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- [00:00]
A
Welcome. This is Ask the Compound, the show where you ask and we answer. I am Ben Carlson. So apparently some guy named Claude seems to have disrupted the entire software complex. Stocks like Adobe, Salesforce, Oracle are crashing. Even Microsoft got a 25% haircut. Is this a falling knife situation? Maybe a buying opportunity? How should you price in AI disruption? That's happening at lightning speed. We're going to answer these questions and more on today's show. Play the music, guys. If you have a question for us or email, here is@askthecompoundshowmail.com and today's show. We're going to discuss questions straight from our Compound audience about how to proceed with software stocks. What's next with Netflix, how trailing stops work, how to fix the housing market. And finally, what's the best career path for a young advisor? As always, welcome to our viewers in the live chat on YouTube and Twitter. Fire off your questions. We'll answer them live on the air. As always. First, today's show is brought to you by Tukriyam. Looking to diversify your portfolio beyond stocks and bonds? Commodities are getting more and more attention as we enter 2026. Tukrium's Agriculture ETFs are offer a way to access the future prices of essential crops. These funds may help you manage inflation risk and add diversification to your portfolio. Ask your financial advisor or explore Tukrium ETFs on your own. Visit tukrium.com and click the link in the show notes for more.
- [01:21]
B
Did you see OVI reported earnings today?
- [01:24]
A
No. How are we doing?
- [01:25]
B
It was. It was pretty good.
- [01:26]
A
You've been watching it tick by tick. Did you buy calls into the, into the earnings report?
- [01:29]
B
No, no, nothing like that. But I asked for a recap from Gemini. It said, it said their major milestone was first full year of profitable growth since going public.
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A
Okay.
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B
It's got to be something, right?
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A
That's a win.
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B
Yeah.
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A
All right, you're happy. All right, let's do it.
- [01:45]
B
First question up. First, we got a question from Tim. I heard Michael talking about dumpster diving into software stocks for a trade. I'm curious if Josh is intrigued by any of these bombed out software stocks. Does anything look good for a trade? What about a long term position asking for a friend?
- [02:01]
A
All right, you ask for Josh. We will give you Josh. Bring him on.
- [02:04]
B
Hey, Josh.
- [02:06]
C
Hi, everybody. What's going on? I heard Oatley was just added to the Dow Jones Industrial Average. So very excited for you. Duncan, that just came across the tape. I don't know if you have a Bloomberg terminal in front of you or not? What's up guys?
- [02:21]
B
Sounds good.
- [02:22]
A
All right, so I think Michael said he bought igv, which is a software etf. And I think he told me he already sold his position for quick gain. He's out. It's down like 30% over the past five months or so. Some of the stocks within the index are down even more. Let's do a chart on here. So this is Microsoft, Adobe, Salesforce, Palantir and Oracle. Down anywhere from say 20 some percent to all the way down 60%. So these stocks have gotten absolutely slaughtered. You do chart off. I think investors have become conditioned to see carnage like this in tech stocks over the past five to seven years and say I'm just going to blindly buy. I don't care if these stocks are down, they're going to come back. I'm going to buy. I'm going to catch the falling knife. I guess the question more people are asking this time is what if this is the different time? What if this time they don't come back? What if the moes for these companies have been altered forever? This seems like a hard one because it happened really fast too. I mean, the LLMs have been out for a few years now, right? This seems to be a sea change in the last six months. What do you think in terms of the moats of these software companies? Have they been altered forever? Potentially.
- [03:30]
C
So the first thing is that we have to stop talking about them as a group and start thinking about each one individually, which of course is harder to do. And you watch CNBC or you read the Journal like they don't have time for that. They look at the IGV or they talk about the group because they're just trying to tell like a general enough story. Like, so they'll say disruption fears were off the table today as the software sector rebounded and then the next day. Right. But this is so much bigger than just software. We saw Yesterday Raymond James, LPL and Charles Schwab each lose between 7 and 12% of their market cap because Altruist put out a tweet that there's a AI tax service as part of their competing platform for wealth managers. Like, do we really in real life think that those three financial custodians or asset management firms are worth 12% less because somebody launched an AI tax product? No, of course we don't. But it's not thinking rational human beings that are making these trades. It's algorithms. It's.
- [04:49]
A
That was an algorithm that felt to me, like an algo trade. The funny thing to me about this whole thing is when I first burst onto the scene, everyone is trying to figure out, like, who the big winners are going to be. And I don't think enough time has been spent trying to figure out who the losers are going to be. And that's what it seems like the market is doing now. It's like, all right, forget the winners. That'll sort itself out. We're gonna figure out the losers. Now that's what we're focusing on. What's supposed to be the difference this time?
- [05:12]
C
I 90% agree with you. I think 24 and 25, what we did was we thought about AI generally as a tailwind for everyone, right? Particularly all tech companies. And that was the messaging from the CEOs. Like Benioff did a.
- [05:35]
A
He.
