The Compound and Friends – Episode Summary: "Market Bubbles With Owen Lamont, Autonomous Vehicles Everywhere, Barron’s Roundtable"

Release Date: January 15, 2025

In this episode of "The Compound and Friends," host Josh Brown and co-host Michael Batnik engage in a comprehensive discussion with guest Owen Lamont from Acadian Asset Management. The conversation navigates through the complexities of market bubbles, the burgeoning fields of cryptocurrency and autonomous vehicles, and the financial repercussions of recent Southern California wildfires. Additionally, the hosts critique the efficacy of Barron’s Roundtable stock picks, highlighting the challenges of stock selection in a volatile market.

1. Understanding Market Bubbles with Owen Lamont

Timestamp: 03:24 – 07:47

Owen Lamont introduces his framework, "The Seven Pillars of Market Bubbles," providing insight into the currently observable bubble-like behaviors in various sectors. While agreeing that the broader market isn’t in a full-blown bubble, Lamont points out "bubblish" elements pervasive across different investment landscapes.

Josh Brown remarks, “...the bulk of the gains for investors in this era have been through arguably the most high-quality companies that have ever existed. Are they tulips? Not really.” This emphasizes the distinction between quality growth and speculative bubble characteristics.

Michael Batnik concurs, stating at [04:27], “The broad stock market is... priced, but not obviously a bubble.” However, he remains vigilant for signs like a surge in IPOs, which could signal impending bubble conditions.

2. Crypto and Meme Stocks: Rational and Irrational Investing

Timestamp: 06:07 – 22:59

Lamont delves into the dynamics of cryptocurrency, particularly Bitcoin, highlighting the interplay between rational investors and what he terms "irrational" or uninformed traders. He references George Soros's paradoxical behavior in bubbles, illustrating the complexity of different investor motivations.

Josh Brown articulates a sense of market cynicism, observing, “...society has grown increasingly cynical. They turn politics into a game show. Why wouldn't we treat markets like...?” This skepticism extends to crypto, meme stocks, and the broader implications of financial narcissism.

Michael Batnik warns of the potential systemic risks as crypto becomes more integrated into mainstream finance. He notes, “If crypto collapsed today, I would expect it would impact the stock market at least some crypto-related stocks.” The conversation underscores the fragility and interconnectedness of modern financial systems.

3. Financial Impact of Southern California Wildfires

Timestamp: 43:03 – 58:49

The hosts shift focus to the catastrophic wildfires in Southern California, discussing both the humanitarian crisis and its financial implications. They cite a Wall Street Journal article profiling individuals like Sylvia Sweeney, whose primary asset—their home—was destroyed, erasing their net worth.

Josh Brown emphasizes the economic devastation, explaining how insurance payouts are insufficient in high-risk areas: “...what I see is that $800,000 sounds really generous... it’s not going to go far in the Palisades area.”

Owen Lamont echoes the severity, stating, “It's hard to imagine what these people are dealing with. It’s an absolute nightmare.”

They also analyze the stock performance of property casualty insurers like Allstate, Chubb, and Travelers, noting their typical recovery post-catastrophe due to increased premiums and improved underwriting practices. However, concerns remain about regulatory caps on insurance premiums, potentially leaving many homeowners uninsured.

4. Autonomous Vehicles: The Future of Mobility

Timestamp: 58:49 – 91:22

The discussion transitions to the autonomous vehicle (AV) industry, with Lamont highlighting significant advancements and market opportunities. Josh Brown underscores the technological and infrastructural necessities for AVs, particularly the need for robust, on-car computing systems independent of cloud connectivity.

Josh Brown elaborates, “...the decision has to be made on the car level, which is chips in the car that are making that call.” This points to the significant role for semiconductor companies like Nvidia in the AV ecosystem.

The hosts examine Waymo’s progress and challenges, including fleet maintenance issues and market penetration. They note that while AVs are making strides in major cities, logistical hurdles like maintenance and user onboarding remain substantial barriers.

