Transcription
On this point of stocks, the average person and tying it back into what we were saying about AI because there's been this overinvestment in artificial intelligence technology companies. You said earlier a kid in Stanford right now or anybody could raise 10, 20 million for some AI idea they have and I'm seeing it everywhere. Um, the companies are overinvesting in infrastructure. I mean, it was crazy. I think OpenAI did the biggest ever fund raise. Was it almost two $200 billion to build data centers on revenues of, I don't know, is it $30 billion or something? Craziness is going on in the markets. At some point, things correct.
Oh, 100%. If you look at the greatest spends on infrastructure, when they get above 2 or 3% of GDP, there's almost always a crash afterwards. It happened in the railroads. It happened in electrification. It happened in the internet. It happened in the huge telco buildout of Global Crossing. Now, having said that, that doesn't mean those companies don't come back at some point, but there's almost always a dip or a correction afterwards. Uh, I incurred or I, I absolutely was on the wrong end of that dip in 2000, again in 2008. But if you look at the most valuable companies in the world, they have in a single year, all of them have had a 40 to 97% correction. Amazon went down 94, 97% from '99 to 2001. Facebook was off 72% in 2022. The difference now is if those companies go down, they're such a big part of the market. If they sneeze, the global economy could catch a cold. So, I, I think the technology will absolutely survive. I do think it's seminal. It's breakthrough. But that doesn't mean that we're not going to incur a pretty massive correction from a stock market perspective.
Also, let me catastrophize for a moment. Your generation and the majority of investors right now are under the impression that any breakthrough in technology results in a small number of companies over time that are able to use IP, distribution ability, to raise capital, to sequester and capture trillions of dollars in market cap. E-commerce, that's Amazon, eBay, Shopify. Social media, you know, whether it's, you know, obviously Meta or or or Snap or YouTube or AI. The problem is is that what we forget is there have been seminal technologies that have not necessarily resulted in any small number of companies being able to capture shareholder value. Let me give you some examples. If someone said to you right now for the next 36 months, you either have to go without AI or jet transportation, what would you pick?
Without jet transportation or without AI? Prop planes for the next three years or or AI? I would I would keep AI.
Okay. Hands down, jet transportation. I use AI every day. I invest in AI. Jet transportation is much more important to me. I think that's skirting along the surface of the atmosphere at 810 speed of sound has unlocked emotional and financial well-being across the world. It's an unbelievable innovation. If you added up all the shareholder value, the losses and the gains, the profits and the losses right now, as we sit here now, the entire airline and jet manufacturing industry is at break even. It still hasn't made money. If you look at all the airlines that have gone out of business, if you look at the government subsidies of all the jet plane manufacturers, it has been a shitty business. It's at zero. PCs. I was on the board of Gateway Computer. I realize that's the weakest flex in the world.
I have no idea what that is.
You don't know what Gateway is? Oh god, I feel so old. It was his company, Ted Wade, who was sort of the Michael Dell's generation, figured out a way to assemble computers in, I think, South Dakota. And it became this hugely valuable company. It was the second, when I was on the board, it was the second largest computer manufacturer by volume in the world. We were ahead of Apple. We got sold for $600 million or maybe 760, which is what Alphabet will lose in about three trading seconds or gain today. No one's been able to capture a lot of money around PCs. People say Apple. No, it wasn't PCs. It was the iPhone. Vaccines. I think vaccines are the second greatest innovation in history, only bested by the American middle class. Millions of lives saved through vaccines. Mona is down 90%. There's no one company that's been able to capture sequester shareholder value. So my thesis is that there's a one in three chance that AI becomes as important as vaccines, as important as jet transportation, as important as PCs, but there's no one or small group of companies that are able to capture shareholder value. Why is that? AI puts AI out of business. And that is if you look at the convergence of the technologies, all the models are converging.
Yeah. The AI reverse engineers any feature and basically they're all kind of, they all started with this delta, they're all converging towards the same thing. So I wonder if the big winner or the stakeholder that wins in AI is us.
Yeah.
And that is, we have this, we have amazing vaccines, PCs, transportation, but a small number of companies haven't become worth trillions of dollars. And I wonder if the same thing might not happen with AI, with open-weight models out of China, with, um, basically great models that are for free. My prediction would be to go short the AI ecosystem from a shareholder standpoint, but from a stakeholder standpoint, I think it's going to be great. And let me back up. I think a more important technology in terms of how it's going to change the world is not AI. You every year I say this is my technology of the year. In '24, I said it was AI. '25 and '26, I've had the same technology that said this is more important than AI. Any guesses? Talk about this a lot. You would not know this technology or use it. That's a hint.
Okay. Testosterone.
