Aswath Damodaran on the Future of Business Education

that drive valuations? And then expand out to what happens to valuations over the life cycle of a company and why those life cycles are getting increasingly shorter over the past few decades. And then meld in a little psychology and behavioral finance, and you have what is truly a master class by one of the great professors in the world of finance. I found our conversation to be absolutely fascinating. I know you will also with no further ado, Nyu Sterns,

Professor Aswath Demotorant, I'm glad to be back. So let's start out with a little bit on the work you do. You're known as the Dean evaluation. What led you into that field of study in the world of investing? Can I tell you a a little story? But why I'm called the Dean Evaluation. I was in CNBC about a decade ago, and the host had trouble with my last name, and he kept trying and trying. It's so easy. It runs with the motor too many wiles, so you don't know

which one to emphasize and which one not to. So finally, after about his fifth try, he said, I give up. I'm going to call you Dean, and I said why, He said Dan evaluation. It's easier to say so there has nothing to do with expertise and everything to do with having an unpronounceable last name. So just for the record, it's not Damadoran. It's Demotoran exactly, because I don't think that's that hard. It only took me nine times and I got it right. So let's start with the question

what lured you to focus on valuation. I am interested in numbers. I'm naturally a numbers person, but I've also been interested in storytelling. To me, storytelling is much more. I mean, if you think about the history of humanity, for thousands of years, the way we passed down information was with stories, not with numbers. It's only in the last century that numbers have come to the forefront. Is

that correct. It's just the last century. That's fascinating. In fact, I think the first numbers were collected by the insurance people in the seventeen hundreds, but it was very proprietary only they had access. It's the last an Excel really has allowed for this acceleration of number crunching. So to me, the you know what attracts me to valuation, it's it's it's at bridge between stories and numbers. You tell stories about companies that you convert into numbers, and those numbers

eventually become valuations, and I find it attractive. I don't want to be a number. I'm not a natural accountant or an actuary. I'm not a natural strategy who can tell the stories. I like to connect stories numbers, and valuation is the place to go to do that. So as it's safe to say, narratives drive value, narratives drive value absolutely Now, Sometimes narratives drive value to towns and

cities they really shouldn't go. Sometimes narratives can become fairytales, and that's why you need numbers to keep your discipline. In fact, when I start my valuation class, I have three hundred and fifty nbas who take my class, and it's an amphitheater. I start with the question how many of you are more naturally number crunches, and about two

hundred put up their hands. X bankers are recovering accountants, auditors, actuary, scientists, mathematicians, and the other one fifty and natural storytellers, liberal arts majors. Because MBA programs have become incredibly diverse. And I tell them what my endgame for the classes. I said, by the end of this class, and I turned to my

number crunches. I said, look, I hope you have enough belief in your own imagination that you're willing to let go because they've spent a lifetime being told that being subjective is a weakness. Making judgments about something is a weakness. And then I turn to my storytelling. So by the end of this class, I hope you have enough confidence with numbers that you become a discipline storyteller. To me, what makes for good valuation is you're either a discipline

storyteller or an imaginative number cruncher. And I think that combination is getting increasingly hard to find because we're very early in life. I see this with my wife teaches fifth grade. Already, people are being slaughtered natural number cruncher. They're going to take number crunching classes, go for a

number crunching degree, have a number crunching job. You know, there are no renaissance people left on Wall Street and investing people who can talk about drama and talk about numbers at the same time, and I think that's a loss. There are a handful, but they certainly are few and far between, to say the very least. So you discuss on how all this adds up to a puzzle of corporate finance that you enjoy untangling. What are some of the recent puzzles that you've been trying to tease apart.

Let's take a basic one. Let's take buybacks. It's a story, it's a political hot spot, and everybody's talking about it. And I've always wondered, why has there been a shift away from dividends to buy backs over the last four decades. It's incredibly noticeable. I'm going to write down my answer and you tell me. I'm curious as to what your answer is. Forty years ago, ninety five percent of the

cash return by companies took the form of dividends. In nineteen eighty one, when I started, dividends were a way to go for return cash. Last year, sixty seven percent of all cash return by companies took the form of buybacks. Two out of three dollars two out of three dollars. Collectively a trillion dollars was returning to the form of buybacks five hundred and fifty billion dollars in dividends. Clearly, this is a trendline. It's not just the US. Across

the world, you're starting starting to see this phenomenon. So that's really interesting because what I wrote down was tax efficiency is one of the drivers, and then we could talk about stock option plans and what is and isn't above the lines adopted. So there's that what's your conclude fact. I throw this out to my class and the first thing they come up with is in more tax efficient to do buybacks then dividends, And in a sense it is, but it's actually less tax efficient now than it was

in nineteen eighty one. When nineteen eighty one, when I started, you got dividends, there were tax disordinary income at the highest marginal tax rate that penty percent capital gains then we're tax or twenty eight percent. So the question is if tax efficiency is the issue why were in buybacks the dominant way of returning cash pre nineteen eighty one, and why have they actually increased as in fact, dividends and buybacks and now tax it roughly the same rate

since two thousand and four. The tax rate and dividends and capital gains is fifteen eighteen in twenty one percent. They matched up right, So there's actually less tax efficient now than it was thirty or forty years ago. Don't cash, So that argument kind of The other argument I heard was management compensation and the nineteen general stock options. But if you get restricted stock, the incentives changed. With stock options.

There's an argument to be made that you want the stock price to go up because your options are worth Course, in the nineteen nineties, the argument was, it's buy backs are happening because we're increasingly rewarded, rewarding management with stock options, they have an incentive to do buy back so that they can get the higher price in the options. So

I said, okay, that's testable. If that is true, buy backs should be greater at companies where management stock options that are a higher percentage of compensation, and less set companies where management options are not issue. And I tested that in the nineteen nineties. In fact, that argument didn't work hard because, you know, because the companies were doing buybacks in the nineteen nineties were not the big companies. There were older, you know, companies that were over the

hill in terms of their business models. And as you well known, two thousand and seven, accountants fixed what I thought was a horrendous mistake or the part which was treating options as free money and essentially expensing it. And over the last fifteen years, and maybe people are not aware of it, companies have increasingly shifted away from options to restricted stock last year. In other words, you get a block of stock that you can sell, there's a

big tax hit for that. Right. It's kind of complicated how you have to deal with it because you're not selling anything to pay for it. But it shows up as companies. It's a different kind of taxes with the options. That tax had came when you exercised your option. I remember markus Zuckerberg when they went public had to pay what a half a billion dollars to the state of

California for options being exercised. Now, but restricted stock have a different set of characteristics, and there you don't have the incentive anymore to play with the prices because you're going to get the shares anyway, and you're going to get the dividends. While you get the shares. If you paid our dividends, you still, even on restricted chairs, get

those dividends. So over the last fifteen years, companies that used to give options have increasingly shifted away from restricted stock and over options to the reason for buy backs. You should have seen a drop off in buybacks, and we haven't. So I stepped back and said, what's strong with dividends? And let's face the dividends really never made sense as a way of returning cash to equity investors. Why if you're a long term investor, you want to

see the jobs. If you think about equity as a residual claim, which is the way I think about it, you get whatever's left over, then that residual claim should change your tier. Whereas dividends historically have been sticky, They're like coupons on bonds. And the only reason I can think for why dividends became the key way of returning cash is I went back to the history of markets. Bond markets preceded stock markets, so when stock markets are

first opened to attract investors to buy stocks. They had to be discus isised as bonds, so meaning he had a coupon. It was fairly reliable and if you had a little upside on the equity, you can go look at the original railroad stocks. You put a dividend in to get investors who are buying bonds. This is just like a bond with price appreciation. And this is in a one reason I'm a little skeptical about people who claim that they do their investing based on Ben Graham

Security analysis. It's a great book, but it reflects the time. It was a little dated, it was nineteen thirty four, and it reflects the risk a version of somebody coming off the Great Depression and things of stocks as bonds with price appreciation. That's that's a Graham approach investing. Buy a bond with price appreciation. So let's combine two things that you've said. One is your love of narrative as a way of explaining numbers, and the second is I'm

going to you mentioned railroads. I want to just reference what we see in terms of pushback to buy backs and from the nineties anecdotally, and I know the plural of anecdote is not data, but anecdotally. We always used to see the worst time stock buy backs. Heading into two thousand, it seemed like the buybacks got bigger and bigger. Management tends to be terrible timers, so I used to hear that all the time. Then you have the railroad crash and a big stock buy back instead of a

safety upgrade. And so these stories seemed compelling, even though they don't reflect the totality of all the buybacks. And I'm glad you brought brought up Norfolk Southern because my most recent post and buy back starts with two stories. One is the Norfolk Southern story and how that initiated again this discussion of our buy backs happening at the expense of things that of reinvestment, things you need to

put back. And the second was, of course the Warren Buffett story that came out the same week where he called you know, essentially called people of post buybacks. You know economically it's I mean, strong words for a buffet. And again some histories until two thousand and nine or ten, Warren Buffett actually spoke out against buybacks. He was a big dividend person, and then in two thousand and twelve.

I think Berkshire Hathaway initiated its buybacks with a cap, which is, you know that they would do buybacks as long as the price was less than intrinsic value. Now, is that a function of Berkshire Hathaway having so much cash and not a lot of reasonably priced acquisition targets. And I think here's where I think the real reason for the buybacks comes in dividends, because they're sticky requires

some degree of confidence about future learnings. Now, when I started in nineteen eighty one, I actually made a list of two hundred US companies with reliable and predictable learnings. It was easy to do. You had not you know, these big company telephone companies, consumer product companies, I come to call them widows and orphans, exactly a big brand name companies. And I made a list. It was easy

to do. Today, if you ask me to make a list of twenty companies with reliable and predictable earnings, I have difficulty twenty. You can't get twenty because everybody's business is under disruption. Everything is changing. I mean, welcome to globalization.

There's a dark side to globalization, and one of the dark sides of globalization is business has become more unpredictable, Learnings have become less predictable, and if earning has become less predictable, what company in its right mind wants to increase dividends by twenty percent and then phase the problem two years later of saying we've been disrupted, we have to go back and cut dividends. I think of buybacks as flexible dividends. That's the way I think about it,

and that's a good thing. In the first quarter of twenty twenty, when COVID shut the global economy down, everybody felt that the right thing for companies to do is hold back cash, right But company, because you got to wait this out, and if you look at buybacks, that's exactly what happened. Companies announced that they were cutting back on buybacks, and buybacks that already anounced we're going to

be suspended. Buybacks dropped by fifty percent in that quarter, which ironically would have been a great time to buy some stock. Exactly. We'll come back to the timing issue. But dividends continued as if nothing was happening, because, oh really, companies were terrified. And this is the problem is companies are so attuned to this notion of you can't cut dividends that when a company actually cuts dividends, it's usually because it's disaster on the horizon. So you're actually stuck

with a dividen. You're a hotel company, you're paying a dividend. You're continuing to pay a dividend because you don't want to send the wrong signal. My reaction is, are you in denial because everybody around you knows that you can't run your business. But that's the problem with dividends is the way we've created dividend policies, and let's face it, value investors have fed into into this addiction by saying, I buy the stock because it never cuts dividends. That's

really interesting. I have a vivid recollection when I was new to investing in the mid nineties of finding these giant yielding companies eight nine, ten percent, not realizing until someone pulled me aside and said, here's what's going on. Hey, these were two percent dividend companies until they got shelacked. And even though they're circling the drain, they're still afraid to cut the dividend. And that's why it looks like it's a nine percent yield that dividends eventually going away.