5. Critique of Barron’s Roundtable Stock Picks

Timestamp: 56:07 – 82:25

A significant portion of the episode critiques the reliability and effectiveness of Barron’s Roundtable stock recommendations. Josh Brown presents a list of poor-performing stocks picked by the Roundtable, highlighting their consistent underperformance against market benchmarks.

Josh Brown expresses disappointment, stating, “...they're setting them up to fail. None of these people are stupid.” He suggests that the process lacks adaptability and fails to account for the dynamic nature of the market.

Owen Lamont acknowledges the difficulty in stock picking, especially in a market dominated by high-performing growth stocks like the MAG7. He adds, “Stock picking is always and forever really difficult,” emphasizing the impracticality of expecting consistent success from such recommendations.

6. Warren Buffett’s Philanthropic Endeavors

Timestamp: 91:22 – 93:56

The conversation briefly shifts to Warren Buffett’s significant philanthropic contributions, highlighting his recent conversion of 1,600 A shares into 24 million B shares to support family foundations. Josh Brown praises Buffett’s legacy, noting, “He trusts his children to do the right thing with it... philanthropic role has been dedicated for decades.”

Michael Batnik adds, “...credit to Warren Buffett and Alex Morris for following in his footsteps,” acknowledging Buffett’s influence on modern philanthropy and investing.

7. Highlighting a "Secret" Stock: Ubiquiti (UI)

Timestamp: 93:56 – 102:25

In a light-hearted segment, Josh Brown introduces Ubiquiti (Ticker Symbol: UI) as a "secret" stock with significant growth potential. He outlines Ubiquiti’s dual business model—serving small ISPs and offering enterprise products like ubiquitous Wi-Fi solutions.

Josh Brown enthuses, “...this is one of the most secretive publicly traded companies I've ever seen or heard of. Have you ever seen anything like this?” He details the company’s rapid valuation growth, from a $30 million IPO in 2011 to a $23 billion valuation, driven largely by founder Robert Pera’s innovative approach and limited public presence.

Despite skepticism about its long-term viability and maintenance challenges for autonomous fleets, Brown remains intrigued by Ubiquiti's unique market position and potential.

8. Concluding Thoughts and Future Discussions

Timestamp: 103:06 – End

As the episode wraps up, Josh Brown and Owen Lamont express their anticipation for future debates and discussions, particularly focusing on investment strategies and market behaviors. They extend gratitude to listeners, encourage engagement with their content, and promote upcoming episodes and associated programs like Animal Spirits.

Notable Quotes:

• Josh Brown [04:27]: “...the bulk of the gains for investors in this era have been through arguably the most high-quality companies that have ever existed. Are they tulips? Not really.”

• Michael Batnik [06:14]: “The question is whether they impact the stock market or impact bitcoin or whatever... we're in a recipe for disaster right there.”

• Josh Brown [07:12]: “There's this culture of meaninglessness or just like nor. I don't know what you want to...”

• Michael Batnik [09:40]: “Bob Shiller has talked about the mystique of bitcoin, the mathematical mystique of bitcoin.”

• Owen Lamont [25:02]: “Bitcoin is the difference between bitcoin and Beanie Babies. Beanie Babies were produced by a company that, you know, eventually made a lot of Beanie Babies.”

• Josh Brown [35:15]: “...when it stops going up, then there might be consequences.”

Conclusion

This episode of "The Compound and Friends" offers a multifaceted exploration of current financial trends and crises, enriched by expert insights from Owen Lamont. The discussion underscores the precarious nature of market bubbles, the transformative yet volatile potential of cryptocurrencies and autonomous vehicles, and the profound personal and economic impacts of natural disasters. Through critical analysis and candid dialogue, Josh Brown and Michael Batnik provide listeners with a nuanced understanding of the intricate interplay between market forces and real-world events.