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C
He said, salesforce introduces agent force. And it was going to be like AI agents. And he threw a huge event in San Francisco and took over the whole city. Like we were talking that way, like everyone's going to use AI to make more money or save money or both. And then this year, I think what's happening is we are separating the market into two camps. One camp, and I wrote about this over the weekend, is these are the companies that either can't be disrupted or will actually benefit because their own operations will become more efficient via AI. And I'm calling those the Halo stocks. And then the other camp is information merchants like S and P Global and FactSet, legacy platforms that are predominantly based on IP, what's called VMs, vertical market software companies. So, like we're the biggest software company for, let's say the architecture industry or the auto dealership industry or the restaurant industry, like the. All those. Those are not Halo and Halo. By. By which, when I say halo, I mean heavy assets, low obsolescence risk, hal.
- [06:56]
A
Which is another opposite of what's been going on. The whole thing forever was tangible assets, right? We don't want capital.
- [07:02]
C
15 years anymore. It's 15 years of this fetishization of asset light business models. SaaS look at a software company all the time. SaaS.
- [07:12]
A
Yeah.
- [07:13]
C
So they have. They invent a piece of software in 2013, they can sell it for the next 10 years, basically make minor tweaks along the way. And their profit margins are like 60%. You know what it takes to replicate a piece of software that you invented? Nothing. You're delivering it on the Internet. You sell a million copies or 500 million copies. It doesn't make a difference. Maybe you have to add some sales support. So we fetishize these sort of like what they called asset light business models. And this year that entire paradigm has been flipped on its head after 15 years. Now we want heavy asset meaning can Claude whip up a can of Diet Pepsi for you? No, it cannot. Can Claude fly you from JFK to lax? No, it cannot. Right. So the stocks that are going up, small caps, mid caps, industrials, materials, consumer staples, all things that you cannot get from ChatGPT or Perplexity or anthropic like these companies cannot replicate or deliver these heavy asset low obsolescence risk items. And those are the stocks on everyone's buy list. So I invented this term over the weekend, I'm coining it today and I am telling you that by halfway through this year it'll become very apparent. The stocks that are having the best year are the halo stocks and the stocks that are having the worst year are the companies that are basically selling information. The value of selling information to people is declining at a precipitous rate. The worst comparison I heard and I hope this is wrong. Goldman Sachs said these are the newspaper stocks in 2002 and by 2009. Yeah, maybe we'll say in 2009 they were all down 95% from 2002. It took seven years.
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A
My thinking is like this is my Warren Buffett too hard pile. Remember they did the Buffett doc on HBO a while ago and they showed his desk and he had the big too hard pile. I would put software stocks in there because I'm sure a couple of these are probably gonna be great buys, right? Oh gosh, so do I. Stock down 60%.
- [09:23]
B
Are there any that look particularly good to you right now?
- [09:27]
C
So pause though. So I think that, I think there's a lot of ridiculousness going on. This idea that someone's gonna vibe code a replacement for ServiceNow over the weekend is obviously not gonna happen. But that's not really what's being contemplated. There's two things that people don't understand and aren't saying enough and maybe we'll change that today. The way that enterprise SaaS software is sold traditionally is a per head price. So what the sellers of these stocks are in some cases rationally thinking is let's say it doesn't get disrupted by AI, so many other things will that corporations are going to have a lower headcount. Therefore, even if we don't get disrupted our SaaS product, we're going to be selling to companies that don't employ as many people which will limit the growth of our company. So it's not even about. So it's not even about. Like is Such and such SaaS company going to get disrupted by an AI version? It's about what does employment even look like and is it likely that Salesforce and Servicenow and workday and Monday.com and these mega platforms are going to be able to sell what on a per head basis in a world where it's significantly less employment? So that's part of the story that people haven't even gotten to yet. I think I'm living like five minutes in the future.
- [11:05]
A
All the tech people are freaking out right now cause they're seeing like all the programming they're doing in the coding and they're going, oh my gosh, AI is doing this for me. The time that it takes me to do these tasks is falling faster and faster every day, week, month. And they're putting out like you know.
- [11:21]
C
What'S getting funded right now at Y Combinator and some of these like seed investing platforms. What's getting funded right now are software startups. Where are AI software startups? Where the software, once you release it to the user group. So let's say you're in the VMS business, your vertical market software. We make software for dentist office great. These are the companies that are selling tools to AI software creators that will enable the software to improve itself once it's out there being used by the population that's going to use it. So in other words, this chain of dental offices that's private equity backed, they put this software in place and they're collecting all this data on the people sitting at the desk typing in appointments and all this shit. And the software figures out oh this is how people use me. And itself improves after it's already been sold to the customer, which increases its stickiness. This we've never, we've never seen anything like this. So anyone that thinks they have all the answers right now you're talking to an insane person.
- [12:39]
A
But will wait will that so my dentist doesn't try to sell me Invisalign every time I go in for my six month checkup.
- [12:45]
C
That we can't help you with.
- [12:47]
A
I don't think you can disrupt that. Also yeah, by the way, he did sell me on it. I got it. My teeth look great.
- [12:53]
B
Aren't some of these software companies going to end up benefiting wildly from not having to hire as many coders?