Replace. That hurts because you know I'm on it. That hurts.
Okay. No. Um, okay. A Zen.
Okay.
GLP1.
GLP1. Yeah.
Talk to somebody who's on GLP1 and uses AI every day and ask them which one they would give up.
Yeah.
I think GLP1, if you look at what's really going to have an impact on people's lives and what will create more shareholder value, I think it's GLP-1 than AI. And a lot of people much smarter than me say you're fully AI. AI is going to change everything. I, I don't, I think GLP1 is more important technology than than AI. And my thesis is there's a one in three chance that AI ends up being more like vaccines than e-commerce or social. And that it's going to be impossible for a small number of companies to capture all the shareholder value they're raising money at. The other kind of what I'll put, you know, fun to speculate or catastrophize. If someone were to say the US economy crashed in the next 24 months or or valuations came down, not 30%, but the market dropped 40 or 50%, which has happened before. I would think it's because of its misadventures in the Middle East. I think there's a decent chance if I were advising Xi in China and I saw America as a real adversary and said, "We are sick of these guys messing with us, treating us so poorly, these ridiculous tariffs, very difficult to understand what they're what they're thinking or how we deal with them." I would do what I think they're doing, and that is I would engage in modern-day steel dumping. So back, I think it was in the '80s or the '90s, China wanted to ramp up. They wanted to consolidate the global steel market. So they began dumping cheap steel into the US and US steel manufacturers could not compete. And the idea was price it below market, consolidate the market and then you get margin power. That's basically what Amazon and Netflix have done. They've sold you a dollar worth of goods for 80 cents until they wrapped up the market. Then they started raising prices. I think China is beginning to engage in what I'll call AI dumping. And that is they're going to have a series of open-weight models. About a third of corporations now are supposedly using Chinese lightweight open-weight models that are cheaper. If I were Xi, I would just dump cheap AI into the US market. And the moment large corporations start announcing they're not engaging these multi-million dollar site licenses with Anthropic or OpenAI, they're using these inexpensive Chinese models and the market realizes that there's no way they can justify these incredible valuations. I think the US market crashes because 40% of the S&P now is directly or tangentially related to this giant bet America is making on AI. The majority of GDP growth over the last two years has come from AI capex. If that slows down, we're immediately in recession.
That's such an interesting idea that if you're sat in China as a leader now, you go, you know what? Give Americans cheap AI and you'll kneecap their economy.
100%. That's what I would do.
It does make sense, right?
It makes a lot of sense. I, I've heard a lot of founders, um, get quite scared that there will be an economic crash in the next 12 or 24 months because of the overinvestment in in AI and investors are going to start to realize that the returns just aren't there for a lot of these companies that have raised at 100 million valuation that on an idea and so the market will contract and if if the market does contract, what does history tell us that the individual should do? The person listening, they're not the average person in such a market because they're scared they're going to be laid off. If all this investor money suddenly contracts, investors go risk off. They might be laid off.
Well, again, so Jamie Diamond was asked, "What is the definition of a recession?" And he said, "Something that happens every seven years." Your generation isn't used to a recession.
No.
I was on the board of the New York Times and within like 60 days, 70% of our revenues went away. 2008, the credit crisis, advertisers, 78% of the New York Times revenue was advertising. You know, in May, we're doing X million in revenue. And then you joined the board and then...
Yeah, no, I think I joined the board. I joined the board at exactly the wrong time. I raised, quick story, I raised 600 million to become the largest shareholder in the New York Times and overnight, I turned it into 200 million. So, but yeah, that was that was a learning experience for me. Anyways, just about the time I started having kids. God, that was stressful. Anyway, they basically within 60 days lost 70% of their ad revenue and we had to go and find a Mexican billionaire to basically cause them to bail us out. Your generation really doesn't know what a recession looks like. Like everything stops. Imagine 70% of your subscription and advertising revenue from one month to one month declines. What would that do to your business?
You'd have to consider letting people go and you'd have to cut costs. But here's the thing, to a certain extent, it's healthy. You start developing all these fatty deposits and the best time to start a business is coming out of a recession because people are cheaper, things are cheaper, people have a new way of looking at stuff. And also for your generation, people don't realize, I mean, quite frankly, if I'm a 28-year-old who's talented and doesn't have kids and dogs yet, I think a recession that takes down the asset prices might not be the worst thing in the world that happens to your generation. Because when '08 crashed, when there was the crash of '08, we let the banks fail. We, I'm sorry, we bailed out the banks, but we didn't bail out the economy. And I was coming into my prime income earning years. I was in my early 40s and I was still lucky enough and talented enough to make good money. So what did I get in 2009? Amazon, Apple, and Netflix for 8, 10, and 12 bucks a share. Those companies have 20xed.
