Podcast Summary: The Compound and Friends

Episode Title: Mag 7 Falls Behind, How David Adelman Bought the 76ers, Bill Ackman Buys Uber
Release Date: February 11, 2025
Host: The Compound (Downtown Josh Brown, Michael Batnick, and guests)
Guest: David Adelman, CEO of Campus Apartments and Owner of the Philadelphia 76ers

Introduction and Episode Overview

In this engaging episode of The Compound and Friends, host Downtown Josh Brown and Michael Batnick delve into a multifaceted discussion that intertwines high-profile business acquisitions, market dynamics, and investment strategies. The episode prominently features David Adelman, a prominent entrepreneur and sports team owner, offering listeners a deep dive into his journey and insights.

Interview with David Adelman: From Humble Beginnings to Sports Ownership

David Adelman's Origin Story
David Adelman shares his remarkable ascent from an 11-year-old learning the ropes by sweeping floors at Campus Apartments to becoming the CEO of a billion-dollar student housing empire. He recounts a pivotal moment when a childhood bet with his family friend, Alan Horowitz, led to him working off his debts by performing labor at Campus Apartments. This early experience instilled in him a profound work ethic and a deep understanding of the real estate business.

[07:04] David Adelman: "Student housing is the least cyclical business, almost 100% good business."

Expansion and Strategic Vision
Adelman discusses how he expanded Campus Apartments beyond Philadelphia, capitalizing on opportunities in Columbus and North Carolina. By 25, he was ready to take the helm, driving the company's national growth. His strategic foresight identified the fragmentation in student housing as an opportunity to unify and standardize high-end accommodations across various college campuses.

[09:03] Josh Brown: "How do you make this decision for which school is next after Penn?"

[09:06] Michael Batnick: "It's supply and demand. If there's enough supply, you're not adding value."

Community Involvement and University City District
A significant highlight of the conversation is Adelman's role in supporting the University City District in Philadelphia. Amid rising crime and community concerns, Adelman stepped up as the largest private sector supporter, contributing $500,000 over ten years to establish a four and a half million dollar operating budget for the district.

[20:22] David Adelman: "When most landlords in West Philly were hunkering down, he was the only one who contributed to this. You must have seen that your business and the state of the neighborhood are kind of intertwined."

Ownership by Ritholtz Wealth Management
Adelman introduces a new channel, Ownership by Ritholtz Wealth, aimed at discussing business ownership and wealth building outside traditional markets. This segment serves as a platform for entrepreneurs and shareholders to share their experiences and strategies for financial success.

Market Overview: Mag 7 and Beyond

Mag 7 Underperformance
The hosts transition to a critical analysis of the "Mag 7"—the top seven mega-cap tech companies that have historically driven market performance. This year, however, the Mag 7 has slightly detracted from the S&P 500’s gains, with the remaining 493 stocks outperforming.

[55:31] Josh Brown: "The Mag 7 is actually detracted from S&P 500 year-to-date performance. Not by much. The other 493 names are up 3.4 or 5% year to date."

Factors Behind the Shift
Several factors contribute to this shift, including geopolitical tensions between the U.S. and China, regulatory scrutiny, and increased capital expenditure among the Mag 7 companies. These elements have introduced company-specific risks that were previously mitigated by broader market trends.

[63:06] David Adelman: "Apple too. You're right, you're right, you're right."

Economic Indicators and Sentiment
The conversation also touches upon economic indicators like the ISM New Orders Index, which recently climbed above 55—signifying a potential manufacturing rebound. However, both hosts express cautious optimism, acknowledging that survey-based indicators can sometimes be self-fulfilling or misleading.

[74:36] Josh Brown: "It’s a survey, but whatever. So like, still, this is a historically good thing."

ETF Market Discussion: Proliferation and Risks

Surge in ETF Launches
The episode highlights an explosive increase in ETF launches, with over 100 new ETFs introduced this year, setting a pace towards 1,000 for the year. The hosts express skepticism about the quality and sustainability of many of these funds, categorizing some as "money incinerators."

[84:54] Josh Brown: "I'd like stupid people to have their money incinerated. How do you wake people up from their TikTok-induced stupor? It’s going to happen because you’re tired of getting over."