We can't still see that anymore. That's got to be history. Right last year, they were at least a couple of hundred companies with dividendials greater than eight percent, And the way I think of them is, these are companies that are teetering on the edge of the cliff. And if you're a lazy value investor buying high yields, you're going to be buying a lot of banks right now. A lot of regional banks right now have dividendials of six, seven,

eight percent. But if you load up your portfolio with those, guard only knows what a year or two from now you're going to be looking at. Because these companies are going to be forced to cut their dividends. Right This is not even a question of it's it's not a choice. They're going to be forced to cut their dividends. You're just buying them just ahead of the precipice. And it's not a great way to invest as a reason. But to me, that is what I think about as a puzzle.

When I look at a company doing something and I say, why is that happening. I want to generalize the discussion because it's easy to get trapped in an anecdotal story and draw conclusions that don't apply to the population. And right, you probably saw the story about Musk lowering the Twitter value, right twenty billion dollars for the stuff, And that's an interesting question when first, is this a gaming of the system and you're setting yourself up for the great recovery story?

Does he get it right now? Does he get it right down? So there's the taxes that I am puzzled, but I'm curious. I want to find out, and I'm digging as much as I can, because we do know that Federal took a fifty six percent right down on their investment in Twitter finance appurchase. They have finance, so they invest in the equity. They took a fifty seven percent right down, which which is suspiciously closed to the

knockdown you're seeing from forty four to twenty vallion. So I always wonder about these accounting firms that reappraise price. They don't ap reappraise value. They repraise price what they're based it on. Probably then again, they don't reappraise value, they reappraise price and I suspect you think they should be reappraising value. I don't think they have the tools to be quite honest, I'd rather have an honest pricing than a kabuki dance valuation, because you know, it goes

back to this issue of fair value accounting. Fair value accounting is not about value, about pricing. In fact, if you look at Fast one fifty seven, which lays out the principles of fair value accounting, you're supposed to come up with the number that you can get if you sold in the market to a willing to a participant on an arms length transaction. That's a price mission market price market hardest are so in a sense, that's what these accountants are doing. And presumably they mark down the

pricing based on revenues dropping by fifty seven percent. It's as simplistic as that. Do we really think Twitter could be sold today for twenty billion dollars? I think it could be so to somebody with deep pockets, because, let's face it, you know you've just got three fifty million users, and you know, I've never seen a social media platform becomes so much a part of our lives with a pricing and a business model that doesn't seem to work right.

This has been the problem right from the beginning, and I think part of the reason is the nature of the platform doesn't lend itself easily to the way you make money. It's not good for a subscription model, as Eaton is finding out right. The three percent the people who send out ninety percent the tweets are might. You might get them, but you can't make enough money on the three percent to cover the business. It's not a

great advertising model, partly because what makes it attractive. It's just limits and characters also limits you in terms of advertising. People are hitting and running. They don't sit and read, whereas in Facebook I can get to you while they are spending an hour talking to your friends. Right, So it's different. It's a difficult social media platform to monetize. Jack Dorsey found it out, you know, and his subsequent people they're found it out. I am not suhere it

can ever be monetized successfully. I would not buy it as a business right what Elon should do. And by the way, I'm very good at giving advice to billionaires whether they want it or not. It should be like a Craigslist or a Wikipedia. Put it into a foundation for the public good, and if you really want it to be a public square, don't monetize it. Just sell enough advertising so it's a break even, and maybe it'll be a twenty billion dollar rite off on its next

or forty four billion dollars. I think he could use the tax he can write off only the equity portion of forty four billion. Then write offs are going to be the banks writing it off. So that's I think the reality of this is. I think that is absolutely true. I think Twitter plays a role in our lives, which for many people, I think they we get our news on Twitter first, right, it's the new tape, absolutely where news breaks. I've heard that, you know, the quarterback for

Baltimore wants leave. The first place he read it is he posts on Twitter that I'm looking for Lamar Jacks and now I'm looking for another place to be. So I think it's become this breaking newsplace, joyless track Twitter because they get their news stories off very much. So

I'm in the middle. I had a flight back from California and I'm catching up in season three of Drive to Survive the f one and one of the drivers is leaving to take a gig with another of the f one teams and he makes that announcement on Twitter. It's it's where people go. It very much could be the public square, and I think that's where it might end up, but it might need somebody to take a big rite before it ends up here. I mean, I've given up on trying to figure out Elon's motives in

doing something. But I think in a sense there is a portion of honesty in which is he wanted a public forum. He wants it in his stims. That's a problem. He wants it in his stims and the way. But I think that there is an argument to be made that Twitter as it was developing would never make it as a successful business, that maybe there's a pathway for it to become a part of our lives more like one of those regulated utilities, which you know we would

we are so dependent on. But it's then not going to have the growth and the monetization potential that people might have seen it originally. So I have a pet theory of value Alon, We'll come to it later. What I want it's a really circle back to is you were describing the difference between price and valuation and it kind of raised an idea in my mind? How far behind the academic research? The most current academic research do

you find Wall Street, Finance, the investment community. Because my favorite examples modern port folio theory, capital asset pricing model, the Farmer French factor model. It seemed like the market took a decade or longer to catch up. Is that gap still there? Especially when it comes to how do we properly value this company? It's interesting the models catch

up faster than the underlying logic. There are a lot of people who use betas now right, but they don't understand the core assumption you need to get to betas being a measure of risk, which is you got to assume that investors have a diversified view of risk, that when they think about the risk and a company, they don't think of the risk of the company standing alone, but the risk it adds to a portfolio. That is the core idea band all of modern portfolio the sharp ratio,

all the work bill shows. And the reason I make that claim is I see people who own three stocks who might use beta, and I said, look, are you sure you want to use beta to measure risks? Because you're violating the core assumption and they're not even sure what I'm talking about, and that I think is to me. The models make it, in fact too much more quickly than they should, because I want the intuition to get out there first, the logic to be debated first before

you adopt the models. Greed drives everything. So if somebody sees a factor model and they say a factor making money, there's an etf. Let's get founded on the fact that nobody stops and asks the question, why is that factor giving me higher returns? What is the underlying logic? Small cap right? For a long time people bought small cap stalks, but these says, oh, it makes a return, and I would stop and ask them, why do you think small

cap stalks earn a higher return? The original research, actually the former French paper that's fine, argued that market capitalization was standing in as a proxy for is that small companies were riskier than larger companies. You weren't really making higher returns. You just look like you were making higher returns and beating the models, but in fact you were

exposed to risk. On a risk adjustice basis, it's the same and that's exactly right, But you'd look good when the alphas were calculated because people were using outmoded models to measure risk, and you could beat those models, so you could gain the system the great positive alphas, but looking like you were beating when in fact you were just buying small cap stalks. That was a farmer so farmer Frenchs. We're not saying you should invest in small

cap stalks. They were saying, when you invest in small cap stalks, it look like you're making money, but they're underlying risk liquidity risk, information risk, right, but not as covered on Wall Street. Lesson an ETF gets found in the next year on small cap stalks, people forget all about the risk story. It becomes an alpha story. Everything in Wall Street becomes an alpha story. I mean this

is I mean we might get to ESG. This is I think at the core of y ESG has floundered is somewhere in the middle of the last decade, people decided it would sell better if you sold it as an alpha story. So they told people, if you invest in good companies, you would make higher duds. I mean,

this is the hold that thought. Because we're going to definitely come to ESG, let's stay with small cap for a Second, the most recent academic research I read that I thought was kind of compelling was sort of small cap within the small cap story that so, first the small cap factor kind of went away because it was really risk it wasn't actual returns. And then the update was, well, if you're looking at small cap, most of the returns are driven by the microcap and so that it's not

the small cap. So is there microcap alpha or is that also a risk adjustice. It's even stranger than they and much of it is delivered in the first month of the year, you know, ninecause of the January effect. The January effect. So there's something weird going on here, right, I mean, it's been going on for so people dump a bunch of junk. They don't want to show their books in December. Reasons that by before December thirty first to get rid of the low profile stocks and your portfolios.

That so you essentially push the price down, and then January comes around and you make you buy back those stocks. The price goes up. Whatever the reason, it's some I would not invest based on a small cab phenomenon precisely because it's so weird. It doesn't happen over the course of the year. It doesn't happen in a cross section. It's a small subset of companies, but it hears where it is. Staying with our notion of how badly academic

theory gets transitioned into practice. If you're if you ever talk to people who praise small companies, the way they praise to come up with a discount rate is they use the traditional models risk cre rate, beta, risk premium. They come up with the number, and then they will add a small cap premium, a premium four percent more

to push up the discount rate for small companies. So if you own a private business and you go to Duff and Phelps or you go to Incidence of Value my business, they'll come up with a twelve percent discountry, and so we're going to add a six percent small premium to it. He said, why because remember that eighteen percent discountry means a lower value for your business. You're saying, he said, why are you doing that? Because there's a

small cap premium. It's academically proven. They pull out papers say, look there's a small cap premium. It's roughly six percent. That's extraordinarily sloppy. You're dropping the value of every small cap company because you think they're all hit with that

same bludget. There was actually a very interesting paper that came out of a QR, and I think Eliza Peterson is one of them, and he argued that it's not small cap, it's not a small cap premium, it's a small cap junk premium, which basically means that it's small cap companies that are of high quality that are earning much of the premium. So if you put your money across a hundred small cap stocks and you're just investing in all hundred of them, you might end up with

the port for it that does nothing. You need small cap and quality, and at that point you're saying, what's a small cap got to do with anything? I would that if you did a quality effect across the board, you're probably going to find a quality effect in large

gap stocks and MidCap stocks. So I think this is one of those cases with the academic research weird off in one direction, but the practitioners using the research found ways of making money on it, and in the process it's taken on a form that none of the academics might have done the original research would even recognize. So I think that it's not that research takes a long time to go into practice. I could live with that. It's the way it gets skewed, and it's worse than worse.

It's true. I think it actually ends up doing more damage than good when it goes into practice. That's much rather that practitioners never read academic research and try to put into practice because in the process of putting into practice they just ruin it. So let me give you one that I hate, and it's now an ETF. Someone did a study, some academic research did a study that founds that if you only held stocks during market hours, you underperformed holding stocks from when the market is closed.

