How Not to Invest With Barry Ritholtz, Dip Buyers Winning, Coreweave

Summary

Podcast Summary: The Compound and Friends - "How Not to Invest With Barry Ritholtz, Dip Buyers Winning, Coreweave"

Release Date: March 25, 2025
Host: The Compound (Downtown Josh Brown, Michael Batnick, and rotating guests)
Guest: Barry Ritholtz

---

Introduction and Episode Overview

In this episode of The Compound and Friends, hosts Downtown Josh Brown and Michael Batnick engage in an in-depth discussion with investment guru Barry Ritholtz. The episode, titled "How Not to Invest With Barry Ritholtz, Dip Buyers Winning, Coreweave," delves into Ritholtz’s new book, "How Not to Invest," explores recent IPOs, examines current market trends, and analyzes the state of the stock market.

---

Conversation with Barry Ritholtz: "How Not to Invest"

Introduction to Barry Ritholtz and His New Book

Downtown Josh Brown introduces Barry Ritholtz as his business partner, friend, and mentor. Ritholtz's new book, "How Not to Invest," serves as a guide to identifying and avoiding common investment pitfalls.

Key Themes:

1. Avoiding Investment Mistakes:

   • Ritholtz emphasizes the importance of recognizing what not to do in investing.
   • He states, "The bad ideas, the mistakes, the things not to do naturally organize themselves" (07:29).

2. Behavioral Finance:

   • The discussion highlights how emotional reactions can sabotage investment strategies.
   • Ritholtz references Bill Bernstein, a neurologist and investor, stating, "If you don't learn to control your limbic system, you will die poor" (14:33).

3. Influence of Charlie Munger and Charlie Ellis:

   • The book is dedicated to Charlie Ellis and Charlie Munger, whose philosophies on avoiding unforced errors in investing significantly influenced Ritholtz.

Notable Quotes:

• Ritholtz: "We're just less stupid. Your goal is to just be less stupid." (12:23)
• Josh Brown: "Make less boneheaded mistakes and just stay out of your own way. And your portfolio will... take care of itself through the miracle of compounding over the decades." (12:23)

---

IPO Discussions: Etoro and CoreWeave

CoreWeave IPO Analysis

The hosts offer a critical analysis of CoreWeave’s upcoming IPO, highlighting several red flags:

1. Financial Concerns:

   • Revenue and Losses: CoreWeave reported $1.9 billion in revenue with a $900 million loss last year.
   • Debt: The company holds $10.6 billion in debt, which costs them approximately $944 million annually to service.
   • Customer Concentration: 77% of revenue comes from the top two customers, with Microsoft alone accounting for 62%.

2. Founders' Stock Sales:

   • CoreWeave’s three co-founders have sold off nearly $488 million worth of shares, reducing their ownership to less than 3% of Class A shares while maintaining control through Class B shares with 10 votes per share.

3. IPO Timing and Market Reaction:

   • Recent withdrawals and delivery issues with Microsoft contracts raise concerns just before the IPO.
   • CoreWeave is heavily indebted, raising questions about their long-term viability and reliance on continuous debt financing from private equity firms.

Notable Quotes:

• Josh Brown: "What you need to know is stuff like these are things that people should know." (50:35)
• Michael Batnick: "I'm negative, period, to be honest. Not at any price." (54:30)

Etoro IPO Analysis

The discussion shifts to Etoro, an Israeli-based cryptocurrency trading platform:

1. Financial Performance:

   • Reported $12.6 billion in revenue, with 96% derived from crypto assets.
   • Attempted a SPAC merger in 2021 at a $10.4 billion valuation, which fell through, leading to a much lower valuation at IPO.

2. Market Position:

   • Compared to Robinhood and Coinbase, Etoro faces challenges in sustaining growth outside of crypto trends.

Notable Insights:

• Both IPOs are seen as tests of investor appetite for AI and cryptocurrency-themed companies, with significant risks highlighted in their financial structures and market dependencies.

---

State of the Stock Market

Market Corrections and Dip Buying

Ritholtz shares insights from Warren Pies of 314 Research regarding market corrections:

1. Historical Corrections:

   • 76% of all market corrections play out within a 60-day window once a 10% drop is hit.
   • Moves from 10% to 15% tend to be more prolonged.

2. Current Market Sentiment:

   • The S&P 500 has recently entered correction territory, down 10%.
   • Dip buying remains robust, with nearly $70 billion pumped into US stocks this year.

Notable Quotes:

• Warren Pies: "Most non farm payroll reports are meaningless. It's only when you have a radical departure from the prior trend that matters." (25:13)
• Josh Brown: "Dip buying has been an essentially foolproof strategy for four of the past five years." (68:34)

Consumer Sentiment and Multi-Speed Economy

The hosts discuss how differing sentiment among CEOs reflects a multi-speed or K-shaped economy:

1. Diverging Perspectives:

   • CEOs like Ali from Bargain Outlet and leaders from Darden Restaurants report varying impacts of economic conditions on their businesses.
   • The conversation underscores the complexity and fragmentation of the current economic landscape.

2. Investment Implications:

   • The disparity between consumer sentiment and specific sector performance suggests that broad market movements may not uniformly affect all industries.

Notable Quotes:

• Josh Brown: "Imagine a wealthy family where their wealth is derived from commercial office space... not fun for them." (87:20)
• Michael Batnick: "We're talking to 100 different CEOs and they're all talking like not past each other." (87:12)

---

Cybersecurity Stocks Performance

Top Cybersecurity Firms:

The episode highlights the resilience and performance of leading cybersecurity stocks:

1. Performance Metrics:

   • Companies like Palo Alto Networks, CrowdStrike, and Fortinet have shown strong year-to-date returns compared to other tech sectors.
   • The Cybersecurity ETF (CIBR) also outperforms broader software sector ETFs like XLK.

2. Market Position and Growth:

   • CrowdStrike received an upgrade from BTIG, citing its leadership in the SIEM market and robust growth prospects.
   • High P/E ratios reflect strong growth expectations within the sector.

Notable Quotes:

• Michael Batnick: "These stocks just in a sea of red tech, they really stand out." (81:07)
• Josh Brown: "These companies are acting defensive because they kind of are." (80:50)

---

Robinhood Investigation

Prediction Markets Hub

The hosts discuss Robinhood’s new prediction markets hub and the subsequent investigation by Massachusetts regulators:

1. Regulatory Concerns:

   • Massachusetts Secretary of State Bill Galvin is scrutinizing Robinhood for linking gambling events to brokerage accounts, particularly targeting younger users.

2. Industry Implications:

   • This move signals potential regulatory pushback against brokerages offering gambling-like features, despite their popularity among Gen Z investors.

Notable Quotes:

• Josh Brown: "These are people that cannot be helped." (93:47)
• Michael Batnick: "They're not going to lose this case, are they?" (92:52)

---

Leveraged ETFs: Risks and Performance

Performance Analysis:

Discussing the perilous nature of leveraged ETFs, the hosts present performance data illustrating significant losses:

1. Case Studies:

   • NVDO (2x Long Nvidia ETF): Down 30% since January.
   • MicroStrategy 2x Long ETF: Negative 83% year-to-date.
   • Tesla 2x Long ETF: Down 60%, while the underlying stock surged 160%.

2. Investor Behavior:

   • Many investors are unaware or underestimate the risks of leveraged ETFs, often resulting in substantial losses when trends reverse.

Notable Quotes:

• Josh Brown: "Nobody wants to buy all time highs for every time I buy stock." (75:50)
• Michael Batnick: "These are great business for the issuers. They're a terrible investment for people that think they're gonna get their money back." (98:47)

---

Make the Case: Kinsale Insurance Company

Kinsale Insurance as a Long-Term Investment

Josh Brown provides an update on Kinsale Insurance (KNSL), a small-cap insurance firm:

1. Business Model:

   • Kinsale offers custom insurance plans for niche markets, leveraging AI for better risk underwriting.
   • The company maintains a strong position in its specialized segment of the property and casualty insurance market.

2. Performance and Strategy:

   • Despite market volatility, Kinsale has shown resilience and is positioned for long-term growth.
   • Brown remains bullish, intending to hold the stock as a unique investment opportunity.

Notable Quotes:

• Josh Brown: "These insurance stocks have been a beacon in the storm." (103:19)
• Michael Batnick: "I would be very happy if we got that tempest correction and then went sideways." (64:08)

---

Conclusion and Sponsorships

Sponsorship Highlights:

• Betterment Advisor Solutions: Offers tools for financial advisors to grow their practices efficiently.
• Rocket Money: A personal finance app that helps manage subscriptions, monitor spending, and save money.

Closing Remarks:

Josh Brown and Michael Batnick wrap up the episode by encouraging listeners to explore their financial planning services and upcoming shows, including Animal Spirits with Michael and Ben and Ask the Compound.

---

Key Takeaways

• Behavioral Finance: Understanding and controlling emotional responses is crucial for successful investing.
• IPO Caution: Scrutiny of new IPOs like CoreWeave and Etoro highlights the importance of analyzing financial health and founder actions before investing.
• Market Sentiment: Current dip buying trends and consumer sentiment play significant roles in market corrections and recoveries.
• Sector Resilience: Cybersecurity stocks remain strong, serving as a defensive play amidst broader market volatility.
• Regulatory Oversight: Innovations like Robinhood’s prediction markets face increasing regulatory challenges.
• Investment Risks: Leveraged ETFs, while attractive for short-term gains, pose substantial risks for long-term investors.

---

Notable Quotes with Timestamps:

• Barry Ritholtz (12:23): "We're just less stupid. Your goal is to just be less stupid."
• Josh Brown (07:29): "Don't do this, don't do that."
• Ritholtz (14:33): "If you don't learn to control your limbic system, you will die poor."
• Michael Batnick (54:30): "I'm negative, period, to be honest. Not at any price."

---

For more insights and expert discussions on business and investing, subscribe to The Compound and Friends on your favorite podcast platform.

Transcript

[Josh Brown]

Ladies and gentlemen, welcome to the Compound and Friends. Tonight's show is brought to you by Betterment Advisor Solutions. Tonight's show is also brought to you by Rocket Money. Rocket Money is a personal finance app that helps find and cancel your unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. Rocket Money has over 5 million users and has saved a total of 500 million in in canceled subscriptions, saving members up to $740 a year when using all of the app's premium features. This is very simple, folks. You want to cancel unwanted subscriptions so you have more money left over to invest in the market. You want to reach your financial goals faster by using Rocket Money, go to RocketMoney.com compound today. That's RocketMoney.com/compound. All right, guys, tonight's show is super sized. We start off with a conversation with Barry Ritholtz, my partner, my friend, my mentor. Barry's out with a new book called how not to invest. Great idea. Can't believe nobody's come up with this. So basically, Barry details all of the ways that people sabotage their own investing and their own portfolio management. And we get into a conversation about some of the items in his book and the way that he sort of thinks about why it's so important to have negative examples of things that you shouldn't do and why that's helpful to people. So I think you're going to love that. And then immediately following, it's an all new edition of what are your thoughts? It's Michael Batnick, it's me. And we have a whole bunch of stuff on the menu Tonight. We talk about the two big IPOs that are coming, Etoro and Core Weave, and kind of bring you up to speed on some of the positives and some of the negatives. We also take a look at the dip buying that's taken place over the last week, giving us all a little bit of a reprieve from the correction. And there's a mystery chart and there's a make the case and all the usual stuff that we do. So I'm so happy to have you guys here. This is a great show. Buckle up and we'll send you right in.

[Barry Ritholtz]

Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael.

[Josh Brown]

Batnick and their castmates 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.

[Barry Ritholtz]

Positions in the securities discussed in this podcast.

[Josh Brown]

Hello. Welcome to the compound. I have a. I'm going to do a Barry introduction. A very special guest. Extra, special, extra, special guest. Mr. Barry Ritholtz. Barry is my business partner, my friend, one of the first people who inspired me to start writing about investing and markets. And he and I have come a long way together. And I am so happy to let you guys know. We are talking today at the threshold of the launch of Barry's new book. This is your. It's hard to believe it's only your second book.