Risks of Leveraged and Themed ETFs
Particularly concerning are highly leveraged ETFs, such as a proposed 2x Leveraged Quantum Computing ETF with extreme volatility estimates. The hosts critique these products for being speculative and potentially destructive for uninformed investors.

[86:50] Josh Brown: "Let’s throw this up. We’re going to spend a minute on this because I think it’s probably the most interesting thing going on."

Individual Stock Performances and Strategic Investments

Highlighting Strong Performers
The discussion shifts to standout stocks that have demonstrated exceptional performance, such as Cloudflare, Palantir, and Spotify. These companies are praised for their robust earnings, strategic sector positioning, and ability to rebound from setbacks.

[78:11] Josh Brown: "Appropriate to learning hard lessons… pay more attention to us and we'll get you through it."

Bill Ackman’s Investment in Uber
A significant portion of the conversation centers on Bill Ackman's strategic investment in Uber. Ackman's move is portrayed not as activist investing but as a calculated bet on Uber's long-term viability, particularly in the autonomous vehicle sector.

[89:00] Josh Brown: "He thinks it’s well-managed. He's not an activist, at least not yet."

Financial Sector as a Bullish Play
David Adelman champions the financial sector, citing strong performances from major institutions like JPMorgan, Goldman Sachs, and Wells Fargo. The financial sector's resilience is attributed to higher interest rates benefiting profitability.

[95:04] David Adelman: "XLF is the second largest sector in the S&P 500 behind technology stocks, and it's way the hell up."

Private Equity and Wealth Management Integration

FS Investments and Alternative Investments
Adelman discusses FS Investments, his firm managing $84 billion in assets, focusing on alternative investments. The firm partners with wealth managers to offer transparent, alternative investment products, bridging the gap between traditional RIAs and the private equity space.

[46:31] Josh Brown: "RIAs know that in the end they're answering for whatever goes on. So that must be a big part of that effort is just transparency."

Emphasis on Transparency and Trust
A recurring theme is the importance of transparency and proactive communication in investment management. Adelman emphasizes building trust through honesty and early disclosure of any issues, aligning with the fiduciary responsibilities of wealth managers.

[47:05] Michael Batnick: "Your brand is everything. And so I say that to everyone I mentor."

Conclusion and Final Thoughts

The episode wraps up with reflections on market dynamics, the importance of diversified investment strategies, and the ever-evolving landscape of private equity and wealth management. Hosts and guest underscore the significance of adaptability, informed decision-making, and community involvement in both business and investment endeavors.

[88:54] Josh Brown: "Pay more attention to us and we'll get you through it. And we ain't crying about ETF launches. We're adults. We're over it."

Key Takeaways:

• David Adelman's Journey: From child labor to CEO and sports team owner, exemplifying perseverance and strategic expansion in real estate.
• Mag 7 Underperformance: Highlighting a shift in market dynamics where broader stocks are now outpacing traditional tech giants.
• ETF Proliferation Risks: Concerns over the quality and sustainability of the rapidly growing number of ETF offerings.
• Strategic Investments: Emphasis on strong performers and informed investment decisions, including high-profile moves by investors like Bill Ackman.
• Financial Sector Strength: Recognition of the financial sector's robust performance amid higher interest rates.
• Private Equity and Wealth Management Synergy: Importance of transparency and trust in forming successful investment partnerships.

Listeners are encouraged to follow David Adelman and the hosts on Instagram and other social platforms for ongoing insights and updates.

Notable Quotes:

• David Adelman at [07:05]: "Real estate, okay."
• Josh Brown at [20:22]: "We could do something good for the community and it can be good for us."
• Michael Batnick at [46:31]: "RIAs know that in the end they're answering for whatever goes on."
• Josh Brown at [73:16]: "You're going to get one reputation. If you guys did something inappropriate to your clients, how are you guys ever gonna be in that business again?"

Resources Mentioned:

• KellyIntel.com
• Ritholtz Wealth Management Disclosures
• Ownership by Ritholtz Wealth Channel
• Animal Spirits Podcast by Michael and Ben

Follow Us:

• Instagram: @TheCompoundRWM
• YouTube: youtube.com/TheCompoundRWM
• Podcast Platforms: Apple Podcasts, Spotify, YouTube

This summary encapsulates the key discussions and insights shared during the episode, providing a comprehensive overview for those who haven't listened to the full podcast.