- [12:58]
C
Yeah, of course that'll be the way. But nobody appreciates that yet. But that's True. And here's the other part. Think about what we're lumping together. Microsoft is a data center business. So yes, will less people maybe use Excel? Obviously. But whatever they use, they're going to need. The AI that they do use is going to be trillions of workflows, trillions of workloads happening at the data center that Microsoft owns, the second largest data center in the world, Azure. So like, we're just like lumping Microsoft in with, you know, some enterprise SaaS company. Oh, they're both software, so it's so stupid. And obviously people who are really thoughtful and really. And really have a good grasp on what's disruptive, disruptible, what's not, they're gonna buy some stocks and make a lot of money. The problem is you could be right. But 50% early.
- [13:58]
A
Yeah.
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C
You could have a stock go from 100 to 80 and it has to go to 60 before people realize how.
- [14:04]
A
Insane my take is. Like, you don't have to try to catch every bottom. That's the way I feel about this one. All right, let's do another question.
- [14:11]
B
Okay. Up next, we got one from Ken Ben, you're a market historian. I come seeking knowledge as we see Netflix transition from a fast growing startup to a mature company. We're seeing the share price drop as the market re rates it. Slower growth, but still an excellent underlying business that generates a lot of cash. On the earnings call, they said they expect growth to drop from 16% to 12%. That's still an admirable growth rate, but clearly not the hypergrowth rate Netflix shareholders are used to. I'm wondering if you could think about other examples of tech companies who successfully managed this transition. Microsoft stock did nothing for 20 years after Bill Gates retired. Is that the historical pattern we should expect?
- [14:51]
A
There's actually a lot of these examples. It's a lot of the Oracle and Apple and Amazon and C. Cisco I guess you could put into that group. I guess the big question here is what does Netflix look like as a more mature company after doing a huge acquisition? Is it just, do we start returning money to shareholders? Is that the next step for people? Like, they're going to want a dividend yield and buy back a bunch of stock? I mean, is the Warner Brothers deal going to move the needle significantly? I guess that's the big question here. Can it really change the business as it's.
- [15:21]
C
I think the malaise hanging over the stock is a lot of people think it's the merger. And obviously like Netflix has not historically done mergers and there's a lot of execution risk here. There's a lot of political risk, a lot of labor risk.
- [15:35]
A
Yeah, the Stock is down, what, 35, 40%.
- [15:37]
C
I think it's appropriately pricing in the risk of closing this deal. And then you gotta deal with like, Directors Guild, Actors, Screen Actors Guild. You gotta deal with like, the unions, all this production that happens on the Warner's lot. Like, what do you keep, what do you get rid of? It's just, it's, it, it's like I, I sold 85% of my position in Netflix, about 100 bucks. Because I said as soon as they came out with this, I said, this is going to be two years of slop. It's not that the stock can't go up. It's like, it's just going to be under this boulder. But the bigger issue is the streaming wars are over. Netflix won. They beat everybody. They beat Hulu. Right. They beat HBO into submission. Now they're about to eat it. They beat the shit out of Disney.
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A
So the one that they didn't beat would be YouTube, I guess you could say.
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C
Well, so that's the. And that's not a streaming war anymore. Now the battle is. I said this last night on what are your thoughts? In the end, you have full saturation in streaming apps. Probably the maximum number that people are going to pay for all at once. They're paying right now, and that'll consolidate. But, like, we all only have two eyes and two ears.
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A
That's the thing. It's got to be a total recall. We all get three eyes. We need, like, more eyeballs.
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C
It's it like we're at the limit. Nobody can be consuming more content anymore. Right. And now you've already taken the entire audience away from linear broadcast tv. That's over already.
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B
So.
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C
So now what? Now it's Netflix versus YouTube in the battle.
- [17:12]
A
It is crazy how much. For my kids, YouTube is TV. They watch YouTube TV or they watch YouTube. And most of the time, it's the YouTube for a lot of our audience.
- [17:20]
B
I ask people regularly in the chat, you know, and a lot of our audience pretty much watches YouTube for 90% of the time.
- [17:26]
A
And guess what? YouTube doesn't have to do for Google. They don't have to invest in content. They're not paying for that slop video that's being created. Someone else is doing it for them. They're just paying them.
- [17:35]
C
Yeah. So that's. So now what you're seeing is Netflix using its balance sheet to create some exclusivity and pull some stuff off YouTube. So they did it with the guys from the Ringer, Nate. They have Bill Simmons now on Netflix, and they've done some other deals like that, and they will keep doing that. And the battle for the Living Room is really going to be fought between Netflix, which is massive, and a huge home run. But then, like, think about it. YouTube is Alphabet. And think about what that's being funded by. It's unlimited money. They can literally do whatever they want. And that's like. That's what I think the shareholders are appropriately pricing in. This is not like going up against Hulu anymore. This is a whole new battle. And I think it's why Netflix did this deal. They need content.
- [18:26]
A
Yeah.
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C
Like, they need things that are exclusive to them to fight this. They need Batman and Superman and Game of Thrones. Like, they need these assets now that make Netflix special.