And I thought it was the aside from the fact that the market is only open six and a half hours a day, hold that aside, all the gap ups, all the news that breaks after. It just seemed like such a silly concept. And now there's an ETF. I'm curious what your thoughts are on. I think it's nonsense. Nonsense. It's nonsense. I mean, I I my argument and I look at me and as their value is, if everybody can do it right, then I can almost it's going to get it's going if it really exist, get arbitragey.

So to begin with, everybody knows what the what the open hours to the market. This is no secret information. Right, you're not finding anything particularly valuable. So what I mean in investing you got to bring something to the table, right, take something away. That's my view. You have to bring something to the table. You have to bring some new insight in order to take some alpha away. Or it

could be some unique characteristic. Pension funds pay no taxes, right, that should give them an advances the subsets of the market. Plus they're perpetual, so if they buy dividend paying stocks, they should be able to on hire returns on a post tack bax is because their taxes are zero, right do they Well, they try to be clever. The problem is momentum is such a strong force that everybody chases it. Right, They're not going for the stocks they should go for

a given their niche properties. They go for stocks that everybody else is buying, and therefore they perform as everybody else. And in fact, let's you know, let's use Berkshire had the way to illustrate how a niche can be exploited. Well, to me, one of the reasons weren't. Buffett succeeded. He has a lot of good qualities brought in and it's one of the reasons he succeeded is the money he

was investing. I mean, if you think about the money he was investing, he's been investing insurance company premiums that are collected, right, low cost capital with the perpetual it doesn't panic. Right, that's a huge plus. Right, So when he bought Goldman Sachs in November of two thousand and eight and Bank of American November in two thousand and eight, I thought about a traditional portfolio manager doing the same thing and trying to explain to their clients what they

just say. They would have gotten fired. They'd have gotten fired. So what the heck are you doing in the middle of a crisis. But right, but that's the time to buy. You have capital that doesn't panic, it's driven by the actuarial tables. You can go out and take positions in these companies and say, I don't have to worry about my clients asking me to have questions because my clients

are the actuarial tables. The question is if he can do it with insurance company money Why can't all State and State Farm and other insurance companies do the same thing. What's your answer? Because the answer is an average portfolio managers driven by emotion and mood, they can they talk

the value investing talk. So let me expand that it's not your insurance company these Why can't foundations and endowments and you know, go down the list of entities that has capital that shouldn't panic and has a hundred year investment horizons because they're run by people who are still judged on a year to year basis. So as soon as chat bots take over running portfolios, we should avoid this panic or are they just going to pick up

the panic? Because chatbots are going to just reflect human being. That's why I'm not so upbeat about chat bots are doing the right thing. They're going to mimic human behavior and guess what humans behave in some really bad ways, especially during crises. So chat bots are going to just magnify that process. So if you think this is going to make us more rational, it's not. In fact, you have to create a counter chat bot that says, tell me what I should be doing, and then I'll do

the exact opposite. Inverse, chat body there you go. That's a product that I would buy. I like it. Yeah, quite fascinating. So let's talk a little bit about academy. You're not the typical tenured professor. Aside from the fact that you've won tons of award and been voted best Professor at Stern over and over again. You're very open source. You have a blog, you're very active on Twitter. Both of these are a little unusual in academia. Tell us,

tell us why you approach the world that way. I'm often asked what I do for a living, and as I'm a teacher, that's that's my passion. It's not the valuation, it's not corporate finance. I'm a teacher first and foremost. I'd tell people if I wasn't teaching valuation and corporate finance, I'd be teaching high school algebra. Teaching is my passion. Corporate finance and valuation are the things that I use

to kind of exploit that passion. And that puts me at odds with traditional academia because, unfortunately, I think education universities have lost their core mission. To me, the core mission of a university should be educating the students who go through one would think, right, you think, But if you're a research university, the mission is muddled. And the mission is muddled because you then get you know, you get measured on the reputation of your faculty with their

pure group and what kind of research they do. And I tell people, if you think about the constituencies or universities serves, you'd expect undergraduate students to be at the top of the list, especially at university like NYU where our money primarily comes from tuition. These are your customers, right, But if you actually look at decisions made at a university and you look at where undergraduate students fall on that list, they're not even on that list. At the

top of the list are tenured faculty. I mean I describe universities as lunatic asylums where the inmates run the asylum, right, And because of that, universities do things where an outside of looks at the universities. How the heck do you guys get away with this? I'm going to give away a secret. As a professor to research university, my teaching load is three courses a year that translates into four and a half hours a week for thirty weeks a year.

That's pretty light. That is like, that's it. And once you're I know, you're supposed to keep the extra time for research, but once you're tenured that there's no your landed gentry, your landed gentry. And if you think about how much it costs to pay a faculty member who works four and a half hours a week, then you can very quickly start to untangle why it costs a student fifty thousand dollars a year to go through as tuition.

And so you're implying it costs ten times as much as it should if people were legitimately, Yeah, if you're just paying for an education, it should be it should be one tenth of that. And I think that you know, of course, university education is not just courses. That was the mistake that Edex and Coursera made when they first decided they're going to disrupt the education business by packaging these mooks. Remember the big online course that we're supposed

to change education. It never quite caught on because an education is a collection of things. It's the courses you take, it's the network you create, it's the entertainment value. Let's say you go to notre Dame that Sunday football is a big part of your life. And most of all, it's parents sending their kids off to a place where they can do stupid things for four years and not

get into too much trouble. I mean, let's face it, if you, especially if you have a child the age of eighteen to twenty two, you know they're going to do stupid things. This speaks stupidity purpose of and you send them off to a nice college campus. They can do stupid things on campus, and the college kind of covers up for that stupidity. So I think, in a sense, you're buying a package. It's like the old cable model.

You bought this package, it's going to cost you fifty thousand a year, and because you couldn't untangle the different pieces, you paid because you had no choice. I do a session called Barbarians at the Gate for universities, I say, loo, just as the cable companies ended up with this unbundling of the product where people said, you know what, I can just get the channels I want by paying directly for them, and that kind of untangled the cable business,

untangling is coming to the education business. People are going to be able to buy the network. LinkedIn is in fact a very good substitute for going to a college and spending four years hanging out with people who might never get back to you when you try to reach out to them. So essentially, what technology is doing is it's unbundling the university model, and over time it's going to eat away at the university model. In the university

is actually contributing to their own disruption. Georgia Tech, for instance, allows you to take courses for a fee. It does a very good job, and it's a good rev and you generate it, but you're already digging a whole for your own demise as a university because once you start unbundling courses and offering them, people can start pricing them up. I'm paying for five courses in an MBA, I'm paying fifty thousand dollars, but you're offering the same five courses

online for two thousand dollars a piece. Five times two thousand is our ten thousand, So what's the extra forty thousand four? Unbundling basically then makes it transparent that you're charging this hefty premium. The only thing universities have going for them. That's going to make disruptions slow is parents. I mean, if you're eighteen year old came to you and said, look dad, our mom, I've looked you know I can take I can educate myself by taking all

these courses online. Most parents are probably still going to say that's not education. You've got to because we've been that's the only point of cow. Yeah, we've been trained, and it takes four years. You go to university. There's a degree that comes with this, and there's a screening

process that goes with it. So I think the reason disruption has been so slow to come to education is because the people who make the decisions and education, which still are the parents, not the kids, have been have been trained to believe that you have to go to university, go for four years to get a degree. But that's going to change. So let me throw a quote of yours back at you and get some feedback. And I'm very amused by this quote. This will get me shunned

in the academic world, but who cares. I don't do academic research or right to be published anymore. Life is too short to be spent writing for an echo chamber and rewriting to meet the often arbitrary demands of a reviewer. I write only on topics that a interest me and be maybe useful to practitioners explain, like, aren't you basically thumbing your nose at the entire publisher parish world of

academia now that you're a tenured professor. Yeah. I think there's a degree of hypocrisy that, right, because I did get tenure and it was based upon papers that I don't even remember what I wrote them on, right, I mean that tells you a little bit about what academic research is about. It's as a discipline ages, and this

is I think key. You have to start to ask smaller and smaller questions to be able to get published and take and I'll take the example of physics one hundred years ago or more, Einstein and Moore asking the big questions how does the universe get created? What drives it today? If you look at a physics journal, they're asking questions you don't even understand the title of the paper because it's such a small question. There are seven

co authors. That's the other thing that seems to happen as discipline's age is you use this power of numbers, one of who might have connections to a reviewer, so you add them on and they're asking questions that, to be quite honest, nobody cares about, including physicists, because the question is so narrowly phrased that you say, who really cares? Well, now that we know how the universe was created, don't We can't spend any more time on that, zach Or.

But even if you have questions, because we really still don't know how the universe was created. The only problem is if you've write a paper on it, it's too big to get published because there'll always be loose setts. Now people are going to pick up the loosest parts. This can't be published. It's not quite ready to be published. So as discipline's age, unfortunately the research becomes less and less useful to not just the outside world, but even

the inside world. And for some people they still have enjoy doing research. I don't begrudge them that. So there are some of my colleagues who was still curious about academic questions. But I discovered very early in my life that this wasn't my strength. Picking some obscure academic topics, spending six months of my life writing a paper that darted eyes and cross tease. I'm a teacher, and I

want the biggest audience I can. So I think of everything I do as an extension of teaching, including almost all of my writing, and I want the biggest audience I can. So why would I restrict my audience to just people in my classroom or just people in an echo chamber. So it's very selfish. I want to reach the biggest audience because as a teacher, you want the biggest audience, and this gives me a way of making

an audience lass. So what sort of pushback did you get from the academic community to the statement, which seemed to have resonated in certain quarters. I don't hang out with the academic community enough to even know, because it had to get back to you the social world things. In a sense I was. I was labeled a teacher professor early on. In fact my chair almost disdainfully by some.

But for some it's remember, I'm carrying at teach a class of three fifty people, So I'm carrying a load that actually allows them to do what they want to do, which is go back to research. So from a selfish rationale for them, this was actually good. I was taking this thing that they did not like to do. I was doing it for and I was doing it with joy because this is what I do. So it serves us both. I don't begrudge them their research. They don't

begrudge me my teaching. We've learned to live at least at NYU. And part of the reason I like being at NYU is it's a very large faculty, it's a very diverse faculty. So I've always been allowed to do what I want to do. Could I have done what I did at a University of Chicago Stanford Probably not, huh.

And I think that that basically means that when if your joy is teaching, and you want to be an academia because you want to teach, you want to pick a place where that's not just valued, but that you get the freedom to be able to focus on teaching and getting a message out to practitioners. Now, so there's

a couple of attempts at disrupting education. One of which, and I'm drawn a plank on the name, is you could take up to let's say it's twelve credits a semester, you could take forty eight credits online over two years at no cost. And these credit these are accredited, and when you go to a college, you could cut your college costs in half. You go to college for your

junior and senior year transfer these credits in. Is that the same experience then as to what you were describing, So when going to school for four years, making that social network, making contacts, learning how the world operates in a way that you can't when you're just at home looking at a compact. These are called hybrid models, and a lot of universities have adopted them, not just for undergraduate degrees, but for executive programs. Executive programs historically been

very expensive to go to. But you create these hybrid programs, so you take classes online, but one week a year, everybody in the program is brought into a physical location so they can hang out together, live in the same place. That's a networking benefit. You are going to see hybrid programs and that's going to be the transitional point because doing an education entirely online it's tough to do because

people lack self discipline. I know, you know, I offer my classes online and I start the classes off about fifty thousand people start the class with me. I can watch them by session because I go twenty six sessions, and by the time I get to session twenty six, I can actually track how many of the fifty thousand i's still there. What's it's huge, It's ninety percent now because people have lives to let my class requires a lot of time and resources. So in it's eighty minute sessions.