We don't let anything fail now. We bail out the markets. Where do you and your colleagues find value? Like, what's cheap right now? Where do you find value? And here's the thing. When you, there's two parts of your life from a financial standpoint. There's investing part of your life and there's harvesting. You're in the investing part of your life. There's a certain advantage to getting to invest when asset prices are low. There's nowhere for you to find value.
Yeah.
I, I, I'm pretty comfortable saying Apple or Nvidia aren't going to 20x from here. Where do you find value? Real estate. What? Brooklyn is $3,000 a square foot. So while you're in the investing part of your life and you can survive a bit of a shock, I don't know if quite frankly a good thing to happen for your generation wouldn't be a correction in asset prices because the economy has an unbelievable malleability and resilience to reform, reshape and come back. Recessions usually don't last longer than 18, 24, 36 months. And I think a correction in asset values would be good. But what we decided, the leadership of my generation has decided we'd rather pull out your credit card and artificially prop up the markets through deficit spending or bailouts. They're talking, we mentioned Spirit Airlines, they're talking about a $500 million government loan to Spirit Airlines to bail them out. That's nothing but you transferring money to me.
Because who owns shares in Spirit? People my age. Who's trying to buy for cheap? People your age. It should be allowed to go out of business. It should decline in price. Asset value should go down. When we bailed out every baby boomer owner of a restaurant or a small business in COVID, that just robbed opportunity from the new graduate of a culinary academy who wanted her shot to go buy a restaurant for pennies on the dollar. Everyone in my generation has had those asset dips where if you were resilient and coming into your prime income earning years, you could buy assets for a lower price. We've decided that the, the government is here to bail my generation out and smooth out our assets. Make sure that our assets never go down by too much. All that does is rob opportunity from your generation.
You wrote this book, The Proof of Wealth, the simple formula for success. Uh, brilliant, brilliant book. And linking to what you were just saying there, where are you investing now? Like, if you're a young person that's trying to defend your money or just really anybody at any age that's trying to find a place to put your money where you'll make a return. I guess there's actually two questions here, which is the investing part. And they're like, "How do I set myself up just to make more money?" Especially if there's going to be an economic collapse, things might get a little bit uncertain. I think you, I think I heard you say before that less people are leaving their jobs. It's, it's harder for entry-level people to get into newer roles potentially at the moment. So, in such a world where there is uncertainty and I want to make sure that I don't go broke, I have $10,000, let's say, and I want to make sure I increase my earning potential. What's one's advice for those dual strategies?
Well, I'll tell you what I'm doing. So, and it's different. I'm at a point where I'm not looking to get rich. I'm looking to not get poor. So, I just diversify like crazy. I don't put more than, I don't invest more than 3% of my net worth in any one thing.
Yeah.
And I've been diversifying out of the US market into Latin America and European markets because the reality is nobody knows. The only kevlar against the unknown, which is everywhere, is diversification. Now, a younger person can take more risks, right? I mean, where am I doing? I'm diversifying and I'm investing in Pokemon because I do it with my son and he loves it and I think collectibles are actually the only place where there's value right now. Everything to me just looks crazy overvalued. I look at everything and think that's going to get cut in half. Oh, that's going to get cut in half. But you always want to be in the market. It's very hard to be a stock picker. So if you're your age, you're a talented entrepreneur. You're investing in yourself. There's no ROI like finding a business you're good at, trying to invest, and working your ass off. That's how you get wealthy in this for young people in this generation or you find a company that's going fast, you do well there, you get stock options. But the key is to make sure that a certain amount of your income never comes into your hands. People your age can't save money. If they get $100, they'll spend 105. So the key is to find every matching program or every vehicle or hack to make sure you never see the money and from an early age it goes into low-cost index funds. Take 30% of your capital and have fun with it. Buy Nvidia, whatever you want that you think you're smarter than everyone else and then you're going to find out you're not and and the market outperforms you. But how do you get rich? The only answer I have is slowly. And that is figure out a way to make sure that money every month is invested in low-cost index funds. In terms of trying to pick the next big thing, oh Christ, your guess is as good as mine. I just don't. And anyone who tells you they know doesn't know. So, I know how to get you rich. That's the good news. The bad news is the answer is slowly and it requires some discipline. But people your age, just find out a way to start saving when you're a teenager. 25 bucks a month, then in your 20s, 100, then 500, then a,000. And regardless of whether you have a platinum record or a bestselling book or a podcast empire, you're going to be fine. Uh, but I don't, I can't look at a sector and say, "Oh, it's AI." Well, AI is overvalued right now. I don't know. Your job is to find something you're good at, to focus such you can become great at something which commands margin. To show some discipline, save some money, to diversify like crazy, and then to let time take over. Cuz I look at you and I think, "Oh, I'm like Stephen. I'm a young entrepreneur." And then I look in the mirror, I'm like, "Fuck." And I'm like, "Oh my god, I'm 5 years from death." It goes, "But it happened in a blink." So take advantage of that because if I gave you a magic box and said if you put, like, you're making real money now, if you put $100,000 in a box by the time you're my age, it's going to be worth a million bucks. And imagine that that that box is like a second $100,000 in a second, it's a million dollars. This to this feels like a second. So how much money would you put in that box?