[Barry Ritholtz]

Right. I am like, I'm like clockwork. I crank them out every 15 years. The next one will be 2040. That'll be out.

[Josh Brown]

Well, this one is perfect for our audience. It's called how not to Invest by Barry Ritholtz. Looks like you got a Forward by Morgan Housel. I guess I was busy when you were trying to figure Morgan is the.

[Barry Ritholtz]

One who's been nudging me for years to write a book. And finally, it's like, I know how busy he is. I thought I, if I said I'll do it if you write the forward, it would make him go away.

[Josh Brown]

Yeah.

[Barry Ritholtz]

Bad planning.

[Josh Brown]

So this. So, so let's start here. One of the things that you kind of have as, like, your recurring theme is what not to do. And it's so different from what so many market commentators, investment writers harp on, which is like, do this, do this, do this. And you have always said, well, I can start by telling you what not to do. And, and I've heard you do that with clients, and I've heard you do that with your own column as far back as the street dot com. And it's, it's kind of like your calling card. Like, here are the mistakes to stop making. Let's start there. Why do you think that's so important?

[Barry Ritholtz]

It mostly came about in the beginning anyway, by accident, because I would get emails from either clients or prospective clients or people that, you know, read the Washington post or the street.com or, or Bloomberg and said, what about this? What about that?

[Josh Brown]

Yeah.

[Barry Ritholtz]

And, you know, when I, when the publisher first reached out, I said, I have an idea. Why don't we call the book Debunking Investment Bullshit? But they're, you know, they're proper, they're British. They, they weren't very happy with that. They let me mention that in a footnote, which is kind of a, kind of fun. But, you know, a few people have been asking me to write another book for a couple of years. And my answer was, hey, we have a century of books. We have 10,000 books telling people what to do. Most of them are still pretty mediocre investors.

[Josh Brown]

Yeah.

[Barry Ritholtz]

What do we do? We really need another one. And in 2023, it was when the year of revenge travel. We post pandemic. Had just gotten back from December holiday and there were a few days between, you know, Christmas and New Year's before we're back in the office. I just started looking at some old stuff. I had written some research, some notes, and like you mentioned, I started seeing, gee, a lot of this is don't do this, don't do that.

[Josh Brown]

Yeah.

[Barry Ritholtz]

So in my home office I have this giant bulletin board and I just started writing ideas on three by five cards and trying to organize them. By the way, anyone who's an app developer, there should be a way to write nonfiction books using. There should be some app that does this. And I really haven't found a good one. But it became pretty clear that the bad ideas, the mistakes, the things not to do naturally organize themselves kind of organically organize themselves into, hey, there are the, here are the dumb ideas we believe in, here are the numbers that trip us up all the time. And here's how it manifests in bad behavior. Suddenly I had a book.

[Josh Brown]

Yeah, I think one of the, one of the big things with learning to invest is making mistakes and then learning from those mistakes and then not making them again. But the cheat code is to just have a list. All right, These, I promise you, these things don't work. And, and so you still have to make a lot of your own mistakes, but you don't have to make all of the mistakes in the world. And so I think narrowing down like these are the things that you definitely don't want to do. I want to tell you a couple of things though. I was not prepared for the size of the book. But then I was delighted as I started to read it because it's like two pages, go next, next, next. So it doesn't read like a book of this size. Was that deliberate?

[Barry Ritholtz]

So first of all, I never expected it to be as large as it is. But it's also a little deceptive. Cause the last on 150 pages are all footnotes and there's a ton of white space. Like the chapters are a page and a half, two pages, three pages long, which I love. I had to argue with the publisher who wanted to start each chapter halfway down the page. I'm like, you realize this will be an 800 page book if we do that. So they started at the top. It brought it down to 500 pages. Then I made some other tweaks and we brought it down to like 400 pages. But there's a ton of white space. It's not, as you know, it's not a tome that you have to slide.

[Josh Brown]

As to me of a tome I love.

[Barry Ritholtz]

Bill Bernstein's told me, he goes, each chapter was like a potato chip. I wanted to stop, but I couldn't. And I thought that was really a fun, nice thing to say.

[Josh Brown]

Yeah, no, the book moves. You dedicated the book to two of both of our intellectual heroes, people that I think have also written a lot about the mistakes people make. So I want to ask you why these two people in particular. Charlie Ellis, who wrote the Losers Game, and arguably the most important book about not making unforced errors. And he wrote this many, many years ago. And then of course, Charlie Munger, who is probably, if you were to look up common sense investing on Google, probably Charlie would be the first result they would point you to. Was that something that you knew early on you wanted to dedicate the book to these two thinkers and why.

[Barry Ritholtz]

So it was a little serendipitous. I've had Charlie Ellis on the podcast a couple of times, and he's just delightful. Granis Associates, Chairman of the Yale Endowment, Board of Directors of Vanguard. I mean, talk about a resume. And it started out as a paper. Winning the Losers game was him drawing the parallel between tennis and investing. And he, he makes the case, hey, tennis is two games in one. Like investing. Tennis is a professional game and an amateur's game. And the professionals win by scoring points. They hit with power, they hit with accuracy. They score aces on their serves. They kiss the line. They hit the ball to where you are. They use fancy drop shots and slices. That's how the professionals win. The other 99.9% of us who play tennis, including. Including our right. So that's not how we win. We actually lose through unforced errors. We double fault on a serve. We hit long, we hit into the net, we hit wide. We don't put enough topspin on the ball, so it bounces right up to your opponent's sweet spot and he destroys it. We behave outside of our own skill set, and it bites us in the ass. And so if only we could let the other guy beat themselves and us make fewer mistakes, we win.

[Josh Brown]

So he draws, put the ball in play, not try to hit, not try to hit 100 miles an hour and not get too cute. If you can just keep the ball in play, there's a high likelihood the person you're playing against is also not a professional. And let them make those mistakes.

[Barry Ritholtz]

So so long as they haven't read Charlie Ellis's book also, you have. You have the advantage. And then the serendipity of this. I'm in the middle of kind of organizing the book. My last book I dedicated to my wife, so I didn't know who I was gonna dedicate this. And I happened across. So I'm reading one Charlie's book, and I happened across this other Charlie quote, which was. And at the time, Charlie Munger was still alive. So I thought, oh, won't this be nice to dedicate this to two Charlies? But somebody at one of the Berkshire Hathaway annual events had asked him, are you and Warren successful because you're so much smarter than everybody else? And classic mongerism. He said, it's not that we're smarter than anybody else or everybody else. We're just less stupid. Your goal is to just be less stupid, which, you know, nobody but Charlie Munger would say that out loud. More or less. Think of it. But if you stop for a moment and consider it, it's really true. Make less boneheaded mistakes and just stay out of your own way. And your portfolio will. And the market will mostly take care of itself through the miracle of compounding over the decades.

[Josh Brown]

Yeah, I don't think Warren Buffett and Charlie Munger would say that. They are. I. Here's how I would phrase it. Warren Buffett has a quote of his own where he says, this has nothing to do with IQ. Investing is not a game where the guy with 160 IQ beats the guy with 130 IQ. And actually, in fact, we see all the time examples of where it's the opposite of that. But I digress. It's about temperament. So I think one of the things that temperament means as an investor is like, literally not losing your head and literally not allowing emotions to drive you into some of the things that, in hindsight, you look at it and say, wait, why did I do that again? What was I thinking? So that's a really big part of this.

[Barry Ritholtz]

Yeah. Buffett sort of annotated the Munger quote by saying, Any IQ over 125 in the markets is wasted. It's all about behavior. It's all about controlling your. Listen, you can't control what the Fed does or where Bitcoin goes or what the President does. Or doesn't do with tariffs. All you can control is your reaction to these things. And I reference a friend of the firm, Bill Bernstein. We've read his books, the Four Pillars of Investing, and more recently, his book on the madness of crowds. And he's not just an investor. He began his professional career as a neurologist. Like, the guy is literally a brain surgeon. And he said, it's all about your limbic system, the fast system that controls your fight or flight, your emotions, your greed, and your pleasure center. And if you. I love this line. If you don't learn to control your limbic system, you will die poor. I mean, talk about putting it in stark terms. Yeah. Learn how to manage your own behavior. Otherwise, don't. Don't expect much financial success.

[Josh Brown]

Okay, so for the viewer who agrees with everything that you've just said, how do before they read your book, how do you know when you're about to do something stupid? How do you know that the thing that you're doing right now is going to be stupid versus smart? Is there a cheat code that you can just run through some sort of mental checklist and maybe have a better idea that what you're about to do is one of the classic investing mistakes?

[Barry Ritholtz]

I think it's sort of Rumsfeldian. We don't know what we don't know. We're not aware of our own blind spots. And so there isn't a magic cheat code. There are things that you can perhaps start to recognize one of the solutions. So I didn't want to just make the whole book negative. Don't do this, don't do that. The last 10% of the book are, here are the 10 things you need to do. And if you do this, not only would help you not do those bad things, but it'll be positive. One of the positive things I reference is the idea of a cowboy account. Hey, if you're a stock junkie, if you are glued to watching Josh on CNBC three times a week. Cause you want to know what the next hot thing is? If this is in your makeup and you're aware of it, well, set up a little side account to have fun with. And if it does, well, great. You're more likely to let it run because you're not. You're not, you know, fully invested in it. You're the other 95% of your assets you're leaving alone. And if it blows up, well, it's a cheap lesson, but I tell the story in my own account that you. You've seen Me in slack. When the shit hits the fan and the market is terrible and everybody loses their mind, every now and then I'll slide into everybody's main and say, hey, just FYI, I'm a buyer here, I like the market. I mean, you've seen me do this how many times. And it's funny to see yourself get cocky and arrogant. October O2, I bought deep out of the money calls on the NASDAQ 100 and October 2022 was like really the bottom of that terrible year that Anna's horrible. And six months later that was up so much. And every time I would open that thinkorswim account, I would look at it and I'm like, damn, I am good.

[Josh Brown]

Yeah, we all do that.

[Barry Ritholtz]

And when Silicon Valley got cut in half, I'm like, everybody's terrified. I'm a buyer. I bought it 50% off right before it went to 100% off. So like, I should be aware enough when I'm feeling my oats, when I'm like, who's better than me? When you say that to yourself, the like lights and bells should go off. Like, hey, every time you get this attitude, I know it's house money, but you end up giving a lot of it back. You should be a little more self aware that big winners are often followed by pretty decent sized losers.

[Josh Brown]

1. Yeah, one of the, one of the most interesting things over the last couple of years. I shouldn't say interesting. Tragic. I had a lot of friends who, during the pandemic, there's no sports on tv, so they discovered trading. And in the second half of 2020 and through most of 2021, the stock market effectively went up every day, straight up. And, and there were stocks that went up 500%. A thousand percent. I mean, I'm not even exaggerating.

[Barry Ritholtz]

Yeah, yeah.

[Josh Brown]

And on top of that, there were a thousand IPOs that year. So not only did you have markets going straight up, but you had all sorts of new companies, new ideas, new technologies, and you had this population effectively sitting at home on their phones with nothing else to do other than, I mean, you couldn't bet on a football game. But. But, right, so all right, so.

[Barry Ritholtz]

But Robin Hood made it easy to bet on anything.

[Josh Brown]

Yeah.

[Barry Ritholtz]

And they gamified it to make it even more, you know, more significant that you're, that's, you're doing something wrong.

[Josh Brown]

So one of the things that happened as a result of that is I got a lot of emails and calls, some from perfect strangers and some from people that I know. My whole life. I'm starting a hedge fund.

[Barry Ritholtz]

Hey, this is easy.

[Josh Brown]

Why are you going to do that? Well, I sold my business. A lot of people sold their businesses during the pandemic too, by the way. Well, I sold my company to private equity and they don't really invite me to meetings anymore. And now I have this huge lump sum and I've spent the last six months crushing the stock market with my options or with my crypto or with my. And I tried really hard, Barry, to just be like, it's not gonna be like this forever, you know? And by the way, if you're having that much fun trading, just keep doing it for yourself.

[Barry Ritholtz]

Right?