- [18:38]
A
Yeah. And they probably need HBO for more quality. What if they put the compound on Netflix? I feel like the algorithm would give such weird because Michael would just be giving people horror slop, and then there'd be like some French film in black and white from Duncan. We would just break the algorithm.
- [18:52]
C
You know, they called. They said they. They called. They wanted to add us to HBO inside of Netflix, but they said Michael wasn't highbrow enough, so we would have had to. We would have had to get rid of him. That's true.
- [19:05]
A
Michael would have been on, like, Paramount. Michael on Paramount.
- [19:11]
B
Shudder. The horror movie. The horror movie app.
- [19:14]
A
Right.
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B
Shutter.
- [19:16]
C
Oh, my God. Yeah. They. They said, get. Get rid of that guy. And we could talk. And I said, no way.
- [19:24]
B
Okay, up next, we got a question from Josh. Is there any real framework for setting things like trailing stops, or is it mostly personal preference? Are certain order types better suited for volatile stocks versus more stable names? I've had stop losses trigger on quick drops, only to watch the stock bounce right back above my sale price. Because of that, I've pulled all of my limit cells and mostly have been riding out pullbacks. But I'm wondering if this is the right move or if there's a smarter approach.
- [19:52]
A
I like this question because it does seem like setting stops seems like such an easy solution. Right. I'll just set a stop, and then that way I won't have big losses. But it can definitely, like, bite you in the ass if you have a stock that's just really volatile and it crashes. And like, you've seen it with stocks this week. Stock goes up 20%, is down 10% the next day, and, like, you can get Taken out of stocks that you want to own. I'm guessing part of it is just understanding what kind of investor you are or what kind of time horizon you have with a stock. Right. Like you always, hey, the stock is up a lot. Just put a really close, tight trailing stop on it. And then you get stopped out of the stock you wanted to own for five more years. So what? Like I've personally never done.
- [20:27]
C
These stops are for trades, not investments.
- [20:30]
A
Yeah, that makes sense.
- [20:31]
C
If you make an investment and the stock randomly declines or not randomly, and you have decided that you're going to invest through, you know, short term challenges because you're invested for the long term, then you're not using those drops as a reason to sell. Using those drops as a reason to add more. If you're trading, you have to use stops. What else are you going to do? You're going to sit in front of a computer all day Because a trade, it's a predefined risk management answer. So Sean and I write this. We write this column for CNBC Pro. I'm told it's the top rated thing that they have there. And we put a lot of time and effort into it. And the column is the best stocks in the market. But we're showing people technical setups. These are trades. Now, a trade that you're really right in could turn into an investment, but that's up to you. But when you enter into it, if it's not an investment and it's a trade, treat it like a trade. Where am I wrong? We happen to use technical trend lines to determine in advance if the stock does X. That means our entry was incorrect and we're negative 8% and we're gone. Doesn't mean the stock can't ever go up again. It means that entry that we chose was the wrong timing. And if like that, welcome to the stock market. Like the two negative things about stops. If the algos hunt your stop because you set it too close to the price and you get pulled out of a name because of noise, you placed your stop incorrectly or didn't understand the beta of that particular stock and you need to go back to the drawing board and make better decisions about where you're putting that risk management. That's number one. Number two on a gap down, you're on a gap down. So you own a stock at 20, you have a stop in at 15. You say, I'm willing to take 25% risk in this name. And then they come out and the FDA rejects their phase three. Trial or something. Or something horrible, right? That stock's going to open at 10, it's going to open down 50%. I'm giving you an extreme example so you understand it doesn't matter that your stop was in at 15. That gap converts your stock into a market order and it is sold immediately the minute the market opens, regardless of where you want it to go.
- [22:54]
A
And the worst part about that is, let's say the stock comes back and it ends today at 13. Now you're higher from where you sold and then you're trading yourself twice.
- [23:01]
C
So if you're trading and you're setting stops, the two things that you're doing is paying attention to opens and closes. I understand you have a day job. You have other shit to do. You need to know where your stocks are opening. You're a trader after all, right? Or you're pretending to be. Okay? So pay attention to the open and the close. That's one. I don't know what that's going to mean in a 24, 247 trading environment. We'll update this in a year or two when we got there. But the second thing is you're updating your stops. So let me give you an example for me in real life. I bought Devon Energy last week. It hit the best stocks in the market list, along with a whole wave of energy stocks that had been left out of the rally over the last two years. We nailed this one. We don't nail them all. So I'm not saying that, but we nailed this one. We nailed this with ExxonMobil, Baker Hughes. We've been writing about these names as they begun to break out. Devin, I pulled the trigger on personally after I wrote about it. My stop was 34 when I entered the trade in the high 30s. The thing is, it's like 44 and change now. And this morning, very responsibly, I looked at the open, I looked at where the trend lines were, and I decided, you know what? The actual line in the sand for me now is not 34, it's 40. I'm playing with the house's money. And I will continue to update that. And at some point, that's how I'll get out of the trade. It'll go against me, it'll violate a trend line, and I'll be out. And I'll say, okay, the whole move was 21% and I captured 16% of that. I didn't sell the top. I waited for the stock to go against me, violate a short term trend line, and this was the slice that I captured. Guys, that's trading. That's trading.