So even if you just watch the lectures, that's three hours every week of just watching the lectures, forget about the other stuff. So that's why I created an online version of my class where I take my eighty minute lecture and I think about how would I deliver that lecture if I'd only ten minutes? Wow? And the scary thing was, wasn't that difficult? Which tells you a little bit about how much buffer as faculty members or as

professors you get. Is BA for the right word or you just taking an example and going into detail and nuance that you don't get in ten minutes, And it's a lot more. I can tell stories, I can I can flesh it out. So I'm not saying the extra eighty minutes are useless, but I'm saying that ten minutes is where you get the substance the extra eighty minutes or where you get the dressing on the substance, and you could probably get that dressing in small pieces if

you want. Because when I do my YouTube videos, essentially you're seeing blog posts. You're essentially seeing things that will show up as riffs in my class. So that the post edit on Tesla. A couple of months ago, I value Tesla and asked, you know, how do you explain what's happening at Tesla and how do you bring in these new businesses that becomes a part of my class somewhere. So I tell people who start with the ten minute session,

that's a realistic estimate. You can you can actually get through the sessions, and if this truly interests you, then try out this. So I create these con centric circles for people who have time, and if you have this much time, try these extra things. This much time, go the extra mile. So I think by creating enough flexibility, you're going to be able to allow people to do things online that they can't do right now. So you give them the core film and the DVD extras and

they could choose how much exactly. So you also mentioned you're at the intersection of three businesses, education, publishing and financial services that are all inefficiently run and deserve to be disrupted. What are the similarities between these three areas? And can we not say that financial services hasn't been wildly disrupted over the past forty years? Has it? Well? Trades are free. You could buy the entire market for

three BIPs. That seems to be enormously disruptive. I could venue money without anybody in between us on my phone. I used to think, who said the only innovation has been the ATMU? Was that a greenspan or vulgar? I think? I think that you can do stuff today that was either time consuming or expensive or not even available fifty years ago, twenty years ago. The customers side yes. And here's my question, So why does JP Morgan chase every time I get a wire still take fifteen dollars off

that wire? It just makes this is my problem? Right, bank, you can ah for free, but it'll be twenty twelve to twenty four hours later. Yeah, but when I get from a wire from outside, I can't. I can't tell them what to do, so they take their bank and their wire money to JP Morgan. You get tinged when a wire comes in not outgoing, I get hit both ways. Oh, I don't realize that. And so when I so maybe when I, when I, when I deliver money to others, I can get around the banquet. When it comes to me.

I have no control of the process. So let's say I'm getting five thousand dollars this is what I see from JP Morgan Chase. I see four nine seventy five put into my account and a wire service fee of twenty five dollars for what you know. This is what I mean about about these businesses acting like it's nineteen eighty five stuff. Take the publishing business, okay, And I'll

give you an example. One of my publishers I won't name them, call me last year and they said, because my books have and in multiple editions, multiple editions, and I have an Indian edition, which is which is printed on cheaper paper and priced at one fifth the price because Indians kind of four to pay out the equivalent of one hundred dollars. And India is the largest market for me outside the US because the big English speaking population,

lots of students. So I get a call from a publisher and they said, well, we've decided to suspend your Indian edition. And I said why. They said, this cannibalization going on. And I said, what are you talking about about only the US spying the Indian They said, there are some people in the US who are buying the Indian edition. And I said, okay, how many? And they said, we don't know, but we do know there's cannibalization going on. I said, let me get this straight. You're suspending the

printing of an Indian edition. This is the largest market outside This is gonna be tens of millions of books because you think there's cannibalization, but you don't know how much cannibalization there is. He said, I guess the way. If you put it that way, that's exactly what we're doing. And I said, do you realize this makes absolutely no sense. You would have to put some flesh on those bones, some numbers to determine is it still profitable to do this?

And I said, do you think the cannibalization is going to stop just because you did this? Because you know exactly what's going to happen. Indians are not going to pay one hundred dollars a book. Some person in India or China is going to buy one of the US books. They're going to copy every page, They're going to pirate the book. Now I've put people There are people who bought my book for two dollars outside of train station

in India because they get the pirated version. And I said, would you rather cannibalize yourself and get a reasonable price, or would you rather have this Chinese you know, the pirated version, cannibalize you and get nothing for it. But that can change the decision. And this is the nature of how decision making is it at university's publishing and banks is there's still the decision making is driven by a world that's no longer out there. But it's very

difficult to create change. And this is the old Clayton Christensen argument for why institutions have trouble. The status quo is trouble with disruption is you have too many legacy effects. So it's almost you can see the person at JP Morgan say saying you should stop charging for these wires because people are going to use alternate ways of ransferring money. And somebody says, but we make one hundred and fifty million dollars from the wires we can't do that. That's

a legacy effect effect. So guess what happens. You essentially take your softest businesses and they get disrupted. That's the I mean, let's face it, most fintech companies should not exist because they're either solving problems that are not problems in the first place, or they're doing regulatory arbitrage they're bypassing what would normally be regulated, or they're doing taking advantage of internship, which is, if banks are charging twenty

five dollars, let's create a venmore right. And essentially that's exactly why I think these statistico institutions are not going to be able to partake in the disruption that's coming. Is they can see it coming. They will say all the right things, but within the organization there's such stickiness and innertship that their decisions are still driven by the way things used to be, not the way things are. Right.

It's so funny you said that. One of my colleagues, Ben Carlson, and I'm going to paraphrase him, uses the phrase experts or people who have an expertise in the way the world used to be. And so when things change, there is and now this is me speaking. There is a void of experts, and all sorts of things rush in to fill that vacuum. And so that's how you end up with a crazy run up in crypto because

self proclaimed experts say, no, no, here's the change. But the fascinating thing about banks versus other companies, it's very difficult for a company to disrupt itself. And I have a vivid recollection of seeing Apple do this with the first iPod and got smaller and faster and cheaper and larger capacity. And you could just imagine that conversation, Hey, we're just you know, we're cannibalizing ourselves. And someone must have said better that we do it than somebody else.

Why is that so hard to do? Well? I think that, you know, I'm glad you brought up Apple because I think of all the things Steve Jobs did that made the kind of rebirth of Apple possible, the first was on the original iTunes disruption, he told the team, And this is I think well documented. Act like you're a startup.

Don't worry about legacy effects, don't worry about what the rest of the company thinks, because they're still thinking our businesses computers, And because you can almost see the discussion with Apple. Why are we wasting our time on this distraction. We should be building a better Mac and trying to get back into the PC business. No, Steve Jobs saw the writing on the wall that the PC business was

not going to be the future. That if you fought Microsoft in the PC business, you'd have the same result you add in the previous decade. You're going to continue to lose. But he gave the team the freedom to make decisions, but he built on the strengths of Apple. At the same time, he said, don't be a startup. Act that that's a stranger to the company, drawn the resource of the company. But make decisions as if you're

a startup. Satyn Adela did the same thing at Microsoft when he came in, because this was a company with two hits, office and windows that had never done another thing in their entire corporate life. That all the Zooon, to be fair of the Zooon was their ipodon, but but it never made None of the stuff would make money, never stop. And when he entered the cloud business, first thing he did was he said, we're not going to

acquire our way into this business. That's not the way to grow because we're going to be throwing a lot of money in there, and we're going to build it because we have some strengths. We have people who know software really well. We're going to take those strengths. We're going to be patient, and we're going to act like this is again a standalone business. Don't worry about the

effect on Office and Windows or what you're doing right. So, in my book on the Corporate life Cycle, one of the things I talk about a companies that go through rebots it's really difficult to do, and I talk about what they share in common, and one of the things I see is this willingness to be patient and build on internal strengths rather than be in a hurry and

do an acquisition to enter business. But even within Microsoft, this is the reason I'm less optimistic about Activision doing well for Microsoft as I was about Microsoft's original cloud entry. What about before Cloud? What about Xbox? Are you saying Xbox never met any money to any money? Really? I mean it's ubiquitous. They gave Sony PlayStation and run for

its money. They Google right, it's called itself alphabet. I think of it as snow white in the seven dwarfs because ninety percent plus of its revenues still come from the search box. Right. So we're going to come back to that because I want to talk more about life cycle in a few minutes. I want to come back to one last thing about college and education. And it's the big question that I'm sure a lot of people have been asking, which is we talk about costs, we

talk about value proposition of higher education. From your perspective, is the modern college education as it exists today, is that still a decent value proposition for all students or only some students? It's a subset, right, I mean, I think if you think about it, is an economic proposition. It probably doesn't make sense for nine people to go out much for master's degrees, right undergraduate undergraduate, about half the people in my class probably don't don't need that

degree to kind of really you know. So I think in a sense, you know, college education is you know, we overestimate the impact it's going to have enough future runnings. Even at the very best college you go to Yale, it does help you on that first job, but three or four years in, when they look at the differences across people, the differences in income start to the relationship to college. You went to starts to disappear. So if

you ask me, can I educate myself today? We have the resources to do it we need I mean, you need to find the right player. You can't just take classes randomly. You can educate yourself. That's something we could not have done thirty years ago. That option exists for people who are self starters. But that's where the discipline part comes in. So maybe the startup you need an education is a startup that wakes you up at seven thirty in the morning and makes you reminds you that

it's almost like you need that room. Because the reason you go to college is your roommate wakes up to go to college. He notices you're still sleeping and that you have a class at ten, and he nudges you saying, aren't you going to class? You might not wake up, but if you're guilty about going back to sleep because your roommate reminded you. If you can get that discipline component into this process, then I think online education can do just as good a job as a college education.