[Josh Brown]

Nothing is less fun than, than having other people to answer to. But of course, nobody listened. None of that worked out well. And I think what you're talking about, that confidence, that moment where you absolutely nail a trade, it's almost impossible to not be infected and think that, whoa, I just unlocked a hidden talent that lay within myself. I never knew, I never knew that I was destined to be the next David Tepper.

[Barry Ritholtz]

Right?

[Josh Brown]

And it's, it's hard because our brains are wired where if something works out really well, we want to do it again. We want to have that feeling again.

[Barry Ritholtz]

That, that dopamine rush. You want that hit of, you know, who wouldn't? So. So there's a couple of funny things about that. First, I got a couple of gray hairs. I'm. I'm older than you. I lived through that experience of random newbies discovering their, that their inner Peter lynch, that they were geniuses. In the 1990s when day trading at home was a thing, when dentists were selling their practice to launch day trading shops to become so's bandits, which was a new way of executing trades where you didn't need a.

[Josh Brown]

The turtle Traders. Richard Dennis. I can teach anyone to trade.

[Barry Ritholtz]

That's right. That's right. And so at least Richard Dennis had a formula and a strategy and a trend following approach and a bit of risk management. So it was fairly credible. You Fast forward to 2020. My favorite Twitter feed is a guy who called the Feed TikTok investors. And what he did was go through the worst of Instagram and TikTok and pull all these like incredibly reckless, irresponsible, pure dunning Kruger effect. You know, how do we support a lifestyle? We day traded at home. All we. There's very handsome couple. You remember them? They both had these like gorgeous blue eyes. We only buy stocks that go up and when they stop going up, we sell hold on, let me write that down. Only buy stocks that are going up. Got it. Didn't Will Rogers say that, like, 100 years ago? Or. My favorite was the guy who said, in this sort of Southern draw, y'all don't really need to pay income taxes. If you follow the Constitution, as long as you're on a boat in international waters, you don't. You don't owe the IRS anything. And there was. And he would just. Just highlight these. It got so bad that the Internal Revenue Service put out a note that said, These are the 42 things that are on social media that are wrong. No. If you're in international waters on a boat, money you earn as a US Citizen, you still owe taxes on it.

[Josh Brown]

Where, by the way, where could you. You're a boater.

[Barry Ritholtz]

Yeah.

[Josh Brown]

Where. Where could you be situated on a boat that you're in international waters and not, like, sitting out in the middle of the Atlantic? What the hell are these people talking about?

[Barry Ritholtz]

If you go down to the Mariana trench about 8,000ft below the surface, the IRS won't be able to find you. No cap gains, no taxes. You could, you know, eventually, when your, you know, bones settle in, you know, you own tax now you're a state, your kids will still own taxes, but you'll be off the hook.

[Josh Brown]

One of the things that you've tackled both in your columns over the last 20 some odd years, but also in the book, is what you call economic enumeracy, or economic illiteracy. And economic enumeracy.

[Barry Ritholtz]

Right. Enumeracy is just. You lack the ability to understand basic numbers. And you would be shocked. I know math phobia is a real thing, but you would be shocked about how many people simply don't understand how. How basic math works. Especially if you're looking at either economic data or. Or market data. It's. It's genuinely surprising that people who consider themselves, you know, active, knowledgeable investors are just mathematically clueless. It's. It's amazing.

[Josh Brown]

But on the economic side. So right now, we're in a moment where there's tons of concerns about the things that are happening with tariffs and with inflation and what's the Fed gonna do? And, you know, it's always somewhat confusing for people that don't follow this every day, because it's confusing for the people that do follow it every day. There are a lot of mixed messages coming from economic data. There are different reports that surface on different timelines, and sometimes they're reporting sequential, sometimes they're reporting year over Year Talk about in the book some of the things that you try to get across to people that you see them frequently get wrong.

[Barry Ritholtz]

So let me just give you a few of the bigger ones. The one that really annoys me is the dollar has lost 96% of its value over the past century, which is, it's technically correct but completely misleading. Why is it misleading? Well, if you're out shopping in 2025, you're spending dollars you earned in 2025. No one puts cash away, or at least nobody should.

[Josh Brown]

From the early 1900s.

[Barry Ritholtz]

Right, from 1925, you shouldn't put that cash away. And then second, if you're telling me how much a dollar 100 years ago has lost purchasing power, the denominator blindness, the lack of double entry accounting, what's the other side of that equation? Meaning how much has my earning capacity gone up? What's the average salary either hourly or annually? How much has that increased? So it, it really puts it out of context. And, and in order to, I, I, I, I kind of use an extreme example to show how Silly this is. Two soldiers going off to World War I in 1917. They each have a fortune, a small fortune, $1,000. One buries it in mason jars in the backyard and the other invests it in, you know, whatever the equivalent of the S&P 500 would have been a century ago. So you come back, each descendant discovers this money a century later. And yeah, technically, if you left cash in the ground for a century, the purchasing power is 96% less. But cash is in a store of value. Cash is a medium of exchange. Use it to pay your mortgage or your rent, to fund your entertainment and travel, to invest in our business, or to invest in stocks, bonds and real estate. Had you invested that money, $1,000 in the stock market. When I ask people, what do you think that's worth? Oh, it's gotta be worth a million dollars, two million dollars to show you how little we understand the impact of compounding. $1,000 at between 8 and 10%, which is what the market gives you on average 100 years later, is worth $32 million. It makes people's heads explode because the purpose of investing is to let the market work for you, to let time compound your capital so when you need it, you have even more purchasing power. So, so that's a big one. That, that's one, that kind of, that sort of a numeracy kind of makes me crazy. The, the other one really simply every month people lose their minds over non farm payroll and I am fond of saying, you know, most non farm payroll reports are meaningless. It's only when you have a radical departure from the prior trend that matters. But if you understand how non farm payroll is, is put together, key aspect of that number is each month about 3.9 million people retire, go on sabbatical, go on maternity leave, educational leave, just take a break or die. And during the Same month about 3.9 million people enter the labor force, graduate college, switch jobs. And the non fought payroll report is just the net difference between those two. So it's 100 or 200,000 people out of 4 million people changing jobs out of 165 million people in the workforce, out of 350 million people in the U.S. wait, what do we care about 100,000 people switching jobs? It's a rounding error. So if you focus on the trend and not not succumb to the recency effect and overweight, what just happened? And then the third number that I think is fascinating, that blows people's mind comes from Henry Bessembinder out of Arizona State University, who was trying to determine if stocks or bonds had the same risk level. Are we overestimating the riskiness of stocks? Are we underestimating challenges with bonds and kind of stumbled accidentally into discovering that market returns are driven by less than 2% of all stocks.

[Josh Brown]

This one blows my mind, right? So of all the stocks that have ever existed, all of the returns in the stock market have come from such a small number of those stocks. It is absolutely an insane proposition to think that anyone is going to be good enough and identifying that tiny percentage in advance, right?

[Barry Ritholtz]

Not not only identifying the one and a half, and I think it was 2% overseas, one and a half in the U.S. but you know, if you have a normal portfolio and you're spreading, pick a number, 10, 20, 30, 40 stocks into that portfolio, so they're 2 or 3%. It's not just that you have to pick those 25 or 50 stocks, but you have to only pick them and not have your portfolio festooned with the other 66,000, not sell them. Right.

[Josh Brown]

And not ever.

[Barry Ritholtz]

That was another study that someone else did and this is why there are so many footnotes. And this, it's based on a lot of really credible academic research. It turns out that mutual fund managers are really good buyers of stocks. They look out at the world and they can identify companies that are, you know, it's not that hard to say, show me the stock companies whose profits are rising that are priced this way, they're really good buyers, but it turns out they're terrible sellers. And I talk about in the book the very clever way these college business school professors figure that out. They said instead of. They looked at, you know, like 2,000 managers over 20 years and hundreds of thousands of transactions, and they said, anytime a manager sells a stock, instead, we want to run the simulation where we are not selling that stock, but randomly selling any other holding they have. And the outperformance was hundreds of basis points.

[Josh Brown]

Oh, my God.

[Barry Ritholtz]

Randomly selling a holding versus. No, no, we should sell this. And the explanation was pretty simple.

[Josh Brown]

They're selling the winners.

[Barry Ritholtz]

No, they're selling things emotionally.

[Josh Brown]

Either they're selling the winners, big losers.

[Barry Ritholtz]

They're selling winners that have gone up, or they're selling things that have just come down a little bit. Conversely, once something drops a certain amount, they hold it till grim death rather than admit the loss. So they sell the winners when there's still a ton of upside, or they sell the winners when they've faltered 10, 15%, and it's just normal volatility.

[Josh Brown]

So let's leave people with a couple of the absolute worst things you could do as an investor. And. And then, of course, we want them to get the book for themselves and learn a lot more, but let's. Let's give people a couple of nuggets.

[Barry Ritholtz]

So. So some of the big things are pretty obvious. Not having a financial plan which will determine how much risk you take, what your allocation looks like. You know, the idea that we just want more money for the sake of more money is a bad strategy. Think of the hedge, right?

[Josh Brown]

So. So you ask somebody, like, what. What are you doing with your money? I'm investing it. Okay, why are you investing it?

[Barry Ritholtz]

Why?

[Michael Batnick]

Why?

[Josh Brown]

So that it's. So that it's more. Or what? Like, more to do what? I don't know. That's not good.

[Barry Ritholtz]

So. So how do you determine how much risk you want to take in order to achieve your goal?

[Josh Brown]

How much more you need, you know.

[Barry Ritholtz]

You know, the guy who blew up that. And a couple of years ago, it was all about more. I'm trying to forget the guy's name.

[Josh Brown]

Bill Wang.

[Barry Ritholtz]

Wang, that's right. And he just recently got, you know, lost an appeal, and now there's other indictments coming along, and it's like his whole purpose was more for the sake of more. It turns out that, you know, money is a tool. And you don't just keep buying hammers and lining the rows of your garage with hammers. You get the tools you need and you deploy them towards a purpose. If your purpose is philanthropy, generational wealth transfer, retirement, you know, maybe you have a couple of little ones in the house and you want to max out their 529. You are investing so you could pay for college. You're investing towards a purpose. And that purpose not only puts a time horizon on it, but that determines how much risk you embrace. So, so that's mistake number one. Mistake number two is straight out of the Dunning Kruger playbook, which is imagining your skills are much higher than they really are not. It's not just that it's hard to pick stocks. It's hard to pick stocks and most people aren't good at it. It's not just that it's so difficult to market time for a variety of reasons that you and me and Ben and Michael and Nick have talked about the clusters of big down days and big up days together and how frequently if you miss a big down day, you also frequently miss a big up day. But how challenging it is to do. One of the other numbers in the book that blew my mind is that when people, and by people, it's mostly middle aged men, but when people panic out of the market, 31% of them never go back to equities, stop and think about how devastating that is.

[Josh Brown]

The market's not for me, right?

[Barry Ritholtz]

And it's like, wait, so what are you going to do when you retire?

[Josh Brown]

The one, the one that it's rigged. You have you and I used to hear this. So for people that don't know, Barry and I started working together in 2010. And we spent the first two or three years talking to people who had reached out to us. These were successful, educated, intelligent, normal people. But a lot of them were just carrying this baggage of the market's rigged and I. And they would call us almost like a challenge. You can't convince me that I should ever be invested again. Now, of course, that's at Dow 1000. Excuse me, Dow 7000, 8000, 9000. That's at S&P 1000. Here we are at S&P 6000, NASDAQ 20,000, Dow 45,000. But we would have these like almost. They almost verged into like late night college dorm room sessions. Like the philosophy, the philosophy of like, why are we here? And you still like, we could not get through to everyone. Yes, you should trust the markets. Yes, you should start to invest again. I know 2008 was hard. So people.

[Barry Ritholtz]

Let me interrupt you one second before you follow up. You had the best line ever about this to people, which was, yes, of course it's rigged. It's always been rigged. Now that you know that, don't you think it's time to stop playing their game and start playing your own? We know it's rigged. So here's what you're going to do. You're not going to play these games. You're going to own a broadly diversified portfolio. The core of it will be a low cost index and you'll let the market compound over you. You go into their home, it's called home court advantage for a reason. You go into their field, you play their game and their rules. Of course it's rigged. You're totally going to lose. Don't play their game. And every now and then someone would like, oh, that makes sense. But it was an uphill battle.

