Should Investors Befriend the AI Bubble? Lessons From the Dot-Com Era

Summary

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Episode Overview

Title: Should Investors Befriend the AI Bubble? Lessons From the Dot-Com Era
Podcast: The Important Part: Investing with Liz Thomas
Host: Liz Thomas, Chief Market Strategist at SoFi
Guest: Dan Greenhouse, Chief Strategist at Solus Alternative Asset Management
Date: July 8, 2026

In this episode, Liz Thomas and Dan Greenhouse candidly explore the possible parallels between the ongoing artificial intelligence (AI) investment boom and the dot-com bubble of the late 1990s. The discussion covers the necessity and risks of “unbridled enthusiasm” in investment cycles, when bubbles really become dangerous, indicators of irrational exuberance, and how investors—both institutional and retail—can approach markets in these high-flying times. Dan draws on his deep Wall Street experience, offering level-headed advice about navigating bubbles, managing risk, and keeping perspective.

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Key Discussion Points & Insights

Are We Reliving the 90s?

Similarities and Differences with the Dot-Com Era

• Dan opens by granting that comparisons to the dot-com boom are valid, although “not to the exact same degree” in terms of enthusiasm and valuation excess.
  • “There are undoubtedly similarities...conceptually, I don't see any reason why one should shy away from a comparison between then and now.” (Dan, 01:15)
• Key differences: In the 1990s, IPOs often had no revenues or business models; current valuation surges are at least anchored by real earnings (e.g., semiconductors).
  • “The just off the rails insanity...IPOs quadrupling, quintupling on opening day, going up by 2,300%...there are differences.” (Dan, 02:14)
• Liz argues that cycles repeat similarly: “This time is never different...there are different drivers...but the way that it sort of plays out...is really not that different.” (Liz, 04:26)

Quote:
“History doesn’t repeat, but it does rhyme.” – Dan Greenhouse, 05:08

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Signs and Sequence of a Bubble

Where Are We in the Cycle?

• The current period might be akin to “February or March of 1999” (using the Netscape IPO and ChatGPT release as benchmarks).
  • “The NASDAQ is doing basically the same thing...if you use the Netscape IPO date, we're in about February or March of 1999, that's about duration wise. That's about where we are.” (Dan, 06:20)
• True bubble excesses typically appear at the tail end, and the biggest gains—and losses—can materialize quickly.
  • “It wasn’t until November and December of 1999 that things went haywire...the tail end of ’99 became completely unglued.” (Dan, 07:07)
• Unlike the 90s, the 2020s tech rally is largely fundamentals-driven, at least for now.
  • “Stocks are going up at absurd rates...but you're seeing a wholesale change in the assumption [for earnings].” (Dan, 07:29)

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The Role of Investor Exuberance

Is “Irrational Exuberance” Now in Earnings, Not Prices?

• Liz suggests that rather than valuations, perhaps earnings expectations themselves are running unsustainably hot.
  • “Is it possible that the irrational exuberance is actually happening in earnings instead of stock prices?” (Liz, 12:19)
• Dan agrees: “Are we over earning? The answer is almost surely yes...but in the meantime, the numbers are real.” (Dan, 13:48)
• The risk is overestimating future demand and capacity, which could make the current “fundamentals” look illusory in hindsight.

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Befriending the Bubble: Should Investors Participate?

Pragmatic Approach to Riding a Bubble

• Liz proposes: “Shouldn't we be befriending the bubble? Because you can make a lot of money as the bubble is inflating...so who cares, right? Enjoy the ride.” (Liz, 15:00)
• Dan echoes a stoic, unemotional approach:
  “We are investors. To some degree, investing is supposed to be heartless...And whether it's the tulip mania or railroads or AI, any bubble throughout modern history, they go on for much longer than people forecast.” (Dan, 15:37)
• But warns: When corrections come, they can be brutal and sudden.
  “The NASDAQ was down, call it 30% in a month, 40% in two months, and that's the NASDAQ...very little time to react.” (Dan, 17:14)

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Timing the Top: Mission Impossible

• Dan advises against obsessing about trying to call the exact top:
  • “No one rings a bell at the top...what you want to be doing is not worrying so much about the 90s...You want to be looking for some evidence...that the investment cycle is ending.” (Dan, 11:09)
• The signal for a reversal is generally profit warnings or unexpected capex pullbacks, but the market often reacts before investors can adjust.
• Liz cautions: “Isn't it too late then once that's happening? ... by the time you hear about it...what if it's already down 30%?” (Liz, 19:28)

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Practical Investor Advice

On Portfolio Construction and Managing Risk

• Dan advocates a “core-satellite” structure for retail investors:
  • “The core of your portfolio should be a passive index...and then you have satellites around that” for specific themes or names. (Dan, 29:28)
• He underscores: Never speculate with money you'll need in the short term.
  • “You shouldn't do that sort of thing with your rent money or the money that you need to pay your mortgage...especially if you need that money in the next two or three years.” (Liz, 32:44)

Institutional vs. Retail: Who Can Afford to Be Concentrated?

