination . I don't think that people should go all in on . I'm very , very cognizant of risk , but I don't know . It's my personality . I grew up in the same house as my siblings and they are not all like me . I would say it's the love that my parents gave me , but I don't know . I think a lot of it is just you're born with a certain personality , for better or for worse . Okay , interesting .
Auren HoffmanAll right . Last question we ask all of our guests what conventional wisdom or advice do you think is generally bad advice ?
Michael BatnickI'm going to give you an answer through the prism of generally accepted market wisdom . Buy low , sell high is horrendous advice , horrendous advice . And the reason why is it's simple Stocks that are going down are going down for a reason . You're not a genius , and so there is just a graveyard of people that are fishing on the 52-week low list . That is horrendous investment advice .
Auren HoffmanOkay , I like that . Yeah , Incredibly hard to do . Obviously , we'd all love to do that , but incredibly hard to do In some ways also . My biggest mistakes in life are also selling too early . So it's like , okay , well , there was another X that I could have got , or another multiple X if I just waited . Well , this has been awesome . Thank you , Michael Batnick , for joining us on World of Das . I follow you at Michael Batnick on Twitter . I definitely encourage our listeners to engage with you there . This has been a ton of fun .
Michael BatnickThank you so much for having me . I appreciate the time .
Auren HoffmanIf you're a super data nerd , go to worldofdascom that's D-A-A-S worldofdascom and sign up for our weekly data as a service roundup newsletter . Thanks for listening . If you enjoyed the show , consider reading this podcast and leaving a review . For more World of Das and and DAS is D-A-A-S . You can subscribe on Spotify or Apple Podcasts or anywhere you get your podcasts , and also check out YouTube for videos . You can find me at Twitter at at Oren . That's A-U-R-E-N Oren , and we'd love to hear from you .
Auren HoffmanWorld of DAS is brought to you by Safegraph . Safegraph is geospatial data for physical places . Check it out at safegraphcom . And by Flex Capital . Flex Capital invests in data companies like those we talk about at World of DAS . Check it out at flexcapitalcom .