[Josh Brown]

It's, it's like when people, it's like some short sellers, they'll. A position goes against them and they'll say, well, it's rigged. You're right. It's everyone else is on the other side of the boat working against you. The executives want the stock higher. The board wants it higher. The investors want it higher. America wants it higher. All the pension funds and mutual funds that own it want it higher. It is rigged. One of the stories that I used to tell in response to it's rigged literally the buttonwood tree on Wall street like before there was a building, the original New York Stock Exchange was a bunch of son of a bitches in, in, in, in knee high satin socks robbing each other. It's just, it's the nature they wall.

[Barry Ritholtz]

That kept the sheep away because it was literally a pasture.

[Josh Brown]

They, they kicked out. They kicked out the people that wouldn't agree that they would only deal in securities with each other. It started as a cabal, so.

[Barry Ritholtz]

Right.

[Josh Brown]

All right, but that's a good point though. People that liquidate portfolios or swing to cash or whatever, they're very unlikely to ever look back at the market higher or lower and say, and now I'm going back.

[Barry Ritholtz]

Right.

[Josh Brown]

Barry Ritholtz, I'm so excited that your new book is finally here. You've been telling us it was coming, you've been prophesying it. And I guess my only question is when is the follow up? Is that 15 years from now?

[Barry Ritholtz]

Because I don't.

[Josh Brown]

This is going to keep people tided over.

[Barry Ritholtz]

You know, the. I partially blame Michael Batnik for the book because every time I'm telling a story that he heard before, I literally hear his eyes roll in his head. I'm like, you know what? I'm going to put this down and paper so I don't have to watch him roll his eyes. Let me gather a few more stories and when I have enough to fill up another three or four hundred pages, that'll be the next book.

[Josh Brown]

All right, guys, get how not to Invest by Barry Ritholtz at bookstores near you, at Amazon, anywhere books are sold. And I promise by the time you have gotten through the first or second chapter, you're going to start to say, why didn't I think of that? Or why didn't anyone ever tell me that? And those are the two, those are the two reactions that I had. And I've been in the business for 25 years. So thank you so much for joining us today and thanks so much to you guys for listening and for watching. What up gangsters? Gangster Ettes. I'm checking the chat. We are, we're going. It's gonna be a big one. Michael, what do you think?

[Michael Batnick]

It's gonna be huge.

[Josh Brown]

So huge. We have two first time live chatters that I can see. Michael Graham is here. First time live, longtime watcher. Let's get after it tonight. You got it, dude. Also, Chet Flanagan, long time listener, big time fan, first time wilding out in the chat.

[Michael Batnick]

I love that name. Chet Flanagan.

[Josh Brown]

That's a great name. That does, right? All right, Jackson sounds like a.

[Michael Batnick]

Not to belabor the point about Chet, but it sounds like a fake name from Wedding Crashers.

[Josh Brown]

It could be. We, we appreciate his, we appreciate his availability either way.

[Michael Batnick]

Sure do.

[Josh Brown]

Who did I just say? Jackie Sosa is here. Chris Hayes, Mini Dev, Matt.

[Barry Ritholtz]

What?

[Josh Brown]

Matt Wide or Weed. You never know with those I names right before. Situation room is in the house. Andrew Bueller, Brian Grill is here. Joe Altamoro. All the gangsters are out. All right, guys, we have a packed show. Before we, before we get into it, I want to tell you about tonight's sponsor, Betterment Advisor Solutions.

[Michael Batnick]

Michael, today's show is brought to you by our sponsors at Betterment Advisor Solutions. Imagining a better future, that's the first step.

[Josh Brown]

Investing in that future with Betterment Advisor Solutions is the next step. Whether you're launching your own practice, looking to streamline client onboarding, or just searching for efficient ways to scale your firm, Betterment Advisor Solutions is here to help.

[Michael Batnick]

That's right, Josh. Because they automate to make tax optimization simpler, they provide support to make administrative tasks easier.

[Josh Brown]

At Betterment Advisor Solutions, they are building innovative technology for anyone who's ever Said I think I can do better. So grow your RIA your way with Betterment Advisor Solutions.

[Michael Batnick]

Learn [e-mail] advisors. Investing involves risk. Performance not guaranteed. Josh, let's get to the show.

[Josh Brown]

We. Dude, we crushed that one.

[Michael Batnick]

All right.

[Josh Brown]

So I was going to. Yeah, I guess let's do it this way. We have a couple of big IPOs coming and we've talked about Klarna on the show before and that's one of these gigantic buy now, pay later companies. Affirm is currently public. PayPal is in that business. One of the other large ones, afterpay, has been acquired by Blockchain. So I guess technically that's public. And then the last big one still out there is Klarna, which is I think from Denmark.

[Michael Batnick]

Right? No, no, no, wait, I think I have it right. Is it okay?

[Josh Brown]

Okay, it's. No, it's definitely Scandinavian.

[Michael Batnick]

It's definitely Nordic. Is that the same thing?

[Josh Brown]

So what's cool about Klarna? What's cool about Klarna is they were one of the first large startups to come out and say AI is real and here's what we're doing with it and here's how many hires it stopped us from having to make and here's how much money we're saving. So I'm not. I wouldn't go so far as to say it's an AI play, but people that are super interested in AI are going to be paying attention to that. But tonight we're going to talk about another AI related ipo, and that is coreweave. And this one looks like unless we get a surprise like Space X or starlink ipo, it looks like this is going to be the biggest one of the year. I want to set the stage first about what we're, what we're talking about and then we'll get into some of the details. But Core Weave is basically a company that has built out, I think they have 24 massive data centers around the world and they are like infrastructure as a service. So effectively they're competing with some of the hyperscalers who have their own data centers, but then they're also kind of going after parts of the market that maybe would be doing something very specific at a Core Weave data center. But like they accumulated a quarter million GPUs, they raised tons of money, which we're going to talk about in a minute, and they are open for business and it's really not that old a company. They started in 2017 as a very different kind of company. And Then pivoted. They did 1.9 billion in revenue last year, Michael, with about a $900 million loss. So I guess they make it up in volume. Negative 6 billion in free cash flow. Not great. And 77% of last year's revenue came from the top two customers. Most of that is coming from Microsoft. Microsoft is 62% of core weaves revenue last year. So there's a whole bunch of, there's a whole bunch of stuff on this that's a little bit red flaggy. But just on the surface, what do you think about Core Weave being kind of like a heat check on investor appetite for the AI theme?

[Michael Batnick]

So glad you went there because I was going to say the financials are, I'm like less concerned about that. There's been plenty of successful companies that were burning, hemorrhaging cash early in their careers. The thing that, the thing that worries me is their guidance last year was way ahead of what they actually delivered by like two times as much. So interesting thing with this company is they're going to be the fastest growing company on the top line to IPO in a couple of years. Also the most heavily indebted company. I think it's like five times EBITDA or something like that. But as far as you nailed it, like the market's reaction to this IPO I think is going to be very important.

[Josh Brown]

The growth is real. They had 770% revenue growth from 2023 into 2024. Like that's astonishing.

[Michael Batnick]

Yeah.

[Josh Brown]

But unlikely to be repeated.

[Michael Batnick]

Yeah.

[Josh Brown]

So I don't know what the forward looking expectation is for growth. I doubt the company has gone, you know, crazy with like hyper specific forecasts.

[Michael Batnick]

So they brought it down. And then there's people that are speculating. It's like, listen, this might just, they just might be for show. They might be lowering expectations so they could raise, so they could beat him.

[Josh Brown]

All right, let me show you some shit. Number one, this is not what you want to see right before an ipo. This is the Financial Times shortly after the company dropped its S1 filing. So the S1 is what a company files with the SEC stating their intention of going public and raising money and laying out like 100 pages worth of risk factors, very common. And they'll throw every potential risk under the sun into this S1. Not to scare people, but to cover their own asses. It doesn't mean that they actually think all the things to list could go wrong. They're just acknowledging that it's possible. So you know, there. But there are a lot of. A lot of risk factors, even for something that's prone to have a lot of risk factors. There are a lot in this particular S1 that I think we have to get into.

[Michael Batnick]

So what bothers you the most?

[Josh Brown]

Well, here's what. Here's what that FT article says. Put that back up. Microsoft drops some Core Weave Services ahead of $35 billion IPO AI data center provider dealt blow by biggest client as it readies for Blockbuster listing. So I told You Microsoft was 62% of their revenue last year. Here's a little bit of detail. Mike, chart off. Microsoft has walked away from some of its commitments with cloud computing provider CoreWeave. In a significant blow to a company seeking to launch a blockbuster $35 billion IPO next month. Core Weave provides Microsoft with computing capacity from data centers, which the tech giant uses to scale up powerful AI models such as ChatGPT. The partnership is worth billions to CoreWeave. However, Microsoft has withdrawn from some of its agreements over delivery issues and missed deadlines, according to people with knowledge of the matter. That's not great. They're still working with coreweave. But, like, just the fact that that's dropping a month before the IPO is, like, really not great. What is it going public, like, any minute. Okay, so, like, they're gonna price this in the next week or two is the last thing I heard.

[Michael Batnick]

Could be very wrong. I would say that this is gonna go nuts. And the reason why I say that is because this is as pure play as you're gonna get in the data center on data centers.

[Josh Brown]

Great.

[Michael Batnick]

And it's been a minute. So if. If you're not playing Nvidia, if you're looking for something else, Micron, amd, Intel, like all the others. I mean, there's a few others that are pure plays, but this is like the one. So I think that this is going to be heavily, heavily oversubscribed, and I think it's going to trade well out the gate. But that could be very wrong.

[Josh Brown]

You know, it could price at 40 billion, and then if it does, and then again, it's 40 billion on 2 billion in revenue last year. And what we should really do, though, is get into the balance sheet because for me, this is another sort of deal breaker for at least buying it on the ipo. Blackstone put out a press release last summer. You know, all of this debt that this company is, again, 10.6 billion in debt currently. All this debt is being financed by somebody. The somebody in question is all these private equity Firms that have launched these infrastructure funds.

[Michael Batnick]

And they're going to keep funding it.

[Josh Brown]

Okay. Probably. This is, this is what was said when they, when they raised the money last summer. Core, we've announced it, has signed a. This is Blackstone press release, has signed a definitive agreement for a $7.5 billion debt financing led by funds managed by Blackstone Strategic Participation from Magnetar, which I think is also in on the equity. And CO2, which I'm sure also owns equity. Carlyle's in the deal. CDPQ, Digital Bridge Credit, JT Marlin, BlackRock is in the deal. Great. Elm Capital. All these things I don't know. But today's announcement builds on Core Weaves exponential momentum and growth evidenced by over 12 billion raised from equity and debt investors in the last 12 months. So, you know, a lot of these PE firms have raised massive funds and they're like infrastructure funds specifically for tech and cloud and data. And yeah, Core Weave is like the, the, the target investment for many of them. And so if you want to know, like, who the hell gave this startup that's been in business since 2017 and originally started as a crypto miner, who the hell gave these guys all this money as debt capital? That's where it's coming from.

[Michael Batnick]

I feel like they've got an infinite Runway. I know that sounds absurd and hyperbolic, and I don't literally mean infinite, but, like, they're gonna have no problem getting funding from anyone.

[Josh Brown]

Okay, next red flag. The founders already cashed out. This is from another thing I really don't like to see. This is from the S1 from early March. I think this is Bloomberg. One surprise from the filings that the company's three co founders have already sold off much of their Class A holdings between the 2024 tender offer and the one held in 2023. So this was a revelation from the S1. Whatever happens at this IPO, the co founders have already cashed out nearly 488 million worth of shares. Specifically, across both tender offers, co founder, CEO and chairman Michael Entratter sold 160 million worth of shares. Another guy sold 177 million worth of shares, and a third person sold 151 million. So now between the three of them, they own less than 3% of the class A shares, but they maintain control of the company through the class B shares, which carry 10 votes per share. So they own. So in other words, these three guys have less than 3% of the equity, but they control 80% of the vote. Do you love that?