- [24:43]
A
That's a technical slide. And if you're, if you're an investor, you probably want to be setting more like doing that, right? If you're going to set a lower buy limit to buy when a stock.
- [24:52]
C
Falls to your level, that's right now, but a buy stop limit. But now here's the, here's where things can change. I did that same trade with Exxon at 119, it's 152. I'm starting to think about Exxon maybe being a long term holding. I bought it for a trade, it worked out really fast and I was super. Right. I want you guys to understand for a stock the size of Exxon to make the move that it's just made in the relatively compressed period of time, something bigger is going on here. And I'm starting to think about not having a stop there at all, maybe trimming a little bit because it's a bigger position than where I started, but not really worrying as much about downside and thinking more about this being a longer term position. When these energy stocks go on these sorts of runs, it could be like seven years of energy being in a bull market. So this is about being doctrinaire up until a point and then being fluid as things change. And so people saying, I never use stocks. Okay, good luck. Have fun staring at your phone every minute of the day. Or I always use stop. Well, that's not always appropriate either. This is not easy, what we're talking about here. You have to lose. You have to see gains become losses. You have to see little losses become devastating losses in order to come up with the way that you do things. I'm just giving you the way I do things.
- [26:25]
B
This might be a dumb question.
- [26:27]
A
It's not easy.
- [26:27]
B
This might be a dumb question. But when you talk about trend lines, you're talking about moving averages or is that like vwap or something?
- [26:34]
C
Sometimes moving averages. Sometimes we're, sometimes we're looking at prior areas of support and resistance and we're trying to figure out like the last three times this stock came down to $50 a share from 60, the buyers came in. And then the fourth time it didn't even get to 50, it got to 52, the buyers came in. And then the next time it only hits 55 and bounces from there. This is a pattern of higher lows. When I see that, it gives me confidence that there are more buyers than sellers. And on the down days, the stock is snapping back quicker. It's not voodoo, right? It's not witchcraft. We're not inventing like numbers. The buyers and sellers have decided that there's some meaning to these levels. And then in some cases, we think this level matters. We think it matters, we think it. And then one day the stock just trades right through it like it wasn't even there. That's not a failure, what that is. It's a signal that things have changed. The buyers never let this stock get below 70 conocophillips. And then one day they did and it ripped through 70 like there was nothing there. There's information in that. You might not be happy because you're long, but there's information in that price action about. Not about the fundamentals of the company, about the expectations of the other people who are involved in the name.
- [28:06]
B
Right.
- [28:06]
A
Where people are gonna buy and sell. Duncan has an automatic stop loss on Oatley at zero. When it hits zero, that's when he's out.
- [28:13]
C
Dude, the stock doesn't look bad. I'm looking at it.
- [28:14]
B
I've never used a stop loss myself. It sounds fancy.
- [28:19]
C
Well, grow up, Duncan.
- [28:20]
B
Yeah, I guess maybe. I'm an investor, not a trader.
- [28:23]
C
Right, Good for you.
- [28:24]
A
You're buying triple levered cues. Duncan, you're a trader.
- [28:27]
C
I don't see you as a trader. No, no offense. No offense. I don't think trading is going to be your strong suit. I see you as a patient, long term investor.
- [28:36]
A
Next question.
- [28:36]
C
I think you should be an investor.
- [28:38]
B
Yeah, I agree. Okay, up next, we got one from Zach. On an episode last year, Josh had the idea of offering 0% loans to first time home buyers for the first five years, then after that. I think it's a great idea that would help young people who can't afford housing today. In a similar vein, I'm curious what he thinks about bringing stocks. Bringing back the ability. I don't know why I said stocks bringing back the ability to bring your own loan with you. Say you bought a $1 million home at 3% and are now ready to buy the next house at 1.5 million, but your rate would be 7%. It would be amazing if you only had to cover the additional 500,000 at 7% and could bring your current one with your original rate. Curious to hear all of your thoughts on this and why it used to be possible, but isn't anymore. Seems like it would unlock a ton of inventory and allow people to comfortably be able to afford their next home.
- [29:27]
A
All right, so we're talking Portal mortgages here. Do you remember in 2009 when we did the cash for clunkers? Like you bring your old car in and then we'll give you like 3 or $4,000 credit or something for getting a new one. And all it did was pull forward demand. That's what it seems like every idea with housing. And like I've thrown out some housing ideas too. I said give all the first time home buyers a 3% mortgage. And it just feels like all of these ideas are just figuring out ways to pull forward demand and get some activity going. And none of them solve the affordability crisis. Like none of them come close to making houses cheaper to own. Obviously it'd be nice if you had that right. We're doing cash for clunkers here.
- [30:04]
C
Listen, I came up with that idea, but it's not an original idea to like do something to help one of the most consequential pieces of legislation in the history of America. And unfortunately there were some negative side effects to this. But one of the most important things that Congress ever did was pass the GI Bill after World War II that literally set up seven.