And you can create your networks. You can create a networks. They don't have to be called networks. I don't think they're the healthiest networks in the world. To begin with, the fraternity you belong to, those might not be the best connections you have. It takes more work. We're still not quite there. I mean I'll give I'll make it personally. One of my kids said, should I go to college,

I'd probably still encourage them to do it. I'd encourage them to go to college on a scholarship if they could, and would pick a lesser college in the college that they get into that they might be the top pick. Really, because I think that paying two hundred and twenty five thousand dollars or two fifty thousand dollars for a four year university education, even if it's at a very top university,

I can't see the payoff from that economically. No, I'd much rather that you went to a lesser school, spent the four years there, created and have you know all the other stuff that comes to the package, that college football that you go to and riding out with friends and pay fifty thousands of two fifty thousand, because think of what that extra two hundred thousand can do for

you in the rest of your life. So now I think that might be the place to start is rather than talking people away from a college education, ask why are you spending so much? Is their way you can bring it down. And the suggestion you made of these hybrid models that might be well worth considering as an alternative to going to a four year university and paying for every single year. Well arguably senior writers the fourth year. Perhaps if you're gonna, if you're gonna give something up,

you get rid of that early on. Let's talk a little bit about the corporate life cycle and valuations. But I want to start with a little bit of twists. This was a very short life cycle. I actually thought of you when the whole meme stock game Stop AMC hurts blew up, and I just imagine what you were thinking. Here we go again. What was that period like in twenty twenty and twenty one, and what were your thoughts

about what was going on? You know when Game Stop took off, I know it went from twenty dollars to four hundred dollars. It obviously caught my attention because if you think about it, and twenty dollars, it was three or four the short sellers. Basically, it seemed on a pathway to zero. It seemed that like that was going to be the endgame. And then all of a sudden you had this group on red at the Wall Street bets, and then of course you had the push up. You

know that they collectively did. I call this the first crowd shot in history, right, because usually when I'm sort of crowd shot squeeze in history, because historically short squeeze has come from rich people deciding to squeeze other rich people, right, I mean that's basically how it happens here at a collection of people. So it's very much a twenty first century phenomenon. In fact, it's a phenomenon that's a social media phenomenon because if you think about twenty years ago,

you couldn't even have gathered together. There's many people in the town square. So when that happened, as you know, part of me said, this has happened before, so I'm not going to get extra hot unto the call it because of it. Clearly, this has nothing to do with value. It's got to do with mood and momentum. But that's not new markets have always been driven by mood and momentum.

But what social media has run and this I think is a more general point I would make is it's made mood and momentum stronger, right, because you were able to gather together a crowd, a much larger audience. You know, I remember reading this book a bit of extraordinary. You might have read about popular Delusions to the Crowd book Charles Mackie, you know Mackie, and he talked about how in the south Sea Bubbles, you know, you created news stories.

You went to a pub, you acted like you were drunk, and then you you blurted out what you you know, what you said were secrets about south Sea that nobody should know, and then other people in the pub heard you,

and they went and bought the shares. And I thought the original social and I originally wrote about when I wrote about CNBC thirty years ago, I said, this is today or twenty years ago, I said, this is today's pub, which is you go on CNBC, you say, look, I'm going to tell you a secret just between you and I ing and then so but if you think about social media, that now has become the place you go. You go to. So you said mood momentum, and there's right,

there's narrative there also because all these are stories. At the core, there is usually a story that makes sense. Even the stupidest push ups are driven by a core story that has that's some truth loosely based. So for you can, for instance, you could argue that GameStop has

has potential in the online gaming market. Right, I have a collection of data of people have shopped at the store that they're going to build on it, and that a new guy comes in who's done this with an online or well, and that's in fact, one of the things you find at the core is there's a core story that is true. You've just come up with a number that has completely no relationship in the magnitude of that story. So it's something that it's happened and before.

But what it shows you is with social media, how much what might have been a twenty percent bubble can become a hundred percent bubble in the social media age. And so it was actually interesting watching a playout. I actually went to the Reddit site where there because I wanted to see what rational people were giving each other for buying the shares. And for people who don't play

on Reddit, you register it Reddit. You could up vote or down voting stories and so all these things bubble up to the top where the crowd is enthusiastic about it. It's very much bubble ishous. So I was the question I was asking was what is the core reason or the driver of this and it seemed to be revenge revenge in what sense the core reason people were giving for buying GameStop had nothing to do with game Stop. It's because they wanted to get back at the hedge funds.

That was, we're going to bring the hedge funds down, which is interesting because some of the biggest hedge funds were making money from this were on the other side of the day. And for order, the more you trade the better than It's a human emotion revenge, and here you have a collection of people saying we're going to take revenge by pushing up the price of game Stop and Drive. And you still see this phenomenon AMC or seeing the phenomenon bed Bath and beyond, you saw the phenomenon.

This is something that seems to play out and it's usually younger people who have an emotional connected If you look at the big companies that are in the meme phase, you know, you see you see game Stop, you see AMC. You see bed Bath and beyond. It's almost like you can see thirty five year olds with nostalgia for the malls they used to visit fifteen years ago, and then

we're going to save this piece of our past. So it's interesting there is a collection of things coming together in the meme stock phenomenon, but it's just a it's an old phenomenon that's replaying out there. So I won't blame the investors, the traders. Let's not use the word investors, the traders in these stocks for doing something that is irrational. I think it just reflects you, man, It's always going

to be with us. So now let's let's talk a little bit about some life cycle stocks, some companies that seem to have really gotten shellacked over the past couple of years. I'm curious as to your perspective. One of the things I noticed, so Amazon had a terrible twenty twenty two, as did a number of other companies. But a lot of people don't realize twenty twenty one, when the market was SMP was up twenty eight percent, Amazon was flat up a percent or two. What's going on

with Amazon in their life cycle? Why do they suddenly seem to have lost their mojo. I think that that if you think about pricing, is driven by mood and momentum. Come easy, go easy, And I think, in a sense, to complete the story, you need to bring in what happened in twenty nine. In fact, the previous decade in these fangam stocks, which was too amazing. One out of every six dollars in value in an increase in value that came to market. Increase in market cap during the

last decade happened in Jesse six sixteen percent. One in six dollars. Those six companies accounted for sixteen percent of the increase in market cap of seven thousand, five hundred US stocks. With the implication of that is, if you spend the entire decade with none of these stocks in your portfolio, I don't see any way in which you could have created any kind of positive outfit. Right. It's almost like you had to have at least one, hopefully

more than one. So you're coming off a decade where you've added trillions of dollars of market cap, often based on flimsy stories that you don't carry through Netflix, we can keep adding subscribers. Nobody seemed to ask a question. You're going to run out of people on the face of the earth before you add subscribes, or get competitors, or get competison co top of it. So, in a sense, the last two years I don't think of as a big drop off in value. It's a return to some

degree of sanity. Now some companies like Apple and Microsoft seem to have held up much better than Tesla, Netflix. I'll leave out the pelotins and the purely lockdown stocks, but Amazon had a great run. Bezos retires, and personally, I'm a giant Amazon user since my college roommate gave me a gift certificate sometime in the nineties, and I now I'm very comfortable putting my credit card elsewhere. Hey,

what's the worst you can do? You lose fifty dollars and the site you search for something on Amazon, the first five results are ads. It's festooned with garbage. It was once the go to site and now it's like constantly disappointing. Is that just my subjective view or is Amazon now at the point in their life cycle where delighting the customer is no longer their priority. I think they took their eye off the ball. I mean, let's face it, Amazon started as a retail company. They built

their reputation as an arm line retail company. About ten years ago. When I valued Amazon, I described it as a disruption platform and otherwise I said, this is no longer a company that thinks of retail as its core business. It's going to disrupt any company in any business if it feels are soft spots. And in a sense, you've seen Amazon's actions over the decade reflect that. So cloud, cloud, advertising, search, what else is Amazon doing well side of retail? Well,

logistics right there. So in a sense they're bringing in businesses that you might have viewed as online payments, online payment, in healthcare. They have little experiments that they're running. So the only problem is when you're looking at that many different businesses, it's difficult to keep focus. And I think that you see this with the Alexa write offs. They're taking uses. What exactly was the endgame at the Alexa What were you trying to do? I was never quite

clear and what Alexa was supposed to do. You want to be in the forefront of voice as an input device, right, and but then how do you make red? So what is the revenue base, which is, you know, which is a weakness at many technos that that Amazon did not used to have. I used to describe Amazon as a company the rent for revenues first, but always had this ie on long term, this is what we want to do. And some of the stuff they've done over the last few years, I'm not sure what their endgame is other

than will have more people in our ecosystem. So I think that that Amazon took their eye off the ball, and you're right, their retail side has become just you know, there's a lot of chaos going on there. I don't trust Amazon reviews anymore because basically the reviews exactly. I think Amazon needs to return to that core business and kind of make sure that it's cleaned up to get

back the customers. But you know, and but they still have that disruption army, right, Amazon Prime, and I think that they need to make sure that they're not putting the loyalty of those Prime numbers to the test, but close and I think they need to be careful. I think that's part of what the market's doing is sending them a warning. Let's see if they listen. So let's

talk about Google. When the first time I use Google, I want to say it was two thousand and one or two thousand and two when it was just so simple. Nothing was close. It absolutely dominated. The results were great. It was Google. No one's even second or third everybody else, and they completely upended the search market. You go to Google Search now and it's junk, like your first five results are garbage. They try and send you to Google properties like they are ripe for someone to come along

with the equivalent of page rank and put that. But I still like Google Calendar and Google Drive, and then they make money on right Gina all the stuff they do that keeps you in there their ecosystem. But let's be honest, Google Search is completely polluted. It's garbage. They are a handful of nonprofit competitors that do a much better job. Again, is this just are all these companies inevitably we're gonna eat our seed corn, We're gonna over

monetize our core customers. So Microsoft hasn't really done that. Apple hasn't really done that. Although to be fair, I'm a long time Mac user and Apple, you know they nickel and dime you for everything from courts this that they just haven't it hasn't boomeranged on them. Facebook another company that seems to have blown itself up. I think it's almost built at every company's DNA that they will

blow themselves up. It's in nature. That's why. That's why life cycles, which is, as you age, you look back with nostalgia at what you used to be able to do when your twenty five, and then you make the stupid mistake of thinking that if you spend enough money you can go back to being twenty five. Have any questions, you know, you can try paying a plastic surgeon to get a gravity works. Its magic anyway. And companies do the same thing, which is they're constantly trying to rediscover

their youth. But eventually you get middle aged Facebook, Google, Apple, an entire group of companies a middle aged companies that I mean, that's not bad. They've had they've had a great younger life, but they have to recognize in your middle aged you don't overreach. You don't jump out of bed, You very gingerly step out of bed. Because you jump out of bed twenty three, you're okay, you land on your feet, you jump out of bed, and your fifty five,

who knows where you will Land right. So I think one of the points I've always made is companies need to act their age. Apple and Apple and Microsoft have tended to act their age. They seem to have adapted to being mature company and they know what their limitations are, and they're it's made me pure coincidence, but they're the oldest companies in this group. They've lived through pains before, right. Apple has lived with a newer death experience. Microsoft is

seeing what happens when your existing projects age. So in a sense, they've learned the lessons from this, saying we need to be more careful about how we behave because we're all the companies. Google and Facebook are young companies in terms of chronological age, and so the people running Google, it's not some distant memory. They remember when they were at peak age. Right twenty seventeen, you looked at Google

and Facebook. I remember being in a discussion with my friend Scott Galloway and he said, we've got to break up these companies. They're going to dominate the world. And as it, Scott, you don't have to break them up. They will do it themselves. They will overreach. It's going to be much more effective than any regulated doing it so your pathway to face. Because he's worried about Facebook taking over the world. I said, don't worry, it'll eventually.