[Michael Batnick]

No. But Wait, so now they're down to 3%? They took out, as you mentioned, $488 million. But was that. Was that like 15 down to 3 or was it like 5 down to 3? Like, I need the numbers.

[Josh Brown]

I mean, they sold hundreds. They sold. I understand, 500 million worth of stock.

[Michael Batnick]

So that's just good risk management. No, but the point is, like, I. I need to know what the percentage was. Did they, like, sell? If they sold 90 of their stock? Yeah, probably not. Not great. You don't want to see that.

[Josh Brown]

I don't, but if they.

[Michael Batnick]

If they sold. If they sold a third, I'm not mad.

[Josh Brown]

It's a good. It's a good. It's a good point. I don't know how much of their stock they like. I don't know how many shares they had. Did they have 600 million and they sold 500? That's not great.

[Michael Batnick]

That's not great.

[Josh Brown]

Did they have a. I mean, again, the. The valuation today, I think is higher than it would have been when they first sold shares in 2023. But people sell shares on the way up. Like, that's not controversial. Founders of tech companies need liquidity, too, so I don't specifically have a problem with it, but the 3% number, no matter where it started from, you must agree with me. It's, like, not amazing.

[Michael Batnick]

Okay, so their stakes are now worth at around 35 billion. Their stakes are now worth $1 billion still. So maybe they took half off. I don't know. I know it's a lot.

[Josh Brown]

Another red flag. It's not a huge amount of stock, but this thing has been available on Robinhood. Private shares in the secondary market on Robinhood.

[Michael Batnick]

I think this would be the case for every single company going forward.

[Josh Brown]

Go out on a limb and say those probably aren't the most sophisticated buyers, but I doubt they bought a lot of it. This is NASDAQ Seed rwv. The origin story is this started as a company called Atlantic Crypto. They got their start by offering infrastructure for mining, for Ethereum. So there was a moment in 17 where, like, mining crypto was a really great business, and these guys were like an infrastructure provider to people that wanted to mine crypto. I won't hold that against them. After digital currency prices fell, the company bought up additional GPUs, changed their name to Core Weave, and then told everyone they're focused on AI, and they pulled it off.

[Michael Batnick]

Did you mention Nvidia yet?

[Josh Brown]

Nvidia owns 6%, but as we just saw with Serve Robotics, that means Nothing. They could blow it out right after the ipo. I would not be a buyer of this or any other stock thinking that Nvidia is going to be a co investor forever because it's just not what they're, what they're, what they're doing. It's not Berkshire Hathaway.

[Michael Batnick]

You sound neutral to negative.

[Josh Brown]

I think I'm negative, period, to be honest. Not at any price. I don't. If, look, this could melt up on the first day. I fully agree with you. Like, this could be super oversubscribed price ahead of the expectations. And it's, look, it's a real company with incredible backers including Nvidia and Blackstone and very sophisticated people who understand how much debt they have and are like clearly okay with that because they're providing the debt. So I'm not, I'm not saying like, oh, it's, it's, it's, it's, it's a bomb. I'm just saying, I don't know if this is for me. Yeah, the $10.6 billion in debt that they're currently carrying cost them $944 million to service last year. So that, that $944 million goes to Blackstone. Like that's a great deal for them. Like they, they were able to invest billions of dollars into a company that's going to spit out interest rate payments to the tune of $1 billion a year. That's awesome. For as long as it can keep going, they're going to raise for something like, I think it's four and a half built. What did I say? 7.7 up to 4 is what I read.

[Michael Batnick]

Okay.

[Josh Brown]

One other thing in the S1 is that they made it pretty clear that it's not enough money. So basically they have commitments from like Tokyo and London to buy all this AI infrastructure capacity from them in the future. In order to build for that, they're going to have to raise more money, which means there could be even more debt here and again, negative $6 billion in cash flow. So if there's going to, if they're going to have to build more, they're going to have to, I think they're going to have to tap the debt markets or maybe even a secondary share sale. So I just, look, I'm not, I'm not here to like say this is great or terrible. I'm just saying like, if you're big, considering, if you're considering investing in core, we've, I feel like everything we just said is stuff that people should know?

[Michael Batnick]

Yeah.

[Josh Brown]

Okay. Etoro, this one could come tomorrow, come the next day, it's on the Runway, as they say. Also NASDAQ ticker ETOR, they're filing an F1, not an S1 because it's a foreign company. They're based in Israel. Lead underwriter Goldman Sachs, Jefferies, UBS and Citigroup also on the COVID And in addition to raising capital, there's a bunch of selling shareholders here too. Raising 400 million at a $4.5 billion valuation. Basically, this entire business is fueled by crypto trading. If not for the fact that Robinhood stock price just tripled, I don't think this would be coming public.

[Michael Batnick]

Agreed.

[Josh Brown]

But by the way, they tried to spac this in 2021. Right. As the whole SPAC thing fell apart. They were looking for a $10.4 billion valuation. I don't know which SPAC had the had the guts to do that, but it didn't end up going through. So now they're coming out four years later at a significantly lower valuation. You have to understand, this company was founded in 2007.

[Michael Batnick]

Wow.

[Josh Brown]

I realize that Howard Lindsin was telling me about these guys in 2010 when they were sponsoring stocktwits like they, they have shareholders that just have to get out at this point. So Robinhood tripled. Bitcoin went nuts. Their revenue growth exploded last year because of all the trading in bitcoin before the IPOs, before the ETFs enduring. And now it's like this is the time they're referring to themselves as a startup, which is funny. I don't think it could be 18 year old startup. I think it's just a private company at this point. There are some differences in numbers. So Bloomberg is saying eToro had 12.6 billion in total reported revenue, up from 3.89 billion the prior year. And crypto assets made up 12.1 billion of that, or 96%. The cost of revenue from crypto assets was 11.8 billion. So but then there are some like revenue numbers.

[Michael Batnick]

So the cost to service, that was 11. I was like, the margins are nothing.

[Josh Brown]

But I don't know if, I don't know if, because then I'm also seeing they reported a net profit of 192 million, which was an increase of 15 million in 2023 and a loss of 21 million in 22. But then Sean, Sean and I found these numbers that are very different where it was like just a few hundred million and maybe that 12 billion number is like the total amount of volume in crypto, but either way, almost all of the revenue is crypto related. So it almost looks more like Coinbase than Robinhood is. What would be, would be my comment. And yeah, revenue grew a lot last year because bitcoin rallied like crazy. So if you want to bet on bitcoin, you know, one way of doing that is just buy buying bitcoin. I know that's old fashioned, but I don't know. Any thoughts on this one?

[Michael Batnick]

It's International Robinhood.

[Josh Brown]

That's, that's how you think about it? International Robinhood, maybe. I think it's international Coinbase. 3.5 million funded accounts across 75 countries. That's tiny.

[Michael Batnick]

Yeah, 3.

[Josh Brown]

3 million accounts.

[Michael Batnick]

All right. Room for growth.

[Josh Brown]

I guess. All right, well, listen, for better or for worse, it's nice that companies are coming public.

[Michael Batnick]

Absolutely.

[Josh Brown]

And I want to see them both go up, to be honest with you. Same like, it would be pretty disappointing to see these things flop out of the gates. So nobody, nobody who's interested in capital markets being healthy wants to see two bad deals dumped on the public. So I am rooting for both companies, but just want people to understand what the potential risks are here.

[Michael Batnick]

Okay. All right, let's talk about the state of the stock market, shall we? So we're leaning heavily on the man Warren Pies at 314 Research. Warren tweeted before we were officially in correction territory. He said, if the current pullback is going to devolve into it into a correction, it should happen relatively quickly. Why? Warren says historically, 76% of all corrections play out within a set, within a 60 day window. I thought that was an interesting stat. And I bet you that if you were to look at, like, I don't know, the, the 10 corrections of the last decade, it happened probably even quicker than a 60 day window. So then, next chart, please. He says, all right, we did it. The S and P is now down 10%. In the tweet below, we show that 5% pullbacks devolved into 10% corrections rather quickly, as I just mentioned. Conversely, and this is, this is the interesting part, moves from 10 to 15% are more protracted. The majority take longer than 60 days to play out. So chart off, please. The reason why, I think this is just, I mean, it's just great data, but it's also, it's also intuitive because what we get is the market digesting news really quickly. Right. You get the whoosh. We had the whoosh. And typically you get some sort of stabilization outside of like a Covid Crash usually get some stabilization around 10%, which we just got. And then, you know, who knows where we go from here. Maybe we go higher, maybe we would trace 50%. Maybe we roll over again, maybe we go lower. But this is, this is Chef's Kiff's data.

[Josh Brown]

I like this. And my personal opinion is that we're not done. And the bounce last week was much needed because it was really like a straight line lower, like one of the more intense corrections that I've seen in my career. But I don't think we're done. And I think smart people that are in this reprieve right now, if they were really feeling the pain or they were heavily on margin or they looked at their portfolio and said, what is all this garbage? Like this, this type of bounce, which we're going to talk about the dip in a minute. And the buying of the dip was really well timed. And then like, all right, use it.

[Michael Batnick]

Yeah.

[Josh Brown]

And if you're. And if that ends up being wrong and we race back to all time highs. All right, so you have a less junky portfolio and less and less margin debt. That's not the worst thing. I do want to go back in the chat and address Chris Kubica. Can Josh and Michael disclose whether they are in on either IPO they just said they hoped went well? No, neither. No financial interest whatsoever in either. And if we had one, you would hear it from us. I just wanted to make sure we got to that. Okay, show me the next one.

[Michael Batnick]

So this is awesome.

[Barry Ritholtz]

More.

[Michael Batnick]

It's great stuff. Keep it simple. Warren is showing two paths. One, both after a 10% correction. One when there is a recession, which is a purple line and of course in which case they usually don't get a bounce or there is no recession and it ends up in hindsight being a buying opportunity. And if that's the case, then, oh boy, you're going to wish you have bought.

[Josh Brown]

Dude, this is so binary. Look at this. Yeah, this is so stark.

[Michael Batnick]

So.

[Josh Brown]

So a 10% correction where a, where a recession happens does not, does not recover correct. Bounces a little bit, but does. Does not even get back. It looks, I'm just eyeballing and this is on average, of course, looks like it doesn't even get back a third.

[Michael Batnick]

Yep.

[Josh Brown]

We've already got. We've already gotten back a third.

[Michael Batnick]

I'll tell you something, not that I get to make the rules of where the market goes. I would be very happy if we got that tempest correction and then went sideways, if only for nothing else. Chart off, please.

[Josh Brown]

I'll take the sideways.

[Michael Batnick]

Other than to just digest. Right. Like a market that goes up 20% a year, year after year is unstable. That sets you up for really nasty crashes. It just does. You can't go up 20% forever. We did that in 23, we did that in 24. People got super bowled up in at the end of December last year. And if we go sideways and we, and we set ourselves up for a springboard in 2026. Wonderful. I'll take it all day.

[Josh Brown]

I was looking at my 401k over the weekend. I was actually looking to see how my international holdings were doing. These are Fidelity mutual funds that own international stocks. And the diversification is really working this year. So much so that I don't even think. I think I'm up slightly since the beginning of the year. That's number one. But also number two, like if the market I'm. I'm putting $900 every two weeks or whatever into the 401k. I'm not like consciously thinking about it. We just. That's just automatic until I've hit my level. But like I'm happy to do that in a flat tape that doesn't bounce back. Like it doesn't affect me at all. I want it. I don't want to buy. Why do I need to buy all time highs for every time I buy stock. So that's just like I'm trying to. I'm just like trying to like give people both sides of this. If you're under the age of 70, there's like no need to cheer for a V shaped recovery. It doesn't really do anything for you.

[Michael Batnick]

But even if you're over the age of 70, you're never going to make another dollar worth of contribution to your account again. You don't want something going straight up because that is unsustainable. You don't want that.

[Josh Brown]

It makes the fall harder.

