The Compound and Friends — "Welcome to 2026"

Date: January 2, 2026
Host: Downtown Josh Brown
Co-Host: Michael Batnick
Guest: Ben Carlson

Episode Overview

The Compound and Friends kicks off 2026 with a dynamic roundtable on the first trading day of the year. Josh Brown, Michael Batnick, and returning guest Ben Carlson (of "Animal Spirits" and Ritholtz Wealth) dive deep into their favorite turnaround stock candidates for the year, analyze big tech's valuation paradox, reflect on the surprising resilience and pitfalls of stock picking, and discuss the central risks (and opportunities) in business and investing for the year ahead—especially in AI and private markets. The group brings candid insights and lively debate, making for an episode packed with actionable ideas and sharp market commentary.

Key Discussion Points & Insights

1. Turnaround Stock Candidates for 2026

(Timestamps: 03:21–16:00)

• Lululemon’s Proxy Battle

  • The show starts with a deep dive into Lululemon (LULU), which suffered a 60% drop and is embroiled in a proxy fight led by its controversial founder, Chip Wilson ([04:49]).
    • Josh summarizing Wilson's criticisms:

      "Finance focused CEOs don’t know how to attract or motivate creative talent... A company bereft of a visionary loses its singular voice for product and long-term strategy." (07:06)

  • The hosts debate if LULU can recover amid fashion trends, increased competition (Alo, Athleta, Viori), and whether activist pressure can truly revive the brand.

• Ben’s “Bottom Fishing” — Nike & Netflix

  • Nike (NKE): Ben is bullish due to the Caitlin Clark effect, believing the breakout female basketball star will drive major demand once her signature shoe drops ([10:09]).
    • Ben:

      "I’m still buying the Caitlin Clark trend. I think she’s going to be the female Michael Jordan." (10:11)

    • Nike is on an unprecedented four-year losing streak despite these positive signs (11:12).
  • Netflix (NFLX):
    • Despite a strong business, Netflix shares are in a 30% drawdown, with concerns over the proposed Warner Bros acquisition and a new push into podcast verticals ([11:32–15:54]).
    • Debate over whether the more aggressive pivot to podcasts is a bold strategic defense against YouTube or a sign of desperation ([12:00]).
    • Concerns about possible stock stagnation during regulatory wrangling over Warner Bros deal (15:06).

• Uber’s Path in the Autonomous Era

  • The group discusses whether Uber (UBER) remains underappreciated given its 35% surge last year, partnerships with emerging autonomous vehicle platforms (Waymo), and the possible impact of automation on its future ([16:00–23:03]).
    • Josh:

      "I think like a quarter of their fleet will be autonomous by the end of the decade." (18:43)

    • Ben describes his first Waymo ride as "magical," raising the question of how easily Uber can integrate this tech and whether widespread partnerships or Tesla’s closed ecosystem will dominate ([18:52–21:45]).

• Adobe (ADBE), Salesforce (CRM), and the Great AI Anxiety

  • Both stocks are suffering as investors fret that new AI tools will commoditize their core offerings ([23:22–29:50]).
    • Michael:

      “The prevailing view is that Adobe is not necessary if you can code so cleanly on Chat or Gemini or whatever. And I don’t believe that.” (24:28)

    • They note that narratives will swing wildly before the market truly knows the answer.

2. Market Performance Recaps and the Mag 7

(Timestamps: 31:06–41:48)

• 2025’s Contradictory Momentum

  • Michael details how stocks at their lows or record highs performed best in 2025—suggesting only extreme positions paid off ([31:06–33:15]).
  • Ben is surprised that of the "Mag 7," only Google and Nvidia beat the S&P 500 in 2025 ([33:21]).
    • Josh:

      "Is it wild that Nvidia very quietly went up 40% last year? ...it wasn’t even controversial." (33:39)

• AI Capex and Tech Valuations

  • They dig into S&P sector performance: strong EPS growth in tech actually came with valuation contraction, contrary to popular belief ([35:32–36:02]).
  • The "Mag 7" stocks started 2026, on a trailing basis, at lower P/Es than the year prior, except Tesla, which now trades at 300× earnings, reflecting its transition narrative ([37:31–38:31]).
  • Which Mag 7 Would You Avoid?
    • Michael: "I think it’s Apple." (38:47)
    • Josh counters that Apple’s services gatekeeper role insulates it, but he’d worry if their AI strategy lags ([39:59]).