And this has been the case with technology companies especially, They will overreach, and they that overreach will be what brings them back to it. When we when Galloway and I talked about the four, one of the questions we discussed was of the four, which do you think is most likely to stumble first? And I thought it was obvious that Facebook was part of a much shorter cycle. We had gone through Friendster and MySpace and Facebook and

now Twitter and Instagram and TikTok. They got very lucky with some great acquisitions, but it was it was pretty clear that Microsoft and Apple both learned how to adopt. One of the interesting things I wanted to ask you about those two companies. Each of those companies had a bit of a crisis, obviously much worse at Apple if you remember the famous wired cover Prey with the crown

of thorns around the apple. But in each case a new CEO first, the return of Steve Jobs replaced a flown in CEO, and the same thing with Saria Nadella replacing Steve Balmer who really seemed to have lost the thread. How important is it for a mature company to have a mature CEO to come in and maximize their assets. That's not age inappropriate. That's not the fifty five year old wearing the kid's clothes and looking completely We call

it AI age inappropriate. I think, I mean, I think you're raising a very interesting and a big point about corporate governance and how we change management. I mean, one of the chapters in my book is about who's the right CEO for your company? Because if you listen to McKinsey and Harvard Business Review, they claimed the twenty three characteristics. That's not true. The right CEO for your company will depend on where you're in the life cycle. You're a startup,

you want a storyteller. You want a visionary. Why because you got to get people to buy into your story. Your employees, your investors, your customers. You need to let's call that person Steve the visionary. Then you get to this space where you're building a business. Now you've gone from vision. You need somebody pragmatic because if you have a visionary, he says, I want this perfectly the way my vision tells me, you're never going to get off the ground. You need you need a builder. Let's call

it Bob the Builder. If you want Brianna the builder, if you want to stop being sexed and make the CEO of you know, somebody of the other sex. Then you get to this face where you get to be a mature company. You need don the defenders. Somebody's who's who's protecting your core business because you take your eye off that and you go after new businesses, somebody's going to eat your core business. And then you get to the last faces. You know, you know who you need

running the company. Larry the liquidator. I see Danny de Vito every time I see bed Bath and beyond right, you need somebody coming and saying there is no good ending to this story. Right, you can you can hire the best see on the world. There's no turnaround here. Once you get to the eighteenth it's over. And here's the big reason why I think this is going to

become a bigger issue in the twenty first century. In the twentieth century, if you look at let's take Ford right, Henry Ford was the perfect CEO for Ford as a startup. Why he had a vision visionaries are strange people. They're eccentric. So he made the model t only in one color. Why because that's the way he wanted everybody to Everybody drives a black cart, Why would you want a different color.

But by the nineteen thirties he was actually developing other tastes which were not particularly appropriate for a US automobile company. But time took care of the prom He passed on and his grandson took over. Time took care of these transitions because the typical company in the twentieth century took forty years to build up state, forty years at the top, and then declined over thirty years, one hundred year life cycle. In contrast, think about a Yahoo or a BlackBerry from

start to end. You're looking at fifteen to twenty years. So the life cycles have been raped. I mean, the person running the company as a mature company is often the same person who as the company, who created the visionary who started the company is now running the company. And let's face it, now, the guys around BlackBerry were great with vision They were terrible managers. They were awful at making decisions at a mature company, but they were

still making the decisions and guess what. The decision they made drove the company into the ground. And I think that's going to be an increasing problem in the twenty first century, because the twenty first century company ages and dog gears right much fair. So let's let me bring up another company we started hinting about when we were talking about Twitter. So I give Tesla and Elon Musk

huge credit. I think the automobile industry looked at what he was building with Tesla, and then often their peripheral vision saw what Bezos had done destroying every industry. He touched, your profit margin is my opportunity, and they said, we better get on the ball with this. So he gets if we moved to a fully electrified future, whether it's five years from now or ten years from now, at

least in transportation, he gets full credit. But it seems like between Tesla and then SpaceX and then the boring company and then Twitter, what's going on with the life cycle of Tesla. It seems to have even though by the way we're recording this at the end of the first quarter in twenty twenty three, the stock has done very well this year. Ballpark, It's doubled from its lows

in twenty twenty three. The other extremely of people who convinced this company's a scam, they've always been really a scam, and they came the whole thing is accounting, you know, gameplaying, that the company has never made money. There's a whole Tesla short community might revisit. They convince a whole thing is going it's just a pack. The whole thing is going to come crashing down, which means that unwilling to listen to any story you tell about. Hey, you can't

dismiss this company. As you said, it's changed the way the entire business, the automobile business, a business that was immune to change. And think of DeLorean trying to do show two years ago, right, it destroyed every person trying to change the business. And in ten years Elon Musk has done more for climate change and all the yearc people put on the face of the earth because he's

changed how decisions are made in the business. And I've tried to navigate that middle ground by saying this company is not as amazing as you think it is to the Tesla fans, and at the same time, there's something special about this company. You need to bring it in. I think that the problem with with the company. And this is something I would say about any company, to say it's it's a company that is wrapped up in a person. And what I mean by that is when

you think Tesla, you think Elon Musk. There's you know. For the now, Apple had that issue in the two early two thousands with Steve Jobs and the transition to the team Tim Clark seems to have gone much better than anyone was forecasting. And but it took a while. Remember that after Tim Cook came in, people said, you're not doing what Steve Jobs that have warrant he disrupting a new business. Tim Cook was a business builder in a sense. He's a logistics guy, and he says, look

where a trillion dollar company. We can't be going after new businesses and not protecting the core business. So in a sense that I might be saying something that'd be sacrilegious, but in a sense I think as Apple is better off with Tim Cook having run it for the last decade, he is the right person for that phase of the life Steve Jobs had stayed on because Steve Jobs would probably have shot for the moon on something else and ended up effectively putting a trillion and a half dollars

at risk. So I think that you need transitions, but unfortunately, we're also creating a structure where we're doing that has become more difficult at some of these companies that are the twenty first century companies. And what I mean by that is, if you don't like the way Mark Zuckerberg likes Facebook, he owns only fourteen percent of the stock.

But but because we allowed, we collectively and we have to take the blame for this, we has portfolio managing investors allowed Facebook to go public with two classes of shares. We've effectively given Mark Zuckerberg fifty seven percent of the voting rights in perpetuity. And when this happened, I remember asking this question of portfolio manage is why are you

okay giving up this much power? And the response was he's a genius, He's amazing, and he certainly looked like one for the first couple of years of them being public. And the quiet response I had was, you know, would you are you? You know? You know what happens to benevolent dictatorships over time is what starts have been as a benevolent dictatorship eventually becomes malevolent and you've taken away the power to do it. And they said, don't worry

about that, will never happen. So so let's talk about some of the other volent dictatorships that had a similar super voting structure. Uber was set up that way. We Work was set up that way. I think was there now it's also a super I believe they never got quite to that stage, but it was heading that sting Elizabeth Holmes personality. Yeah, it's probably would have super voting rights. So have we now gotten to the point where this

sort of silliness is over? Or are the venture capitalists and investment banks that bring these companies public are they still playing that game. I wish I could tell you that markets have a good sense to learn and adapt, but I don't think they do. It's what strikes me as amazing in markets is how much collective amnesia there is. So three months of Facebook going up, and all of a sudden they've forgotten all the complaints they had at Facebook's bottom. So I wish I could tell you that

investors and portfolio managers would have the stuf. I'm to stand up and say, you know what, we're not going to take this Two classes of shares anymore. But I think once we opened that door, and I blame Google for this, Google in its created this process and people walked in, it's very difficult to relock that door. No, I'm and so I'm not. I wish no that change would come back, but I'm not optimistic that it will. So now as as good as time as any to

talk about ESG. And let's start with the G being governance. How can anybody in good faith on these companies if one of your deciding factors is we want to see good governance at the company as we own, I'm going to say something about the G in ESC. Right. The governance in ESC is not the corporate governance that we've talked about in finance for fifty years, which is manages being accountable to the owners of a company. That's a corporate governance that I was brought up in all the

research in it. The GESC is stakeholder governance. You're a comountable to everybody. You're accountable to shareholders, you're accountable to lenders, you're accountable to society or accountable to you know, does that make you accountable to nobody? Exactly? Because you then have a reason with each group you claim the other groups for the reason you're underperformed. So when I look at the g and ESG, I have the same reaction I had. And I'm old enough to remember when there

were two Germanys, West Germany and East Germany. I remember what East Germany called itself. Do you remember German Democratic Republic? There was nothing democratic about it or republic about it. The same reaction I have when people say People's Republic of China, Right, there's no, it's not like people in Beijing centerism. What do the people think? And so William, you pick it because you want people to look at the name and think you are free and democratic ESG.

That choice of G was deliberate. It was to make it look like they cared about corporate governance, when in fact it's the exact opposite of everything thing I think of in governance because it makes managers accountable to no one. So my naivete about the G and ESG has always been hey, in the old days, it was a bunch of older white dudes, and that leads to group thing. So if we create a little diversity of thought, we bring women onto the board, we bring people of colors,

onto the board. We have geographic diversity, we have domain expertise. Diversity will skip the group think and end up with a better decision making problem. But that's an empirical question. Do we actually do it right? It are more diverse boards asking more questions, because that's the way I mean Ultimately, governance here means you have a board of directors. It's active and aggressive about I would love to see a board of directors stop a CEO from doing an acquisition.

That to me is governance at play, where the board says, you know what, this acquisition makes no sense. We're going to put break on this process for six months and look at the numbers. We're not going to let your banker come in and show synergy numbers and push us through it. We're going to do our due diligence. How often does that happen? And I think that there is no evidence that I can see off that having diversity

by itself makes boards more effective. Now, I think that what you need is we need to change the process by which we pick the directors a board, because to the extent that you have nominating committees and CEOs of input in the process, the nature of the process you're going to self select. I don't care how diverse the board is. You're going to self select. People are less likely to ask you those stuff governance questions. What is

the alternative? Of course, the reality is a person who's not an index All right, Hey, I'm going to pick a portfolio of a dozen companies and that's my core at twelve fifteen should be enough companies to get the advantage of portfolio diversification. That means I have six ten directors. I have to choose on ten or fifteen companies, ninety people.

