All In Podcast Episode 101 Notes October 21 2022

October 21 2022

• Intro
  • Brad Gerstner in for this week, Sacks out
  • Brigadoons fun
• Ye acquires Parler
  • Candace Owens husband George Farmer was running it
  • Successful career + money + fame + lot of following
  • Simultaneously apparent issues going on
  • Chamath has blood relative with mental health issues
    • Its been hard for family
  • Friedberg’s point of there not being a monopoly on social media networks continues to hold true - users of platforms coalesce around a standardized set of norms and issues on that platform
  • So there are going to be alternatives - Elon acquiring Twitter, Ye acquiring Parler, Rumble is a competitor to YouTube
  • If the person is going through a mental health episode, is it ethical to platform them and give them a voice and leverage that for your ratings?
  • Chamath’s family member (she) has had to be intervened with, government involved, driver’s license revoked - and it would have been so hard if they had a big social media following
  • Maybe be able to appeal to social networks to remove content of people who have mental health issues - if its a request coming from their family
  • Seems if Ye is acquiring Parler it means its probable that regular platforms didn’t let them share this content
• Snap and markets

  • Huge stock price drop

  • Biggest glaring example of corporate misgovernance - 100% of voting power stayed with class that was founders - normal shareholder didn’t have anything - 100 to 0

  • So there is no equity for people to have a voice and hold the CEO accountable

  • 0 is a deep sign of disrespect

  • How is this different from Alphabet and Meta where its probably 10 to 1

  • 265 to 360M DAUs for Snap, Twitter and Meta are also growing

  • The story here is about pricing

  • Apple is the apex predator of this entire market - their change with IDFA literally pickpocketed this entire industry - $2B

  • Apple will update soon and you can from 100 to 10000 parameters maybe

  • TikTok 30% growth each of last 3 years

  • So incumbent platforms are very sticky

  • So the question is how will ARPU grow?

  • 10 years cost of capital was very low for Social media companies

  • Meta has hired more people in each of the last 5 years than in first decade total

  • Easy to blame but there is no leadership in cost control

  • Apple changed their cost structure a few years ago after Tim Cook listened to Carl Icahn (maybe him?) - and so they have been rewarded a lot since then

    • Google, etc following their lead
    • Meta should follow soon

  • Elon from day 1 did common stock - never played these games, control is a symbol of inability to manage the business

  • High voting class was because else they will be challenged in the market

  • Founders at Google don’t even show up at the company - why should they have super voting?

  • Super voting control means = am going to take my toys out of the sandbox like a crying baby

  • No one complained about super voting control when Facebook and Snap were doing great

  • We have been living in an era of excess - these companies can deliver whatever they are doing now with 20% less

  • Big companies vacuumed up every employee in the valley

  • Elon is talking about 75% reduction at Twitter (WaPo or Bloomberg?)

    • He is starting with first principles

  • 0 interest rates can be correlated with government overreaches

    • Everyone was basically forced to buy tech

  • Now with higher interest rates other instruments, risk adjusted are maybe better investments

  • 40% of what everyone used to own - Bonds - became 0 because of interest rates

  • Snap will be an example where investors have abandoned the company - investors will think its too hard

  • Meta will be fine because it will revert to the mean - like MSFT, GOOG, AAPL

  • Chamath, etc will not buy these companies going public with random governance structure - especially when Tesla CEO - best in the world - is saying you can judge me, fire me, etc

  • 2 most courageous CEOs of last 50 years - Jobs and Musk - didn’t need random voting rights

  • Free capital was a weapon of economic destruction - companies were too spoiled, hired too many people - so wringing out of this will be good long term for the companies but it will be painful short term (2 years)

  • Last 10 years was about beta, next 10 years will be about Alpha

  • What companies have the courage to build great products with a great business model

  • United Healthcare, United Airlines, Tesla, Schlumberger all have higher earnings

  • Huge asymmetry to the downside is probably not likely

  • This doesn’t seem like the time to call the big short - market is already quite down

  • Companies that can’t actually earn will be punished by the market

  • Investing GOAT spoke at Brad’s investor day - said that we have gone through a decade of undertraining leaders - worked in 0 interest rate environment