3. AI’s Dominance and Market Risk for 2026

(Timestamps: 42:11–45:53)

• AI: Still “The” Market Narrative

  • A key quotation from a cited analyst:

    "65–75% of S&P 500 returns, profit and capital spending since the launch of ChatGPT have been derived from 42 companies linked to generative AI." (43:08)

  • The panel agrees the greatest risk in 2026 is a stumble or stall in the AI “capex miracle,” given its outsized contribution to S&P performance ([43:41]).

• Active Management Struggles

  • Only 27% of active mutual funds beat the market in 2025, compared to just 33% of S&P 500 stocks outperforming the index—"brutal" odds for stock pickers ([45:53–47:03]).
  • Ben:

    "Trying to outperform the S&P has been almost impossible... We’re not creating new [legendary] ones." (47:03)

4. IPO Favorites and What’s Next in Private Markets

(Timestamps: 48:43–53:38)

• 2026’s IPO Wish List

  • SpaceX is the overwhelming favorite ("How could it be anything else?"), while nobody wants OpenAI at these speculative valuations ([48:54–51:14]).
  • Michael:

    "I just don't want any part of OpenAI or Anthropic." (49:02)

  • Discussion of AI unicorns’ staggering valuations and their value for ordinary investors.

• Private Credit & Private Markets:

  • Michael is watching the private credit boom: Will private credit funds hold up if the economy turns? Are retail investors truly aware of the risks ([51:19–53:17])?
  • Josh recounts Boca Raton’s Via Meisner project falling into Chapter 11 as an example of how even a good economy produces failures in excess-risk projects ([53:07]).

5. International Equities — The Ignored Winners?

(Timestamps: 55:01–56:03)

• Ben asks if another year of outperformance (30%+ returns for international and emerging markets) will finally get US investors to care about non-US stocks (still little buzz despite big gains).

Notable Quotes & Memorable Moments

• On Uber’s Automation Challenge
  • Josh:

    "What Uber really needs is for there to be this thriving ecosystem of hundreds of players." (20:22)

• On Netflix’s New Podcast Experiment
  • Ben:

    "Is it a good indicator, or a sign they are freaking out?...Netflix is obviously terrified of YouTube." (12:00)

• On Valuations and Growth:
  • Josh:

    "Tech actually saw the largest valuation contraction, which is kind of wild. The EPS was up 34% and the price is only up 23% which is very healthy." (36:02)

• On Stock Picking’s Brutal Decade:
  • Michael:

    "If you're not overweight the big winners, you're just not going to keep up." (46:29)

• On AI Risk:
  • Josh:

    "Isn't this still the big risk for yet another year... that the AI capex story somehow stumbles?" (43:33)

Timestamps for Key Segments

• 03:21 – Turnaround candidates: Lululemon, Nike, Netflix, Uber
• 11:12 – Nike’s historic streak of annual declines
• 12:00 – Netflix’s push into podcasts; the battle with YouTube
• 16:00 – Uber as an under-the-radar value and its automation path
• 23:22 – Adobe & Salesforce: AI disruption or opportunity?
• 31:06 – 2025 stock performance recap: extremes rule
• 33:21 – Mag 7 review and surprises
• 35:32 – Tech sector: strong EPS, lower valuations
• 38:47 – If forced to avoid one Mag 7, which and why?
• 42:11 – "AI is still the main story"—AI’s disproportionate contribution to returns
• 45:53 – The pain of active managers and the S&P’s dominance
• 48:54 – Which upcoming IPO would you buy? SpaceX wins, OpenAI unloved
• 51:47 – Ben’s focus on the private credit boom; retail risk
• 55:01 – International and emerging market equities: great year, no buzz

Tone & Language

Candid, irreverent, and packed with data but never dry. The hosts blend expertise with unfiltered opinions ("fashion and exercise... trying to predict the comebacks is so difficult because we got three dads here talking about women's yoga pants" — Ben, 07:54). Banter and honesty drive the conversation, with humility about what they don’t know and which stories could change fast. The language is direct, colloquial, and assumes listeners are financially literate and enjoy inside-baseball market talk.

Final Thoughts

The 2026 opener for The Compound and Friends sets the stage for a year dominated by AI narratives, cautious optimism around select turnaround candidates, skepticism of high-flying IPOs (OpenAI!), and an ongoing reckoning for active managers. The team reminds listeners that, despite some narratives feeling "over," market leadership can rotate, and the risks around consensus trades (like AI and mega-cap tech) remain as central as ever.

For full episode disclosures: Ritholtz Wealth Podcast Disclosures