I have to figure that people. You can get people to vote from their own congress person, right, how do you get self interested investors to put the time in to select ninety board members. I think it's going to be almost impossible to get that done at the shareholder level because so it has to be institutional. It's got to be institutional. So I think that unfortunately, this is not a process where you can expect shareholders to do their homework on who's standing for the board of directors,

what's their background, do they know the business? I mean, who has the time to do this? Especially we tell investors to diversify, we also tell them do your due diligence. They have lives to live, families to feed, They don't have the time to do this. So I think it has to be institutional, and I think we need a corporate governance core that's not based on looks and checkboxes, but based on actions. I want to get no votes at meetings recorded, and i'd like to know the percentage

of the time directors vote. Now. I remember Harold Janine, who was CEO of Itte There's no conglomerate in the nineteen seventies, said there was that, and he was what I call a corporate caesar, a complete power. And he said there was not a single action taken by his board, whether the decision was not unanimous. And my reaction was, that's a rubber stampoort, right if everything you come up unanimously gets voted on. So maybe we need less focus

on how big is the board. In fact, many of the corporate governance scores are based on very surface level things. Are the insiders are outsiders? How big is the board, how divers I'd like to get a sense of how effective is the board, how many no votes to get,

how much pushback to get on CEOs? Because that really is a true measure of governance, and we don't have that now, and I think that might be a measure that could be useful for investors to get a sense of is this an effective border an ineffective board, you know, because that, as you said, is a useful piece of information to investors. It's very hard as a board member, especially on a smaller company, to vote no, because these are your peers, your colleagues, and it's difficult to be

you know, we're social primates. It's very difficult to go against the group. And when you're thrown an authority figure in there, which is the CEO who had a lot of money, who knows far more about the company than I do, then it's natural. It's psychologically. So that's why I think this. You know, we lost track of disincorporate

governance research. We thought the promise insiders. So if you look at the Sarbe and Oxley law, they fixed all the surface level problems, which is you kind of have your cousin on the board, you kind of your brother on the board. Those are insiders. You need outsiders and in a sense, and there's research that suggested that big

boards are less effective than small boards. So they said, we're going to have a small board composed of our outsiders, and then we added, you know, you have diverse more likely to get pushback, and we left it at that. But we did the easy stuff. And that's a problem with scores is they do the easy stuff. They do the checkbox. They don't look at actions which actually change governance.

And in fact, this, you know, extending this, any scoring system is going to create gaming, which is companies are going to figure out what drives the score and then they're going to game the system to get a higher score. That's not because of bad companies, it's because scoring systems

create gaming. And I saw that play art with governance scores. Now, we were told in two thousand and one and two when S and P announced Governance Scores, this is going to change corporate governance because now we're going to score companies. Twenty years later, I look back and say, it changed nothing. We've had voting and non voting shares. Governance has actually become more difficult now than twenty years ago. And I think it's made me a lot more skeptical what scoring

systems changing behavior. All they do is create gaming, gaming that companies used to make their scores higher without changing anything. That of consequence quite fascinating. Let's talk a little bit about the state evaluation today. We've seen a lot of factors driving prices, especially the rapid rise in federal reserve rates and the big inflation we saw in twenty one and twenty two. How do you look at the market overall in twenty twenty three. I think it's a market

driven by two macro forces. One is inflation, the others what's going to happen to the economy. And at the start of this year I said those are going to dominate the discussion. So now we've had this distraction and a sense for markets with the banking crisis, and it's in a sense of side game that's going on, but ultimately what happens in the banking crisis, you could actually argue that it was inflation that created the banking crisis in the first place, meaning inflation or the FED increases

inflation drives interest rates. In fact, I think one of the most unhealthy things we've done over the last decade is we've given the FED powers. It's never it never has Feds don't set the Fed doesn't set it rate it chases rates. The reason rates went up last year with the without the FED is inflation was going up, and once rates went up, you had banks like Silicon Valley Bank with which had bonds at low rates, which had to reprice the bond. So inflation is at the

core of almost everything. We've seen in markets for the last year in three months, and it's always been the case. Once inflation enters gets on stage, it's it's a hog. It's it's an attention hog. It takes every it sucks up everything. So I think right now inflation is at the core of almost everything you do. Whether you're a trader or an investor, you have to think about inflation

because you have no choice. It really interesting now if we look at the FEDS two percent inflation target, um, you have zero or interest rates for a decade, so you can't really blame that. You have the lockdown, the supply chains, the fiscal stimulus, the shortages of labor, semiconductor's, houses, cars, seems to be a lot of moving parts, a very non traditional type of inflation. How should the FED be behaving? Go, Well, let's go back to March twenty twenty one, when CPI

ran up through their two percent target. Should they have taken notice that they probably should have because here's the problem. And I wrote a piece then saying, you know, even if inflation is purely supplied that because initially they claim was this is transitory, it's going to be very very short time. I said, even if that's true to the extent that there's a possibility that it's not transitory, you

need to act now. And the reason I said that is inflation is as much as psychological phenomenon as an economic phenomenon. I mean, I'll give you an example. I know the restaurant that I live next to, a Mexican restaurant. The price of a burrito, it stayed the same for a decade, right, then he has fairly low inflation flash right, And he didn't, but then he raised prices. And then once he started, he's on this this core. Now every month, every month I go in, the price is up another

ten or fifteen cents. Because he's being prudent. He's saying, look, I'm going to raise the prices because I need to pay my employees. They're going to ask me for higher wages. So once inflation gets embedded in people's psyche it starts to affect how people, how people ask for wage increases, how much you raise prices, which meets often the only way you can break the back of inflation is to

BRender people into hostages. You basically tell people, don't go ask for a pay raise, you might lose your job. Don't raise prices because people might not come in, which is an economic recessions of Volker nightmare that played out where he said, look, I'm going to break the back of inflation, and he did. It took a very severe recession, because that's the only way you can break that cycle of higher prices. I think wherein that cycle, which is

one reason inflation is so stagged. It's so stubborn. It's not going away quickly. It's because it's not just about fixing the supply chains. It's now in people's psyches. People are asking for pay raises based upon I mean, look at the LA School district strike and the pay raisers teachers were asking for it was like seven percent eight percent a year. Not three years ago they'd have asked for three percent a year. So let's let's address that.

Because I sometimes feel that we take things for granted and don't see both sides of the problem. In the bottom I don't know if you want to hold quartile or bottom half of the wage earners. Certainly minimum wage has lagged everything for thirty years. It's lagged inflation. It's like productivity. It's certainly lagged the stock market and executive compensation. Nobody was Are you upset when wages were deflationary? Right?

But suddenly and those of us that aren't in the bottom half of the wage pool look at it and say stroker chan and say, oh, now this is inflationary. We have to do something about it. It seems like a lot of the burden of fighting inflation and just

landing on the people who can least afford. That's exactly the reason you don't want to get let inflation get out of control, because the people who pay the price to fight inflation are not the not the upper middle class and the wealthy, it's the people at the bat Because when you have a recession, guess who lose their jobs first. It's a day you know, day to day. You know an hourly worker who said, you know you're going to work less hours, are going to pay you less.

So I think you're absolutely right. The people that inflation punishes the most now, not the wealthy people they can find places to put their money and earn money to cover inflation, the people who can least afford. That's why inflation is a hidden tax. It's the worst possible boot tax because the people paying it are the people who can least afford to pay it. So let's bring this

back to equities and valuation. It seemed in twenty and twenty one and even in twenty two, lots of companies were able to pass through their input cost increases to the end consumer. And then after a while it seemed companies that no longer had input costs going up continued to raise prices. What does that do? First? What does inflation generally due to valuation? And are the greed inflation stories accurate or is that you know, a little political

wrangling on the second. Let me take the second question first. I've heard that story and it should show up as higher profit margins and higher returns that you're making. We've been a pretty record high and the margins have been rising now for a decade, partly because the subset of companies with the highest market caps and our technology, I mean, my very efficial so and they a software company could deliver thirty five percent margins because of unity economics, the

extra unit of software cost you nothing. So if you clean up for that, and you look at twenty one and twenty two and said dead margins go up because that's the inflationary use. I mean in some sectors, margins obviously continue to creep up parts of software, but overall margins for US companies have been pretty stagnant. So if there's been price gouging, it's not showing up as higher

profits in the aggregate. That doesn't mean some companies are not price couging, but in the aggregate, the story doesn't hold up. On the first issue of how does it affect valuation, I think that it boils down to pricing power. If you have pricing power, you can insulate your yourself against inflation by passing it through. And there are some companies that clearly a pricing power that have done that, which is one reason equities have been remarkably resilient given

what's happened to interest rates and costs of capital. Twenty twenty two is a record deer in terms of how much cost a capital of companies went up in one year, the biggest single year increase I've seen in the sixty plus years that have tracked the data for no. So I think that equities have been resilience precisely for that

reason they've been able to pass the earnings through. Is it fair to say equities or an inflation hedge, because I've heard that my whole career, and it never really russ not collectively if you have a subset of companies which your pricing power. Because it turns out that if you look at equities collectively, that that pricing power is not complete. You don't you're not able to pass inflation

through completely. So I think equity neither. No financial asset can be a good investment if inflation is rising, whether it's stalks or bonds or any kind of financial asset, because no, collectively, you don't have enough pricing power to pass it through. So here we are on the good side.

It seems that inflation peaked a couple of quarters ago and have come down wherever we look, lumber, energy prices, copper going down the list of all the things, even container shipping containers and things like that have come back to pre pandemic level. But it seems on the services side, whether we're talking about apartment rentals, clearly a shortage labor in the United States another big shortage. So how do you look at this not like the nineteen seventies inflation.

How do you look at this version of inflation that's a psychologically, that's the part of inflation, that's stuff. So if we see inflation expectations start to come down, that should be a positive for the FED. Because I'm not a big fan of surveys, especially expectation surveys, because all you get from the survey people is, hey, here's what happened in the past three months, and their psychology is

reflecting that. I know the FED pays close attention to inflation expectations, So if we see those rolling over, that would be a positive sign. We're closer to the end of the the cycle. I think so. And I think that's so. The FED is keeping its eyes on wage increases in different sectors, it's looking at pricing and subsets of services, and it's looking for a break in that inflationary cycle. I think they want the break you need to get from six or five or wherever we are

right now to two percent. It's a pretty significant break, Hey, listen, if we had a four hand or I think the markets rally, yeah, And I think that that's part of the reason, is that at some point the FED has to decide whether two is where their end game is or whether they said there's nothing magical about two, right, Well, when you're at zero, two looks like a ways to go.

When you're at five, three seems a little more. And I remember in the nineteen eighties people are saying, let's target a five percent inflation or a five percent inflation, and they were okay with that, right, So there's nothing particularly magical about two. And in fact, if I step back, it's not high inflation per se that makes it difficult to run businesses. It's unstable inflation. In fact, I give people a choice between two economies. The first is two

percent inflation, the second is five percent inflation. As which economy would rather be in as an investor, as a business. They all pick the two percent, right, and they said, let me change the problem a little bit. Let's assume the country with five percent inflation, it's going to be five percent guaranteed everywhere forever, and the two percent inflation, you go from zero to four back to zero to

four and say which wouldn't you rather be? And the answer is I'd rather be in the five percent guarantee. It's stability in inflation that really you're aspiring to do, and historically high inflation has gone with more instability, right, So I think that the FED has to not just have an inflation level in its target as to think of ways in which how can we make that level

more stable over time? A band which is tied a bit, guys, I think it makes it easier than to make long term investments and make judgments if you have a band that's tighter then if it's this wide band. So let me ask you a kind of impossible question. Given everything that's the FED did following September eleventh and the financial crisis and then the pandemic, has the FED been too active or is that too aggressive a hand on the

wheel and that's leading to inflation volatility. I'll tell you what my parents told me when I was a young child, which his children should be seen and not heard. And I would say the same thing about FED chairman and people on the committee. I wish we saw less of them and a little mistress about them. I mean, I

remember an Alan Greenspan was the FED chair. Not only was he a person of a few words, it was difficult to extract a sentence from him, and most people wouldn't even have been able to tell you who said on the federal open market committing the nineties because it wasn't the center of the un voice like it is today. Right.