    • Worse in remote work, less mentoring, coaching, talking 1-1

  • Stability AI - got $100M for $1B valuation by Coatue and Lightspeed

    • When rates were 0 there were bounded outcomes, 5 companies were 25% of SP500, then there was a drop to 10%
    • Average company was about $3B-$4B
    • So overwhelming odds say this will be 3-4x return
    • Company has no product, no market

  • Brad’s chart is awesome - top quartile of venture capital funds - what were the average cash on cash returns

    • TVPI = Total value to paid in capital
    • DPI = Cash distributed to your investors
    • Goal is to convert TVPI to DPI
    • World sucks but secular trend of innovation continues
    • 2011-2012 to now - these are historical marks, highest in history
    • This means there are $100Bs of markdowns remaining to come in GPs
    • This chart most VC organizations don’t even look at probably
    • What is the sum of all the grey lines in the chart since 2011-2012 - so thats like $500B of money flushed down the toilet
      • Overtime orange line is going to probably go down, not up - so even more of grey bars get destroyed - so even like $600B - $700B
    
    
    
    
    • Chamath made his own chart 🙂 (from publicly available data)
      • This shows how correlated his fund might be with someone else - coz if there is overlap then you’re probably going to lose money together - you both bid for same stuff
      • So this works the other way too - Index is correlated to Benchmark - smart LP who can’t get into Benchmark which is $500M only but you want to copy them so you join other funds that do that
    
    
    
    
    • Are returns getting competed away?
      • 90% of returns go to 10% of deals and investors
      • The top 10 change every year - so if you copy the wrong one in that year you might be screwed
    • You can build an index fund in public market because you can buy any stock - but you can’t in VC because the founder chooses you, GP chooses you
    • There were 500 runners in VC, now there are 1000, but same 5-10 people win the race every year
    • Modern age of VC is < 30 years old
      • The economic unlock in the country by reducing friction to investing and venture - VC is great for this - people in the past had to mortgage their house, etc - now you don’t lose any of that
      • This ecosystem is a huge advantage for US - even more than natural resources
• Passive vs Active investing
  • Elon and Cathie Wood discussion
    • Elon thinks more active would be better for society
  • Most stock pickers over time underperform the index
    • Just giving your thesis about a particular stock and excluding the whole broader perspective is not a great idea
  • Not all good companies are good investments
  • Price of entry matters
    • Good relative to price of entry
  • Time arbitrage is a big alpha
  • Altimeter has 90% of money in their top 5-10 companies
    • Time arbitrage - holding for 3 years or longer
  • Buffets bet on SP500 and won
    • Most predictable way to make money
    • Its a dynamic list - people are working hard for you
    • 8-9% a year - invest dividends can approach 10% a year
    • steady eddie way to grow your wealth
    • But he also has 50% of his portfolio in Apple last few years - so he does believe in Alpha
• Prop 30
  • 1.75% tax on income earned over $2M
  • Newsom has come out against this!?!
  • Lyft has provided $48M to this funding
  • Because CA wants 90% of ride sharing miles to go to EV vehicles by 2030
  • Lyft has way bigger problems to focus on - why are they spending on this right now?
  • France had high wealth tax and people left and so income from tax went down - so they reversed it - CA is going to become France
  • US has crazy debt and interest on that $30T debt - so US has to increase income by probably increasing tax rates - democratically elected government will not do austerity measures and cut programs - so tax rates will go to 60%+ easily
  • Debt as % of GDP has skyrocketed in last few years - its more now
  • There is no upper bound to this maybe
  • This is a feature not a bug of how democratic societies work
  • Asia and Middle East have different tax schemes
  • But maybe even if tax rates are high here, ways to make money are probably higher here too
  • A/B test CA, TX, FL - hostility towards business, related to tax rate - assembly woman flipped the bird to Elon Musk
    • Miami mayor is texting CEOs to come there
    • TX businesses are courting people
• Blue Bottle Coffee default is oat milk for latte
  • Many normal people still drink milk - don’t give people chemical stuff needlessly