- [30:31]
A
It changed the country forever for like. Yeah, you're right, it created the middle class in this country.
- [30:36]
C
It literally did. It created a middle class where people owned their own homes and got the benefit of the equity in those homes rising. It, it enabled people who weren't born onto family farms to put roots down in a place and have successive generations live in the same place or have that as their home base. And it enriched my grandfather's generation so that the boomer generation who came after that, they just, they had more stability and they were able to do things like go to college, which was not a thing prior. Nothing. I don't think anything that Congress has ever done since has been as meaningful.
- [31:23]
A
No. And people don't realize like the government literally backed the homebuilder loans and said like we're gonna back this stuff if you go build it. Like the government said, we're going to build out the housing market for us. They went building like 100,000 homes in the Great Depression to a million by 1950. Like in it, you're right. Nothing was ever the same after that.
- [31:41]
C
Nothing. Right. Nothing was ever the same. And now a couple of things happen in concert with that that are really important to point out. And I'll get to the point in a second. The first thing is the building of the interstate highways. It sounds funny today and we all laugh about it, although it may be repeated soon. But There was this idea in the McCarthy era that look over at the cities in Europe and we're in big trouble from this socialism and communism. Like we have to get the working class out of the cities and into houses that they own. Once you own a piece of property, very hard to become a communist. You could send a college kid off to Berkeley and they could become a communist. But once you own your own home, it's very hard to envision having the mindset that you want random people to be able to come and go from your home and take things out of your cabinetry. Right. Homeowners don't become communists. So one of the big ideas of the Eisenhower era was building out the interstate highways, moving people, working class people out of the cities and into the suburbs. And I could do three hours on this. It's not the point. The point is it worked. And we created this middle class prosperity. We didn't end up with as much socialism as they did in Europe. In Europe, the working class stayed in apartment buildings in the city. We had some terrible things happen as a consequence of this. We left black soldiers. There were a million black GIs. We left them out of these benefits. They themselves were not able to go to a bank or get a GI Bill loan or go to college thanks to the government paying, which was part of the GI Bill. So they didn't have this multi generational equity growth in home values because they were deliberately excluded from that.
- [33:29]
A
I don't think people realize how much World War II was like a pivot point.
- [33:32]
C
It was huge.
- [33:33]
A
We didn't have to rebuild our cities either, like Europe, it got bombed out. So yeah, you're right. And that's the thing though.
- [33:40]
C
So when you do things like this. So my point here's, I'm gonna get to my point then. I want to hear what you have to say. When you do things like this, there are unintended consequences and intended consequences. The first thing that I can think of is if you make it so that 10 million gen Zs and young millennials are able to buy their first home because you give them free financing to do it, on the surface, that's great. What are the unintended consequences of that? Well, I can think of two. One is whatever you lower the cost of financing, you're just going to raise the value of the house by that amount because you're going to create more demand. You're giving people free money. Didn't we just learn that lesson in 2021? Not all free money is free. Okay, so that's one, two. You create intergenerational resentment as if there isn't enough of that already. And we saw this with the student debt stuff. You just. People are never going to get past it if they see a situation where, because they were born one year too.
- [34:42]
A
Early, you got a handout. I didn't.
- [34:44]
C
Their little brother got to buy a house for free financing and they have a 7.5% mortgage. So I'm not saying don't do it. And maybe it's less relevant now because the next Fed chair is gonna come in and take waves to zero anyway by White House decree. But yeah, I did think that would be a good idea. Way less complex than portable mortgages.
- [35:07]
A
Yeah, I think that's. Here's my thing. If I'm waving a magic wand because we know this never happened, like, you get a 3% mortgage, got to be on a new house, right? The government's going to help with, they're going to incentivize. The thing is, do we have enough construction workers to build a bunch of like 5 million new houses in this country? Like, do we have more people need them? That's, that's the hard part. I don't think, I don't think we have the ability to build as many houses as we need. We just haven't shown the ability to build physical stuff like that anymore.
- [35:32]
C
The thing is that we can. We are building a lot of multi, Multifamily. I don't know, I hate that term. It's apartment buildings, right? We have apartment building gluts in Nashville, in Austin. And the thing is, it takes like four years to bring that stuff online. So I was talking to a very prominent investor in the multifamily space. And you know, he's got his niche in the country and he's in the Pacific Northwest. He's not building in Austin and, and, and, and some of these other places. But like, he was explaining, like, you could set your watch by how much supply will come into the market. Just whatever permits you see being approved today. And the cranes, you just like mentally calculate, okay, four years from now, here's another 600 units, here's another 1200 units. So we're actually very efficient in certain cities and areas of the country at building to the point where we have gluts for multifamily. That's a good thing, right?
- [36:26]
A
Because those people don't know the red tape to build.
- [36:29]
C
Problem is it's rentals and people aren't building equity. And it's the rich getting richer because we know who owns these properties? You know, it's Blackstone and you know, so it's like, it's not just about a shortage of houses, although that exists. It's a lack of turnover because one of the other things that's going on is people are Living Forever 1 and 2. They're not moving away. They're not shuffling off this mortal coil and relocating. In some cases, they're keeping both homes because the value of their stock market portfolio is enabling them to buy home.