I have a vivid recollection of him saying to a congressman, if if you think you understood what I just said, then you've gotten it wrong, like he's trying to be pick whereas today, So do we have too much transparence? I think I think I think I'm hearing too much from FED members telling me what they think about inflation. Right, I think it'd be good for the FED to go a little silent for a while. I mean, doesn't mean that the federal open market. Don't make this make yourself

the center of the investing universe. It's not healthy for anybody involved in the process. We've had that problem with politicians, with central bankers. Maybe social media is to blame for some of that. I know I only have you for a limited time, so so let me jump to my favorite questions before we wrap up. Starting with tell us what you've been either watching or listening to. What has been keeping you entertained for the past couple of years. I read, and what's junk? I mean that's you know

I So you read quality and you watch junk. That's the barbell I read. I don't even read quality. I read crime novels. I love serial killer books. Mike Connolly is what I'm reading. Right, We're gonna get to your book list in a minute. What's the junk you're watching? Um? My favorite streaming service is HBO, and the reason is simple. On Netflix, you have to watch, you have to start. I have more false starts on Netflix than any other streams.

That's interesting because I start a show and ten minutes said I said, I don't want to watch this. Do you ever have people say no, no, you gotta give it three or four episodes. I'm like, that's like you're telling me I have to watch Godfather one and two to get to Godfather. The reason I'm not going to do that in Netflix is their business model is to throw one hundred shows at the wall and hope three stick. HBO is at the other end of the extreme. Whether you watch The Last of Us so you watch any

of the shows, what do you like the show? And not clearly thought went into the show. It's not something that I slapped together. So HBO remains my streaming network of choice. What's your favorite shows? I like The Last of Us. I think it was a very Last of Us. The Last of Us okay, a little dark, a little dark,

and a little dystopian. Normally not my but the fact that I watched all eight episodes tells me that they were able to keep me hooked on a show, even though I'm not a Walking Dead fan or a fan of strange stuff that goes on in other universes. So I watched the first season of White Lotus. I haven't been motivated to watch the second season. I don't know

if you I was. It's a pure entertainment value. It's like you said, job right, right, and I and I watched it simply because you watch it for just the craziness of what's going on. And you know. I also love Bosh on Amazon. My wife washes. It's because I like market Michael Conley, I like the books he writes, I like I like Bosh. I watched the Chernobyl documentary

and it's an amazing documentary. View it's a it's a it's not actually it's a mockumentary, which is they take the documentary and they've made it a movie really extraordinarily well done. Again, a very dark story because it's Chernobyl story. How can you make it a happy ending? But it actually takes you through the series of mistakes that pile up. And as you watch it, do you recognize how you

make eight billion dollar trading mistakes? Right? Is you take a small mistake, you cover it up, you make a bigger mistake, and then a bigger mistake. So I I fairly diverse viewing across I watch. I gonna have six different streaming services, so that watching anything on Apple TV. Since we've been talking watch I know on Apple TV that you know, I've been watching Severance and and I really love great show. And Apple TV again is following the HBO exactly that I love Ted Lasso. Who don't

know it's it's a fun movie. It's a it's a movie that feels, you know, leaves you feeling good afterwards. Have you started shrinking? I haven't. It's next on My Life, delightful and the cast is great and it's full of lovely surprises that that is exactly what I was thinking, is, don't throw everything on the wall to a small number of high even though we were documentary was it was

on Apple was really interesting. So so let's talk about mentors who helped to shape your career, both in academia, publishing, and finance. I did my PhD at UCLA, and I remember it was my second year. The head of the department called me in and said, we have this visiting professor from the University of Chicago comes here every summer because he likes to play tennis. And I said, who is it. He says, this guy called Jean Farmer, And

I was actually Jean's TA for those summers. He used to come to UCLA and we played more tennis than you know. See, he didn't use me as a research assistant as much as he used me as a tennis partner. You know. But it's a fun person to talk to,

you know. You know, you think of him as a rigid, efficient market person, but he actually had very very broad thoughts about market's very pragmatic, very practical, and it told me that researchers didn't have to be this highbrow people who thought in abstract terms, who never talked in the language that normal people use. So I worked with Jane dick Roll, who was a professor at UCLA was one

of the people on my committee. But Tom Copeland was one of the people as well, and Tom was then a young professor at UCLA, went on to McKinsey wrote a book on valuation, the McKinsey Valuation Book with Tim Kohler, So he actually was a great teacher. I took my first corporate finance class as an MBA from Tim Copeland. So I when I think about why I went into teaching finance, it's because of the joy that he seemed

to have in talking about finance. And this guy's having so much fun talking about this topic, it must be worth exploring. So I remember that when I teach corporate finance that I can evoke interest in people that can lead them into lots of places. And it's not what I'm saying, it's how much joy and enjoyment I feel the passion I bring to a topic. You know, I know one of the people that I've tracked in investing that I look up to is Mike Mobussan. Now, whether

you've had my conduction, it's always the lie. Again. He's a person who's in multiple disciplines. He can talk about and and I love talking to him because I always get good ideas about business and markets because of something he might say about basketball. That's interesting because we do that investing all the time. The hot hand phenomenon, right, it shows up in mutual funds where people put their money in a mutual fund managing. He's got a hot hand.

So there are you know, my mentor what I've learned as human beings come as a package. There are good things and bad things, and I've learned not to put people on pedestals because then you're asking for disappointment. It's one of the pet peeves I have about people who put more in Buffett in a pedestal. There are lots of things that Buffett does that I admire, including the fact that he's a core philosophy that he goes back

to no matter what happens. But there are things that he says and doesn't so I don't agree with That doesn't mean that I'm rejecting the good stuff. It just means I'm taking it as a package. I wish people thought about that, because I get asked to mentor people. Every week. I get students writing me, can you be my mentor? And I said, maybe, rather than mentoring, I can give you some guidance, but except the fact that

my guidance is not going to be perfect. Take the good stuff, reject the bad stuff, and do this with a bunch of people. You're probably better off than holding one person up as a mentor and say I'm going to do what that person did. In my life's experience, I've learned things from Gene, I've learned things from Tom Copeland, I've learned things from Mike Bobus, and I've learned things from my Uber drivers. So I mean you can get

mentorship places. You know, the shop you go into every day, the guy behind the counter is always happy, even though he's got this job of handing out coffees three a second, how does he manage to stay happy? Maybe ask I me, you know, what do you do that puts you in a good mood? And the things you learn from those people are essentially going to be a package that's going to be worth a lot more than picking a single person and a mentor and saying I'm going to do

everything that that person does very interesting. Let's talk about books. What are some of your favorites? What are you reading right now? In my book, somebody has to get killed and multiple people have to get killed for that book to be exciting. So I love books on serial killers. From Hannibal let the Silence, Silence of the Lambs. I mean I read those books before they became movies. Michael Connolly, who writes books about Harry Bosh, who's a detective in

LA I love you know, I love good writing. I love good writing to the extent that you read the book not so much because of what the story is, but because how the story is stored. I mean, I love John Grisham simply because he's a great writer. I love Stephen King because he's a great writer. I'm not a horror story fan, but I'll read a King book because it's extremely well dridden, keeps me engaged. I started reading on a plane earlier this year. Stephen King on

writing right, and it's fascinating. He essentially just is telling his own life story through how he learned to write. And really good storytellers are great storytellers. Absolutely. Our last two questions, what sort of advice would you give a recent college grad who is interested in a career in finance. Remember that finance has multiple careers. You know, you don't have to end up at Goldman Sachs to be in finance. You could go work for a small, privately owned business

in Pennsylvania and be doing finance. Because finance, basically, to me, it's a sense of definition. Is involves the use of any decision that has money involved in it is a financial decision. Define that way. Finance is all around you. You can work in a nonprofit and do finance. You can work for the government and do finance. You can work for a company, you can work for a bank, you can work for a consulting firm. And you ask

me which one of those should I pick? Part of it is lifestyle choice, right, So don't go work for Goldman Sachs saying look, I want a good balance of life and work. It's not going to be there, right, And often you've got to accept compromises. Life is about tradeoffs. And if you say, look, I want to balance lifestyle, accept the fact that you might have to settle for a lower pay and live away from a big city because that's where your lifestyle might best be played out.

So a small privately owned entity in Pennsylvania, Vanguard Group is that what you're refining. It could be a Vanguard Group it it could be a plumber plumbing business in Pittsburgh. If you're from that area, you're a Steelers fan. So I think had in a sense. If you are willing to kind of think out of the box, there are finance helps all over. You can pick the part of

the work where do you want to live in. You can pick the type of business you want to work for and accept the fact that he might make fifty percent less than he might have had working for Morgan Stanley or Goldman Sex. And our final question, what do you know about the world of finance and investing today?

You wish you knew forty or so years ago when you were first getting started in the field, that behavioral and emotional factors play a much much bigger role than economics and decision making on economic decisions, starting with where you buy a house, how much you pay for a house, where you go to college, what stalks you buy, you know, And it's something that I've had to learn the hard way as I've watched markets adjust and go through booms, and bus I've learned that, you know, you need to

be as much psychologists as economists to think about economic questions. And it's made me. It's made me humbler because often when you have this rational view of the wood and your models, you start to believe that you drive the wood and the decisions there. But you don't. You're an observer.

And when behavior is different than what you predicted, rather than pick on the people who behave differently than you predicted and call them irrational, think of this as human nature and say why am I not factoring that in into my decision making? Quite fascinating. Professor Demotoran, thank you so much for being so generous with your time. We have been speaking with nyus Aswath Demotoran, professor of finance

at the Stern School of Business. Be sure and check out his new book, which will be out in December of this year, The Corporate Life Cycle, Business Investment and Management Implications. If you enjoy this conversation, well, be sure and check out any of the previous four hundred and eighty six we've done over the past eight or nine years. You can find those at YouTube, iTunes, Spotify, wherever you find your favorite podcasts. Sign up for my daily reading

list at Rihaltz dot com. You can follow me on Twitter at Riholtz. Check out all of the Bloomberg podcasts at podcast I would be remiss if I forgot to thank the crack team that helps me put these conversations together each week. Samantha Danziger is my audio engineer. Paris Wald is my producer, Attica val Bron is our project manager. Sean Russo is my researcher. I'm Barry Rihalts. You've been listening to Masters in Business on Bloomberg Radio.