[Michael Batnick]

Yeah, no, it sucks because then you're anchored to that high price. Just no good. It's no bueno. All right, so what works best? A recovery. This is some great data from our friend Adam Parker at Trivarit Research. He says he's showing the average performance following the worst 20s and P500 drawdowns since 1999. And not surprisingly, you've got junk number one. And this is just low quality crap. And then. Oh, actually he has something that's interesting. He has something that's actually labeled low quality. So so similar but different, I guess. And then also not surprisingly, small cap and micro number two and three.

[Josh Brown]

I wouldn't have guessed this, would you, John?

[Michael Batnick]

Oh, yeah. Yes, you would have. What would you have guessed?

[Josh Brown]

I. I guess. What are, what are we measuring here? Average perform. Oh, okay. So we're not saying how well they hold up through the downturn. We're saying what's the, what's the bottom?

[Michael Batnick]

Well, you also gotta figure that these are the things.

[Josh Brown]

What do they do?

[Michael Batnick]

They get hit the hardest, too.

[Josh Brown]

Yeah. Well, that's the thing with this. I, I guess that's what I feel like is missing. And shout out to Adam Parker. He's doing really great stuff on this on buybacks. We got to have him back on soon. Put that back up. So one of the things that I remember from, like the literal big, big bounces off of bottoms, and I've seen a couple of them in real life. I remember, I remember biotechs like in 2003 just being like, you couldn't buy these things fast enough. Like, these were stocks that had gone from 20 to 3, back to 20, and it'd be really hard to time those purchases.

[Michael Batnick]

Oh, yeah.

[Josh Brown]

But I just remember, I guess I don't know if those would be considered small cap or junk. Probably a little bit of both. But like, that was the, that was the play for probably a good 90 days.

[Michael Batnick]

Yeah. So then conversely, you've got mega cap bouncing the least because it probably fell. Not probably. They do felt for the least. Mega. Mega and large. Small fall less than small and micro. Duh. Let's talk about how individual investors are.

[Josh Brown]

I was gonna say this time might be different. Like if this market bottoms with Nvidia In a 35% drawdown, junk stocks are not going to be able to outdo that on the way back up.

[Michael Batnick]

Nvidia is not a 35% 25.

[Josh Brown]

But I'm saying if it gets worse.

[Michael Batnick]

Oh, right.

[Barry Ritholtz]

All right.

[Michael Batnick]

So they bought the dip. Individual investors from the FT have pumped almost $70 billion into US stocks this year. Net inflows 67 billion. That's. That's down only slightly from the $71 billion in the final quarter of. Of 2024. This is from. From Vander Track. Here's a quote from the chief market strategist, Steve Sosnick at Interactive Brokers. DIP buying has been an essentially foolproof strategy for four of the past five years. Doing something that works remarkably well for so long means you're conditioned to stick with it. And this, this is what I was saying. Like, I think you're going to. It's going to Take a lot more than one 10% correction for that, for that mentality to break. And I don't know if it happens, if we go sideways or if we roll over, but that muscle is so ingrained in investors today.

[Josh Brown]

I think it takes like a year for everyone to fully give up on buying the dip. Like a, like flat, like flat, flat markets with a lot of chop for a year might really change a lot of people's minds and how they're investing. And I think anything short of that, they're going to like the, the first time it rallies, they're gonna be like, oh, yeah, that's right. That's what I'm supposed to do. But what you're saying here. So individuals have pumped 70 billion into US stocks this year. That's not really a dip buy.

[Michael Batnick]

What do you mean?

[Josh Brown]

Because that's parallel with, with what they've been doing.

[Michael Batnick]

Yeah, probably say they didn't, it didn't dissuade them.

[Josh Brown]

All right, they didn't shy away, but they weren't like buying the dip, like buying two of everything.

[Barry Ritholtz]

Fair.

[Michael Batnick]

But they didn't.

[Josh Brown]

They just keep coming in with money.

[Michael Batnick]

So. Goldman Sachs data shows that retail investors have been net sellers of US Stocks in just seven sessions this year, despite the S and P having fallen on 25 days. Pretty good. But, but this is the interesting thing. In contrast, big investors tracked by bank of America made the biggest ever cut to their US Equity allocations in March. So there is a severe disconnect from retail and the mega wealth.

[Josh Brown]

Don't say, okay, I thought you were going to say the smart money.

[Michael Batnick]

I wouldn't do that. I would not do that. We know better.

[Josh Brown]

Well, we're going to, we're going to find out who is right. That's interesting. So the, the professional asset allocators are raising cash, getting out of U.S. stocks or buying Europe or whatever they're doing. And the regular investors, they've barely been net sellers at all, no matter how bad it's gotten. And they continue to plug away the way they always have.

[Michael Batnick]

I don't like we should.

[Josh Brown]

Jerry Gold is saying this is more DCA than.

[Michael Batnick]

Yeah, sure it is.

[Josh Brown]

That's, that's the point. I'm trying.

[Michael Batnick]

Yeah, sure it is. But also, like, I don't think that people bailed in 2022, did they?

[Josh Brown]

I don't think for a 1k allocations changed, but I do think retail got wiped out.

[Michael Batnick]

So here's what.

[Josh Brown]

They stopped buying the trading volumes fell off the cliff.

[Michael Batnick]

They stopped buying the 2x levered ETFs, which I know we're going to talk about later.

[Josh Brown]

Yes, this is from Yardeni. The stock market sell off is one of the factors. He makes a list of all the factors contributing to the huge drop in consumer confidence. And obviously there's more going on in the stock market. But this is one of the factors that he lists. I think my takeaway here is this can be quickly reversed if the dip buyers push it back to where it was. But let me read what Ed said. Some of the decline in consumer confidence is undoubtedly attributable to the rapid drop in stock prices. Indeed, the percentage of respondents expecting lower stock prices in 12 months jumped from 21% in November of last year to 44% in March. That's the sort of jump that has occurred in the past at the start of bear markets and recessions. On the other hand, with economists there's three hands. On the other hand, from a contrarian perspective, high levels of bearish sentiment have often signaled stock market bottoms. But those bottoms have often coincided with implementation of the Fed put. Which isn't likely to happen anytime soon since Fed officials have stated they are in no rush to lower interest rates. Given the current resilience of the economy and the potential inflationary impact of tariffs. The Fed. Right. Chart off. The Fed's in no rush until one of these data center bonds blows up and then we'll see how patient they feel like being.

[Michael Batnick]

Wait, chart back on. This chart is so fascinating. If you're listening and not watching, you're showing the percentage of. And this is from the conference board. This is like real, the consumer confidence survey. People that are expecting stock prices lower in 12 months and this skyrocketed only like 22% of the respondents were expecting stocks to be lower in the next 12 months. It shot up to 45% in a matter of months.

[Josh Brown]

So this says that almost always happens right before a bear market.

[Michael Batnick]

Okay, so either people are going to have seemed very prescient that wow, they were right or it's going to look like the biggest head fake we've seen in a long, long time.

[Josh Brown]

Hey, important to note on sentiment. When we were 2% from all time highs, the crowd got crazy bearish for a 10% sell off in the S and P. Yeah, yeah. So the crowd's not always wrong and the sentiment surveys aren't always great contrarian opportunities.

[Michael Batnick]

Agreed. Yeah, well said.

[Josh Brown]

And the crowd, the crowd, you know, it's a little bit, it's, it's like a little bit of like a tautology. But like, what the crowd does is the crowd sentiment. So when they all get bearish and sell, they, like, make themselves right because it's them selling. So, you know, bank of America asked this morning, what if US Exceptionalism hasn't peaked? They say they are not counting US equities out yet. And I'm not going to read the whole thing, but a couple of things. They said they're thinking we're going to see an even larger AI bubble in the coming years. So they are super bullish on what AI is going to do and therefore what people are going to be willing to pay for these stocks.

[Michael Batnick]

I think they will.

[Josh Brown]

If they're right, then core weave will, will, will be a hot stock. Drawdowns and rotations even larger than what we have seen are not abnormal in bubbles. So I guess in their framework, this has been a wild market destined to get even more wild. But these types of big drawdowns and rotations are common within bubbly. Okay. They say the rebound from the March 13 lows has been in line with historic historical norms. And dip buying strength remains near the strongest in 100 years. So they keep all this data on people with Merrill lynch accounts and they break it down institutions, hedge funds, corporates, which is like buyback activity and retail. And they're saying, like, the dip buyers are as strong as they've ever been in this tape. And then they also say the Powell and Trump puts, you know, the ones that don't exist, remain quote, available even if perhaps struck lower than some thought. So, like, everyone's like, ready to pivot away from large cap us. They're basically saying, not so fast. This bubble hasn't fully bubbled yet. And I don't know, I feel like that's probably a take that looks smart today. But if this rally fails, that's going to look, that's going to look really out of touch. Well, that's what, that's, that's why this is so hard.

[Michael Batnick]

But it depends. Like, when you say the rally fails, if we undercut the new lows and like, we go down 15%, does that really invalidate this?

[Josh Brown]

If the, if the MAG7 stocks, if the US exceptionalism trade fails, Sort of feel like it does. I don't know. I'm lukewarm on that, though. I can go either way. Cyber stocks look good, though. So I want to talk about this. Do you know why 23andMe just filed for bankruptcy?

[Michael Batnick]

I don't.

[Josh Brown]

Data hack, literally. It's a public company out of business because of a data breach. This is from the information. Martin Piers wrote this. If you want a detailed look at how hacking is hurting Companies, check out 23andMe's bankruptcy filing. The DNA testing firm was hacked in late 2023. I remember this. With the hacker getting access to personal information for about 7 million customers, according to a court filing today by the company's chief restructuring officer. In the wake of the hack, more than 40 class action lawsuits were filed. 35,000 people asserted or threatened arbitration claims. The Federal Trade Commission began an investigation. Then the attorneys general from 42 states and the District of Columbia began an investigation internationally. Twelve foreign regulators, including a joint Canada UK investigation, looked into the issue. A $30 million payout resolved some of the lawsuits, while the company on Friday settled other claims. But pending litigation and claims continues to complicate 23 and me's life. The lesson, lock down your servers. So now it's in bankruptcy. Someone else, it'll go into like, receivership and like, maybe the people that are owed money will somehow take control of the company. But if you gave them your personal information and they literally have your DNA on file, like, you want to get that shit out of there because God knows who's going to end up inheriting this thing once it works its way through the bankruptcy courts.

[Michael Batnick]

So it a $30 million payout wipe them out or did.

[Josh Brown]

That's just one. That's just one thing. They settled, Michael. Again, 40 class action lawsuits were filed. Maybe they settled one of them. 35,000 people asserted or threatened an arbitration. They're being investigated by every country and, excuse me, every state attorney general, plus in foreign countries. So there's. That's game over. There's. You can't survive that.

[Michael Batnick]

You.

[Josh Brown]

You must. You must reorganize.

[Michael Batnick]

So this next table that we're going to share on the largest US cybersecurity stocks. It's so.

[Josh Brown]

Oh, let me just. So let me make my point. This is the one line item that no company in the world is cutting. I don't give a shit how bad the recession gets. This is out of business risk.

[Michael Batnick]

Yeah. And so these stocks are rightly trading at a premium to the market because they are. And defensively because they are secular growers. It's not saying that they can't fall 40 like, like every other stock. But these. The market's not dumb. So throw this table up. The forward PE on Palo Alto Networks is 51. The. The company is expected to grow 40. That seems kind of wild, but okay. CrowdStrike, for example, 84 times forward PE, but expected to grow 32 next year and I'm guessing 25 the year after that and so on and to into the future. So yeah, high growth, high multiples, duh.

[Josh Brown]

Yeah. These are double digit growers. Very hard to knock these companies off their growth.

[Michael Batnick]

Double digit showers.