- [37:05]
A
We get that question all the time. Hey, I got a 3% mortgage. Should I just rent my old house out? Like people, a lot of people.
- [37:10]
C
I got old people on my street. One couple, they walk their cat. It has no leash. They take the cat for a walk. They've been on this block since I was born. They were in the Same House for 60 years. It didn't used to be this way. And one of the trends that we're seeing with our clients and we're in the wealth management space, so we're talking, let's say, the top 10% of Americans, when I talk about this specific thing, they want to, like, they want the grandkids to grow up with them, right? Like, they don't want to disappear for nine months out of the year or full time. They want to keep both places. And I'll probably use selfishly, like, I'm gonna keep a house up here. Maybe I'm denying that house to the market where a 28 year old would buy it. But you first. Like, I'm not giving up my. If my kids are raising kids and I could live in the same neighborhood at least part time, I might opt to do that. And that has up the housing market. We just, we don't have enough capacity where we need it.
- [38:14]
B
Evan in the chat says zoning up. Zoning needed desperately.
- [38:19]
C
But again, you first. Who. Who wants, who wants these affordable houses or.
- [38:24]
A
Yeah, it's.
- [38:25]
C
Yeah, I don't want that.
- [38:27]
A
Josh is a nimby. All right, next question.
- [38:29]
C
Oh, big time. The worst.
- [38:31]
B
Okay, last but not least, we got another Zach question. I'm in my early 30s, finishing my CFP and moving from insurance wholesaling to clients to client facing financial planning. I'm weighing two options for my first planning role. The first option is to join a virtual RIA as an associate advisor, spend a few years learning the art and science of planning, and move to lead advisor in a year or two. Compensation is likely to be salary plus bonus for the first few years with greater upside in a lead advisor role. Option two is to Join a local solo practice that is looking for a successor. He has a planning practice with a 50 to 60 million dollar book and a well defined niche. Needs help managing his current growth, but is hiring for the first time because he wants to eventually exit and make sure his clients are well cared for. I've heard Josh discuss the slippery slope of succession plans before, but this advisor is hiring for a successor and his intentions seem genuine. How would you think about the financial upside of option two with the uncertainty of a three to five year succession plan?
- [39:33]
A
All right, we're getting more and more of these questions like career related for up and coming advisors. What do I do? The training route or try it with a smaller ra? You've talked about this before, about the older advisors say they're going to pass along the book of business. They don't. Then the young advisors get pissed. Now what do they do? Do they take their, their book of business with them?
- [39:51]
C
Like I see the first slide, it was so long, I already forgot the beginning.
- [39:55]
A
First one is like virtual Ria. Associate Ria. He's virtual.
- [39:59]
B
And I had a question there for you.
- [40:00]
C
He says virtual Ria, those firms are asshole firms. Don't do that.
- [40:05]
B
He would move to a lead advisor role in a year or two. Is it really that fast?
- [40:10]
A
So I guess.
- [40:11]
C
All right, so this is what I would say. Like what, what is the guy putting in writing?
- [40:16]
A
That's the, that's.
- [40:18]
C
Come back, come back, come back to me. What's going to be in writing before? Right, because, because I could tell, I could tell somebody I'm retiring in three years and then I could say a year in. Remember I told you that it's actually going to be more like five years. You have no idea how hard it is for people to let go. And despite the shape that I'm in, which is incredible, this is not a physically demanding job. People can do it for a really long time. And with clients, there's a comfort level built up with people and they're not pushing their advisor to execute the succession plan. So it's like, what's going to be in writing? And then even in that case, oh, it's in writing. Well, I changed my mind. So now you're going to sign this or I'm firing you. What are you going to do? You're going to go to court? It's not like the clients have to stay with you. It's not like we're fighting over a piece of real estate. And whatever the court says, that's who gets the land. We're talking about relationships. So I, I don't like, I don't like either of these approaches. I think you, you have to find a firm that wants to have you as a practitioner and is willing to give you time and patience and training so that you can build your business. And they exist. It's hard to find. That's why everyone doesn't find them. But they exist.
- [41:37]
A
Most, most people would still probably go for option two because there's greater potential upside. Like, what if this maybe is telling the truth? That's what most people I think would hope for. The hope strategies.
- [41:47]
C
But those a, how old are the clients by the time you inherit them is 73. That's what you want to do. You want to advise your old bosses, old clients who are dropping like flies. That's your big gangster move.
- [42:03]
A
So here's the thing. We've hired a few of the virtual RIAs before though, that worked with like 300 clients, right? For two years. They get their chops, they don't really like it because they want to have more meaningful relationships. So maybe that's like the training route that you do for a couple years and then you move on to the smaller firm.
- [42:18]
C
So I don't hate it. I don't hate it.
- [42:20]
B
What does virtual RA even mean? I don't know what that even means.
- [42:23]
A
A lot of these places have call centers where you're talking to an advisor.