Oh my gosh. Yeah.
So the moment you have some capital, just think about trying to at a young age show some discipline and put some money in that box because it just compound interest is just, it's staggering the power of it. But trying to predict where you should invest other than investing in yourself, additional skills, certifications, investing in relationships, trying to be as do as many nice kind things for other people, I think that compounds, especially when you're younger. People remember people who helped them when they were younger and maybe not that powerful. I imagine you're very loyal. The person who gave you 5,000 bucks, do you resent the money they make? They made...
I actually emailed them this weekend. It's called Alistair, thanking him again. Send him a bigger letter for...
Because that person took a chance on you. There was a certain amount of kindness though, right?
It wasn't even the 5,000. It was that a smart person said, "I believe in you." And that meant that I could go back to my mother who was ignoring me and saying, "Look, the smart person believed in me and therefore it made me believe in myself." That's really the investment they, that's everything. And they took a chance and it probably was they wanted a return, but, but what they wanted to do was help out a young man. Those people...
Your opportunity to make those investments as a young person, whether it's helping someone get a job, being kind, a kind a kind word, a kind text, telling them how impressive they are, whatever it might be, that stuff, it's like investing, it compounds. And you wake up at 50 and you find those relationships are really powerful assets.
Mhm.
So, look, I don't, I don't have a silver bullet here. Save money, diversify, compound interest, invest in relationships early. Those compound too.
What are the most important decisions you made that resulted in the biggest sort of wealth upside for you? And they could be any kind of decision. It's not like I invested in this, but just, I don't know, a philosophy, a mentality, an approach that when you look back on your career, you go, it was that that that was the biggest step change in my money.
Well, my superpower is I, I've gotten shot in the face a couple times personally and professionally and I mourn and I get up and I go try and raise money again and start another company. I had an e-commerce incubator. It was basically out of business six months from starting it. My e-commerce company that went public in 2002 went through restructuring, which is a fancy word for bankruptcy in 2008. I started a video delivery company that went out of business. I mean, you know, people talk about their successes. I think generously I'm sort of like three, four and two. I've lo, I've had more losses than wins. Every time I've been rejected from a school, I had my affections weren't returned from a potential romantic partner, I got fired, I had a company go out of business, I had investment. I've always been able and I think this is a key skill. I think you have to do whatever you need to do, whether it's be around people who care about you, exercise. You have to be able to stand in front of a metaphorical mirror and go, I can add a lot of value to a company. I can raise money again and start a business if I need to. I can make someone really happy.
That's been my superpower. So, the, the seminal moment in my professional success was a willingness to say, "Okay, I just got shot in the face. The whole world says I'm a failure because my business, I raised a ton of money and I had to call my investors and say we're shutting down." That's humiliating. It's public failure. I mourn and then I go out and I raise more money. I try another company because only one in seven businesses succeed. So I started nine and I knew at some point if you work hard enough, I mean, you can't guarantee success, but so much of it is out of your control. You just want to step up to the plate as many times as possible. You want to have a great swing. You want to be in shape. If you want to be a good person. But a lot of it is resilience. I have a lot of really talented friends who came up through the alternative investments community, masters of the universe making one, two, three million bucks a year working for hedge funds in the '90s and the '00s and then they went out on their own, raised a bunch of money, hit some bumps and then closed their funds or they had a business. I have friends who are entrepreneurs who left a good job and started a business and they get stuck. These are people who've never known anything but success. They got into an Ivy League school. They got a great job. Everything has been this. And then they hit a failure and they just get, they lose their mojo. They just get stuck. They can't get over it. They lose the confidence to go out and raise more money. And that's the key. The key to success is getting shot in the face and then just getting up again.
I'm 30 years old. How old are you, Scott?
I'm 61.
You're actually 61?
No, I'm lying. Yeah, I'm 61. It's the testosterone therapy.
No, I thought you were...
I appreciate that.
I thought you were...
62 and 61.
62 in November. If you'd said to me anywhere between 49 and 61, I think I would have believed you.
Um, so...
I'm sorry. Let me take that out. I'm 49. Stephen.
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