[Josh Brown]

That's right. The risk that these companies have is losing business to each other. The pie is not going to shrink. That's the way I would phrase it. So in any given quarter one of these companies, and it happens every time disappoints Wall Street. I've seen it with Zscaler, I've seen it with Palo Alto, I've seen Fortinet get hammered and the one I own, CrowdStrike could happen to them. But like that's a game of analysts sell side analyst expectations for each company. But in the bigger picture, this sector, these stocks, they're acting defensive because they kind of are. Let's put this chart up. This is the year to date returns for the five largest publicly traded cybersecurity stocks. And not a lot of areas of software look like this. No, these are among the very best technology stocks so far this year. Look way better than the semi stocks. I'll tell you that. Shit. The next one I'm showing you is the Cyber etf. So alright, so CIBR is the first trust NASDAQ cybersecurity product. You can see while it fell off in February it's gained a lot back and it's, it's still up year to date. The next one is just the software sector ETF does not, does not look as good. And then the bottom one is the XLK which looks much worse than both. So that's kind of like the, that's kind of the hierarchy here.

[Michael Batnick]

Yeah, good stuff.

[Josh Brown]

CrowdStrike got upgraded today by BTIG. So this is what they're saying. We are upgrading Crowd from a neutral to a buy rating for two primary reasons. First with the 7-19-24 IT outage, remember that? Now eight months in the rearview mirror we think CrowdStrike has much better visibility on forecasts. As we run through ARR recapture scenarios we see potential for growth to reaccelerate in second half 26 and anywhere from two and a half to 8% upside to street forecasts. They. There's a whole lot of other stuff but they basically they went out in the field and talked to companies and they say our field work leads us to believe CROWD is best positioned of any vendor to win the security Information and event management or SIEM market. A $6 billion opportunity. Crowd is a top two or three vendor in the $7 billion cloud security space. Our checks show rapid momentum in the two and a half billion dollar vulnerability management market. So crowd is playing from a position of strength in all these key areas of Cyber. They slapped a $431 price target on it, increased their ARR estimate and price targets now 18 times calendar year 26 enterprise value to sales. So I mean that these stocks just in a sea of red tech, they really stand out. And I think that, I think that could continue to be the case throughout the year.

[Michael Batnick]

All right, let's talk about the potential recession. So last year we spoke with Rick Reeder and others about how the dynamic nature, specifically like software, how you could just turn things on and turn things off that were less prone to booms and busts. Do you think that that theory is going to be put to the test?

[Josh Brown]

Yeah, I think it has to be. And that's why I mentioned core weave as a, as a vibe check. Like do people really believe that this spending is going to hold up if the rest of the market all of a sudden, you know, is, is coping with a recession? Like definitely not. So I, it's hard for me to believe that any publicly traded company would be so irresponsible as to follow through on a capex plan in the second half of this year if we're in a recession. Like who on earth would do that? Yeah, shareholders are going to punish you so you're going to live through that. You talk about robots. What are you crazy? Like, I just, I've seen too many of these cycles. So this, I don't think that this is going to be a secular growth story if the cyclical growth story completely falls apart Now I don't think the cyclical growth story is going to completely fall apart. I'm not in that camp yet. I recognize all the challenges. I read all the same articles as everyone else. I just don't see the consumer behaving the way people think the consumer's about to behave.

[Michael Batnick]

Okay, so let's talk about that.

[Josh Brown]

I think it's going to hold up.

[Michael Batnick]

Just there's also, we talk about like the economy. There are so many economists.

[Josh Brown]

Everybody has their own economy. It's mostly people talking past each other.

[Michael Batnick]

So, so I pulled a few quotes from the transcript, which is a great resource. Let's start with the godfather of, of AI, Jensen Wang. He said the second thing that, that I said that nobody's got right. None of these forecasts has this concept of AI factories. Are you guys following Me, it's not a multipurpose data center. It's a single function AI factory. Do you guys understand? Listen, he said nobody knows how to go do that. And these multiple hundred billion dollar capex projects that are coming online, it's not part of somebody's data forecast, data center forecast. So he's saying that there, that people are. Analysts are still underestimating the amount to spend, the amount of revenue and infrastructure that's going to be built in.

[Josh Brown]

He could be right on the dollar amounts and very wrong on the timing.

[Michael Batnick]

Let me just, let me just run through these and then we could comment. So Ali's Bargain Outlet CEO said, I don't know.

[Josh Brown]

He said this is publicly traded higher.

[Michael Batnick]

Income consumers we define as over $100,000 household income. We continue to see that trade down and retention of those customers. We're seeing, we continue to see strong low middle income cohort at the 40 to $65,000 range. And our low income cohort has been stable. The CEO of Darden says as we come out of the third quarter into the fourth and we give you our expectations for Q4 people, even if they say they're feeling less optimistic, we haven't seen a huge correlation between that and dining out. So changes in consumer sentiment haven't necessarily translated to material changes in consumer spending. And then finally the CEO of Body Coat, which I admit I don't know what that company does. He said, so turning to outlook, obviously the market environment is mixed and the soft demand we saw most notably in automotive and industrial, has continued into this year. And in aerospace and defense, the underlying demand remains very positive, but there are some temporary headwinds, some supply chain challenges. All right, so the point is you speak to 100 different CEOs and they're all talking like not past each other, but there's pockets of, there's different economies within the economy.

[Josh Brown]

Yes, I agree. And I also. All right, two things. As soon as you said Ali's Bargain Outlet, I started thinking of Buck's Super Cool Stereo Store from, from Boogie Nights and I come on down to Books. Buck's Super Cool Stereo World.

[Michael Batnick]

Yeah, that's good.

[Josh Brown]

All right. And I'm very salt of the earth, so I'm surprised. I don't know what that is. The chat. Chat is telling me Ollie's has been a good stock. O L L I.

[Michael Batnick]

All right, you are, you are, you are onion powder of the earth.

[Josh Brown]

I am very salt of the earth and I have not been to an Ali's Bargain Outlet. But the supposedly the stock's doing okay. All right, I apologize guys. I just don't know what that, what that is. I agree with you. What economy?

[Michael Batnick]

Right?

[Josh Brown]

Because, because I promise you, I promise now they're all interrelated and everyone's spending is everyone's income. So we don't really have 50 different economies. But like I promise you, you're spending.

[Michael Batnick]

Is not Ali's income.

[Josh Brown]

That's right. Well, not yet because I haven't found one to shop at. But I promise you, the guys pulling the trigger at Blackstone about whether or not they're going to fund the next $5 billion worth of data center build out are not the same customer that Darden Restaurants is talking about feeling less optimistic. Like it's just it, it's two different Sony in two different worlds. It's literally two different planets.

[Michael Batnick]

Yeah.

[Josh Brown]

Now those things ultimately converge if things get good enough or bad enough. But we could have a multi speed economy with two different realities for different groups of people for a really long time. And you know, I want to remind people of 2022 was a rich person recession. Stocks crashed, bonds crashed, you couldn't sell a home. But for lower income people, they were getting raises. Now they weren't enjoying those raises because the price of eggs was up and the cost of credit card financing was higher. All right, I understand that, but that was a two speed recession in favor of lower income wage earners. These people were in a really good position with their employers. Hence the insane jump in quit rate. And all the raises that had to be given out number one and number two were crippling the stock market and forcing the Fed to jack up rates. So I'm not suggesting lower income people enjoyed 2022. I'm just going to tell you rich people felt that one way worse didn't necessarily result in layoffs but did result in some pretty nasty portfolio and real estate situations. So now imagine a wealthy family where their wealth is derived from, I don't know, commercial office space. Like that was not fun for them. That was way better for a, let's, let's call it a bottom decile or bottom two decile household. So we have two speed economies and three speed and four speed and K shaped, we have all that stuff. So I definitely agree with your premise like which economy and who are you talking to? So because everyone's going to feel things a little bit differently and that's why it's important to listen to what CEOs say about what's happening with their business, but not to then go out and extrapolate that across every business because the people building data centers are not the people eating at Olive Garden.

[Michael Batnick]

Most importantly, bank of America. Bank of America. Who serves probably I don't know if they serve more, more U.S. citizens than like any other business, probably, besides from Walmart. Moynihan was on cnbc and he said he's like, I know what the soft data is saying, but people are still spending. So it's not to say that people won't change their behavior. They're just not doing it yet.

[Josh Brown]

And some people are. Sure.

[Michael Batnick]

Some people aren't always.

[Josh Brown]

And we learned recently, like, half of consumer spending is now being done by 25% of the population or something. It's the definition of multi speed. All right, how's your Robinhood? Robinhood is being looked at by the top securities regulator in the state of Massachusetts. Just to give people context. The Massachusetts state securities regulators have this, like, longstanding reputation as being the toughest cop on the beat. They pride themselves in being like, the most pro or what they consider to be the most pro consumer state securities regulator there is. So it's not surprising this is coming from Massachusetts. They're investigating Robinhood's decision to launch a prediction markets hub that allows users to bet on the outcomes of a range of events, including March Madness college basketball tournaments. So basically, Robinhood found a loophole where they don't have to be a casino. They could just give people binary outcome bets, prediction markets bets on these sporting events. So you're not like betting the game like you would on MGM or Caesar's app, but you're betting the game. You're using a prediction market on Robinhood. And I think they just launched it. So Massachusetts Secretary of State Bill Galvin, in an interview with Reuters, said he was concerned that Robinhood was, quote, linking a gambling event on a popular sports event that's especially popular to young people to a brokerage account. Quote, this is just another gimmick from a company that's very good at gimmicks. So lower investors away from sound investing and, you know, this is. This is like sort of, this is the Robin Hood thing. It's like, we'll. We'll let you do whatever you want.

[Michael Batnick]

Yeah, I'm not a lawyer. They're not going to lose this case, are they? Like, people could bet on whether Apple.

[Josh Brown]

Not a case. It's an investigation. The state can find them and they can appeal it. I mean, look, so my. I've gotten very cynical. I used I'm pro regulation, but I'm also pro like, who gives a shit?

[Michael Batnick]

Yeah.

[Josh Brown]

These are people that cannot be helped.

[Michael Batnick]

You.

[Josh Brown]

You could step in and stop Robinhood from placing a prediction market trade using brokerage money. They will take the money out of the brokerage and do the goddamn trade somewhere else.

[Michael Batnick]

Yeah.

[Josh Brown]

Everybody knows it.

[Michael Batnick]

Yeah.

[Josh Brown]

So I don't. Maybe that sounds, like, overly cynical. I don't really know what to say. But like I told you on a show two or three weeks ago, I think it's just a matter of time before all of the brokerages are in sports betting and fantasy, because that's where the customers are going.

[Michael Batnick]

Yeah. I still don't believe that this is.

[Josh Brown]

What the Gen Zs want to do. This is what they. I don't want them to do this. I don't encourage this, but I also don't care. It literally doesn't matter to me. So maybe it's great. Massachusetts can stop them from doing it, but they'll do it in Rhode Island. I feel the same way I feel I felt about cannabis. I don't smoke weed. I don't eat edibles. Well, I'm just like, who gives a shit?

[Michael Batnick]

Yeah. Okay.

[Josh Brown]

You're not gonna stop anybody from doing anything they want to do in 2025.

[Michael Batnick]

I definitely don't care.

[Josh Brown]

So, yeah, I think they'll investigate. They'll slap a fine on them because they're totally doing it, and Robin Hood will pay the fine and they'll do it anyway.

[Michael Batnick]

Right.

[Josh Brown]

So, I mean, what's. What's the point? And in the Trump era, like, this is just what it is. So I think everybody needs to loosen up and just let these things play out and let the people who need to learn a lesson learn their lesson. I don't know. I feel bad that that's where I've arrived at this. Do you think it's because I'm 48 years old? I think at 38. I think at 38, I would be, like, railing against this. And now I'm like, do it. Do more of it. Help you lose everything. What am I going to do? I'm not. I'm not the world Police Leverage ETFs. So here's my question. What is the cause and what is the effect? Are the stocks that are the subject of leveraged ETFs down more because the leverage ETFs are forced to sell, or are the leveraged ETFs down because people are selling the stocks?

[Michael Batnick]

Both.

[Josh Brown]

It's not a riddle. Like, it's. It's chicken or egg, and I don't know the answer, why can't it be.

[Michael Batnick]

Chicken, egg and egg?