- [42:27]
C
I don't think he means that though. I think when he says virtual firm, maybe there's like five or six. There's like five or six of these, like venture backed platform firms where they're like, they'll hire anyone from anywhere. And if people have a book to bring over, even better, they'll give you cash to join. Basically. Like they raised all this money from venture capitalists and their pitches. Like, we're gonna make this industry high tech, we're gonna have the best software, blah, blah, blah. And then a year goes by and they can't grow because they realize, oh, actually clients don't make decisions based on software shit. What do we do? So they started writing checks to recruit young advisors. So there's like five of them. They all go by like one word in the name. And the employment at these firms is a revolving door because they really don't have that much to offer. That's what the guy's talking about. And I get it. Like, it's because it's like, oh, we'll give you 90% payout, we'll write you a check for your trailing 12 months. You run your own show, you do whatever you want. It's a platform. We have the best AI, blah, blah, blah, blah, blah. So I understand why that's an attractive option. The thing is, what are you learning by doing that?
- [43:45]
A
Yeah, I guess.
- [43:46]
C
Do you have any colleagues that know anything or are you just talking by yourself all day?
- [43:49]
A
You're talking. You. You put down our seven year old listeners here in a second.
- [43:54]
B
I was about to say Joe in The chat says 73 year olds and evil have two jobs.
- [43:57]
C
Do you know how close to 70 years old I am?
- [44:00]
A
Nobody should do. If he's gonna do that option, he better have a plan to getting his own clients too, right? If the guy waits longer than he thinks. So if you're joining that second solo practice, then talk about, hey, I want to bring my own clients into there. Maybe a little younger and maybe more fitting to my niche.
- [44:17]
C
But do you notice the selfishness of this question? He doesn't even spend three words talking about what might be best for the clients. This is like, what is my situation? There's nothing about, like, where might I actually be a good advisor? Like where, like where am I? In what scenario am I doing the highest quality work? It's not even part of. He's not even contemplating that question.
- [44:48]
B
Maybe he thinks he'd do good in both and he's. That's where he's at. Maybe.
- [44:52]
A
Well, so he's a former wholesaler insurance guy. So he's. He's trying to be a reformed insurance broker.
- [44:58]
C
But don't you want to work with successful, successful advisors who are like, up to speed and know what's going. You're gonna work with this old man who's probably outdated in everything that he's doing for his clients just so you could take over those clients.
- [45:12]
A
You're just dashing dreams today, Josh.
- [45:14]
C
No, I'm trying to help. I'm trying to help. I'm just saying, like, those are not. It's not option one, option two, it's options one through 10 that I can think of just off the top of my head. And those two options might be like 8 and 9. So I'm just like, that's what you want to do? Like, of all the things that you could do.
- [45:35]
B
Now he's gonna be calling you.
- [45:38]
C
I'm helping. He's gonna say, thank you. He's gonna rethink this. It's good news, sir. You have more than two options.
- [45:48]
B
Seth in the chat said, offending old people and people who write in, let him cook.
- [45:52]
C
No, it's not offensive.
- [45:55]
B
What's the point?
- [45:55]
C
Should I lie? Should I lie? Like I'm telling you, you have more than two options. If you are a good advisor, a thoughtful person, think it through. There's other work situations that might be amazing for you. It sounds like you're down to two options without having exhausted all of the others. That's it.
- [46:20]
A
All right. Dashing dreams is what we do here at Nasty Compound. Josh is trying to put a dose of reality in here. I think you're right. But I think a lot of times young advisors really don't know what path to take.
- [46:30]
B
Well, especially coming from insurance. Right. I guess he has no idea.
- [46:34]
C
That's 100% right, Ben. It's hard.
- [46:36]
A
It is, yeah.
- [46:37]
C
And when I was young, I didn't know I did the worst path imaginable. So when I speak honestly and I look directly at the camera and talk to this person, I'm trying to make sure that you choose a good path.
- [46:53]
A
Yeah. Sometimes we do have to learn about what not to do. He obviously learned he didn't want to be a wholesaler anymore for insurance.
- [46:57]
C
For God's sake, don't do what I did.
- [47:00]
A
Right. Okay. Thanks to everyone in the chat today, Josh.
- [47:05]
C
I'm looking at the chat, Josh. Sounds like my dad.
- [47:11]
A
Killing dreams.
- [47:12]
B
Over 2,300 people watching today. Good turnout.
- [47:14]
A
All right. On the live show. We appreciate everyone in the live chat and on Twitter. Remember ask the compoundshowmail.com, new compounded friends on Friday, new episode of Talking wealth tomorrow with Michael and Matt Middleton talking about future proof. What else do we have to plug? I don't stop.
- [47:27]
C
Thank you for having me, guys.
- [47:28]
B
Yeah.
- [47:28]
A
Thanks for coming on. Appreciate, everyone. See you next time.
- [47:31]
B
See you, everyone.
- [47:33]
D
Thanks for listening to Ask the Compound. All opinions expressed by Ben Carlson, Duncan Hill, and any of their guests are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.