[Josh Brown]

I mean, it totally can, but one starts it here. Let me read the Wall Street Journal. Investors who loaded up on funds that doubled down on their favorite stocks were rewarded record highs. Now they are facing the downside. Who, who could have seen that coming? MicroStrategy has one of the big ones. That's like a really big, or was a really big product. The, the fund that offers investors twice the exposure to MicroStrategy is down 83% since November. Congratulations. Another one which does the same thing with Tesla is down 80, 80%. They are citing all these people who are in the Reddit forums complaining about how much money they lost. I don't know. Did anyone, did anyone buying these really think that, like, they were meant to be held for more than a few days?

[Michael Batnick]

So there is obviously still, unfortunately, a percentage of the population, the investing class, that doesn't know how these things work. The company's direction and the like cannot be more vocal that these are trading vehicles and not investing vehicles. If you impute like the amount of money that's coming in the volume, the daily, the, the turnover, I think Jeffrey Patak might have done this. The turnover is extraordinarily high. In other words, people are not overstaying their welcome in general. Right? I don't know if it's like four days or whatever it is, but for people that don't understand how these things work, no better way to learn than to get in.

[Josh Brown]

How is it possible that they don't understand how these work? To your point, the companies that offer these products are screaming from the rooftop. These are not, over the long term going to give you two times the return of the underlying. These are for short term trading. They say it over and over again. Yeah, everybody knows this.

[Michael Batnick]

So I.

[Josh Brown]

Can anyone not know this?

[Michael Batnick]

People learn. I learned this lesson early on. I was, I was trading Faz in 2010 and I was like, hey, wait.

[Josh Brown]

A minute, that's 15 years ago.

[Michael Batnick]

All right, okay, 15 years ago I was 25.

[Josh Brown]

People learned. Here's a public service. And here's from the article. Over a period longer than one day, returns begin to differ substantially. The Nasdaq 100 index has risen 20% since the end of 2021. The fund that offers leverage daily exposure is, is down more than 25%. Duncan, what else do you need to know?

[Michael Batnick]

Duncan, are you.

[Josh Brown]

How many people need to tell you this? Here's what I actually think is going on. I think everybody knows, but they put it on the trade yeah. And then it goes against them and they wait to get back to even.

[Michael Batnick]

Yeah, that's probably right.

[Josh Brown]

And then it goes on for so long that it's not even worth selling anymore in the, you know, that's what I actually, I think everybody knows and they, they think that they are going to be the person who gets all their money back when recovers and maybe sometimes that happens.

[Michael Batnick]

You can't.

[Josh Brown]

Most of the time it doesn't.

[Michael Batnick]

People like to gamble. Now I also think that again with, with obvious exceptions, I think like people aren't putting 150% of their portfolio in these, in these products.

[Josh Brown]

Okay. The biggest microstrategy fund, MSTU has posted almost 500 million of inflows year to date, including 312 million over the past month. So not only did quote unquote, investors put half a billion dollars into this thing since the start of the year, they're accelerating their purchases on the way down. Smart it is.

[Michael Batnick]

I'm kidding.

[Josh Brown]

But wait, wait, hold on.

[Michael Batnick]

No, no, no, you hold on, sir. In the last five days, if you just time this right. But here's the thing, it's up. No, literally it's up 43% in the last five days. So that's what people are chasing, 43% in five days. Where else are you going to get those type of returns, Mr. Brown?

[Josh Brown]

Nowhere. Who needs those type of returns? The hell is wrong with you?

[Michael Batnick]

So, but over the last month it's down. What? Oh, it's up over last month, over the last three months, down 33%. Yeah. You have to nail this thing. So I think you're right. People that are still in this, it's just trapped money, they know, begging to be made whole.

[Josh Brown]

And congratulations to the people launching these things because it doesn't matter how horrible the performance is, they just collect fees because people trap themselves in them and they don't sell.

[Michael Batnick]

Yeah.

[Josh Brown]

Or if they, or if the theme gets hot, they plow into it. Now I don't, I don't know what the fees are. 50 basis points, 80 basis, whatever it is, you're not, probably not collecting a full year's worth. Like you're probably not getting 80 basis points because the money doesn't stay for the year. But it's not supposed to. It's not supposed to. So I, I feel like these are a great business for the issuers. They're a terrible investment for people that think they're gonna get their money back. And for traders, maybe there's value here. I just don't know anyone I've never come across somebody who like this is how they made their fortune.

[Michael Batnick]

Yeah.

[Josh Brown]

View.

[Michael Batnick]

No, of course not. But it's, it's for traders.

[Josh Brown]

It's, you know and I guess if you're going to gamble, it's not worse than like far out of the money call options. It's just a different way to lose money. So. All right. I don't know. Congrats I guess to somebody who, sure. It's probably great for the contra traders the, the creation trades when, when there's 500. $500 million comes into this thing.

[Michael Batnick]

Yeah.

[Josh Brown]

Who's on the other side? Citadel.

[Michael Batnick]

Yeah.

[Josh Brown]

Laughing this. They're laughing their asses off.

[Michael Batnick]

Yeah.

[Josh Brown]

And with good reason. Let's put this up. Here's a Granite chairs Nvidia. So like just for people to understand what we're saying. Okay. The 2x long Nvidia ETF NVDL is negative 30% since, since January. The two time short Nvidia ETF is negative 6%.

[Michael Batnick]

Boom. Perfectly hedged.

[Josh Brown]

So nobody, nobody wins except the people trading against this stuff and the very lucky few who are timing their buys and sells. Perfectly. Perfectly hedged. One more. Microstrategy actually have two more. All right. Same concept. So this is the T Rex two times long MicroStrategy Daily ETF. It is negative 0.9% on the year. And the 2x inverse which bets against it is negative 61%. So just winning all around. Last one Tesla. This is, this one's really interesting actually. The 2x Tesla short is 52%.

[Michael Batnick]

Yeah, but look at that run. It was up one hundred and sixty percent.

[Josh Brown]

Yeah.

[Michael Batnick]

Okay, Josh, where else are you going to get those type of returns?

[Josh Brown]

And then the 2x long is down 60%.

[Michael Batnick]

Yeah, we, we know. They know.

[Josh Brown]

I guess they know.

[Michael Batnick]

They know.

[Josh Brown]

All right, now we're up to the part of the show where we do make the case and a mystery chart and we'll let. And, and we'll get out of here.

[Michael Batnick]

All right. So why should I buy NVDO?

[Josh Brown]

Quick update. I made the case on March 4th for K&SL. This one, this one's working. So this was that very niche insurance company chart up.

[Michael Batnick]

You gave me a deep dive on this one.

[Josh Brown]

Yeah, well, I went crazy on this one, so I wanted to give people an update. Yes, it's rallied a lot. I'm still long. I intend to make this a long term holding in my portfolio. It's small cap. It's not always going to do what it just did. Nobody should be under that impression. But these insurance stocks have been a beacon in, have been like a. Not a beacon, a haven in the storm. Berkshire Hathaway made an all time record high recently as well. But anyway, this is Kinsale which is in a very interesting corner of the property and casualty insurance market.

[Michael Batnick]

What do they do again, I forget.

[Josh Brown]

They do custom insurance plans for companies that don't fit the molds of what a large carrier would be interested in doing. They, they claim to be better underwriters of risk and they claim to be using a lot of AI to be able to do these types of custom tailored products. And they sort of have the, they sort of have a dominance in their niche. So I'm very attracted to long term investments like these where it's a really unique thing.

[Michael Batnick]

Congrats on the game.

[Josh Brown]

That's the story here. All right, I want to show you Rocket, so just let's get this out of the way. We don't endorse stocks here, we don't give financial advice. And Rocket Companies is the owner of Rocket Money, which is a longtime sponsor of the Compounded Friends. But I'm bringing this up today because there was some good news on the housing front today, some good data. The homebuilders looked pretty good for the first time in a while. And one of the things that I think is obvious is that mortgage companies are going to be like a coiled spring if we get into an environment where mortgage rates really do drop through throughout the course of the rest of the year. So assuming the Fed has the COVID to come down another 75 or 100 basis points this year, I think companies that are in the mortgage business are going to do really well. Rocket Companies is one of those businesses. They went public in 2020. Market cap is 31 billion. Last week they announced a deal to buy Redfin, which Michael and I, you and I talked about. Redfin is basically a lead generator for mortgage and real estate brokers. So it's home price listings and content around housing and Zillow. It's like Zillow, Rockets buying them. So Rockets buying them for $12.50 a share, which was a huge premium over its Friday close, but a huge discount to where Redfin was trading in 2021. Redfin shares ripped 70%. Rockets fell 14%. That's expected. Rocket says the combined company will achieve 200 million in run rate synergies by 2027. So I just want to show you. So forget about Redfin. This is rocket versus the 30 year mortgage rate since the company came public In August of 2020, you can see this very clear inverse relationship. So the red, the red line is rocket share price crumbling as inflation gets bad in 2021 and then falling further as the interest rate hikes start. And now what you can see is we had this little dip in mortgage rates, the 30 year mortgage rate earlier this year. Look how much Rocket went up when that happened. So from my perspective, there are a lot of companies that could work if and when mortgage rates really fall and stay down. This is one of the more obvious ones. The next chart I'll show you is just one year performance of Rocket. Like this stock is effectively very close to its, very close to its lows. It had a little bit of a rip when rates started to come down, but I think there's still a lot of potential if mortgages get more affordable. What do you think?

[Michael Batnick]

Yeah, no, I agree with the premise. To me, the stock just, just list stock. It's a no man's land.

[Josh Brown]

But it's. No, Totally, totally. There's no catalyst. Unless. Unless and until lower mortgage rates unfreeze the real estate market. And now you've got this arbitrage situation because they're buying a company.

[Michael Batnick]

Yeah.

[Josh Brown]

So it's in no man's land. But I think this will be one of the first to react if we, if we get, if we get more rate cuts.

[Michael Batnick]

Totally agree with you. Okay, good segue. Hint, hint to my mystery chart. Ooh. All right, this are. There's three leaders in the space and I'm showing you charts back to 2004 with the context that the current sell off is, Is pretty severe. Next chart, please. Showing the drawdowns. So, yeah, down between 34 and 38. Pretty nasty. And if I showed you these charts, you would have said, oh, like, yeah, what's happening in the, in the overall economy that these names are down so much? You would not think that the s P is 7% off its highs or whatever it is.

[Josh Brown]

These are down so much worse than the overall market. It's actually astounding. All right, it's KB Homes, Toll Brothers and Pulte.

[Michael Batnick]

It's. Yeah, basically I, I only pulled. You know what, why didn't I pull? Why didn't I pull? Pull. Pulte and toll. It's KB Lennar and Dr. Horton.

[Josh Brown]

Okay, close enough, but same thing. I think these are, I think these are the three big ones.

[Michael Batnick]

So. But if you, if you saw.

[Josh Brown]

That's pretty good though, right? Pretty good Guess if you just saw.

[Michael Batnick]

These in a vacuum, you'd say like, oh, so this goes to my point about the bifurcated economy. Like which economy are we talking about? Because the housing market is frozen and the stocks are getting crushed.

[Josh Brown]

It's so funny that our make the Case and your mystery charts kind of rhymed. Yeah, those. Listen, those names are going higher too. Again. If, if the Fed cuts rates and mortgage rates fall, those names are going higher. I almost think regardless of the economy.

[Michael Batnick]

I'd much rather be a buyer than a seller with those stocks.

[Josh Brown]

Yeah, I. So I don't buy falling knives, but if I did, I would buy one of those falling knives for sure. So. All right. Hey, this is a great show, guys. You know, we little went a little bit longer than usual. Thanks for sticking with us. Want to thank everybody who tuned in for the live chat. You know, we appreciate you guys so much. Also want to mention that tomorrow is Wednesday, which means an all new Animal Spirits with Michael and Ben. Thursday I will be appearing with Ben and Duncan on Ask the Compound and we do that show live on YouTube and then the replay on the podcast feed. So check me out on Ask the Compound. And then of course, at the end of this week, we are back with an all new the Compound. And friends, thanks so much. We'll talk to you soon. Whether you're just getting started as an investor or you're managing a multimillion dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial planner today, visit ritholtswealth.com don't forget to check us [e-mail] the compoundrwm. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.