• Dan: Institutions can comfortably build concentrated portfolios due to access, expertise, and resources:
  • “I should be very heavily exposed to that name, that sector, etc...that means in my world, a portfolio might be 20 names.” (Dan, 29:58)
• For most retail investors, “core-satellite” exposure is safer. Institutions "do this all day, every day" and have deep informational advantages.

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Debt and Other Systemic Risks

• Debt (both corporate and consumer) is a classic late-cycle risk.
  • “Absolutely. It's going to worsen the downturn. This is a fundamental shift...you're now effectively in some cases eating up all operating cash flow. And so you need to borrow.” (Dan, 22:17)
• Despite worrying signs (e.g., delinquencies), overinvestment might still have time to run—bubbles can persist.

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Other Sectors: Opportunities (and Risks) Beyond AI

• Energy: Dan is bullish on the sector, citing cash flow discipline and durable returns.
  • “The companies spit off a ton of cash flow...they are intent on shareholder returns to a degree that they have not been.” (Dan, 41:13)
• Healthcare/Biotech: Biotech is “always innovating” and high growth, while other sub-sectors have government headwinds.
• Software: The widespread software sell-off may have been overdone, but now the survivors—especially cyber-security—should be reexamined.
• Surprise Prediction: Liz jokes about a weather-driven agriculture rally (“El Niño”); Dan suggests a sudden de-rating for “defensive” staples (Walmart, Costco) if rates climb, but admits it’s a stretch.

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Notable Quotes & Memorable Moments

• “No investment cycle in human history has not been characterized by unbridled investor enthusiasm. That’s how things get done.” (Dan, 00:00)
• “This is going to lay the groundwork for some incredible innovation down the road. And we should all be incredibly excited about that.” (Dan, 03:54)
• “I am much more comfortable buying 10% after the bottom, knowing that I'm at the bottom...than buying 15% before the bottom, speculating, etc.” (Dan, 19:48)
• On writing and synthesis:
  “Writing is incredibly crystallizing. If you had to sit down and write about every day something you were passionate about...it just helps you focus on what matters.” (Dan, 36:53)

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Timestamps for Key Segments

• 00:00-02:14: Comparing today’s AI boom to the 90s dot-com bubble
• 05:08: “History doesn’t repeat, but it does rhyme.”
• 06:19-07:07: Relating ChatGPT (2022) to Netscape (1995) as inflection points
• 12:19-13:53: Is today’s “irrational exuberance” found in earnings projections?
• 15:00: Should investors “befriend the bubble?”
• 17:12: The brutal speed of market downturns
• 29:28: “Core-satellite” approach for retail portfolios
• 32:44: Practical warning: never speculate with money you can’t lose
• 41:13: Sectors with promise outside of AI—energy, health care, and more
• 44:03: Unexpected predictions for 2026

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Conclusion: Takeaways for Investors

• Recognize parallels to past bubbles, but don’t obsessively time the top—cycles only look obvious in retrospect.
• Bubbles are where innovation often happens (and fortunes are won and lost). Manage risk by sizing positions and not using needed funds for speculation.
• For retail investors: Anchor with index funds, then take thematic risks on the periphery (“core-satellite”).
• Don’t let dire headlines or pundits’ bubble-calling scare you fully out of markets prematurely.
• Stay agile—history “rhymes,” not repeats—and be ready to adapt as the story changes.

Final thought:
“Investing is supposed to be heartless. You're supposed to look at things stoically, unemotionally. And the better you are at that...the better investor that you would be.” (Dan, 15:37)

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Transcript

[Dan Greenhouse]

No investment cycle in human history has not been characterized by unbridled investor enthusiasm. That's how things get done.

[Liz Thomas]

Hi there. I'm Liz Thomas, chief market strategist at SoFi. And this is the important part. Today's bull market will not quit. Stock indexes are at record highs. AI is dominating the conversation.

[Dan Greenhouse]

This is going to start becoming a bigger theme, even bigger than it's been.

[Liz Thomas]

And blockbuster IPOs are all the rage. Shouldn't we be befriending the bubble? Starting to smell a little bit like the 90s. So is investor enthusiasm driving us towards

[Dan Greenhouse]

another boom and bust just off the rails insanity?

[Liz Thomas]

Our guest today, Dan Greenhouse, has been thinking a lot about that very topic. He's the chief strategist at Solus Alternative Asset Management and one of the sharpest minds on Wall Street. Dan, welcome to the show.

[Dan Greenhouse]

Thank you for having me.

[Liz Thomas]

So, before we get into it, I have to say nothing in this episode should be treated as a recommendation from SoFi. And this is not investment advice. All right, so let's get straight to it. Are we reliving the 90s?

[Dan Greenhouse]

Well, listen, let's have some fun and say the answer is both yes and no.

[Liz Thomas]

Okay?

[Dan Greenhouse]

There are undoubtedly similarities, and as I'm now officially old enough to say, I live through at least the tail end of that. The investment cycle is undoubtedly a mirro. Now, not to the exact same degree, the investor enthusiasm, maybe not to the same degree. Valuations, maybe not to the same degree, but conceptually, I don't see any reason why one should shy away from a comparison between then and now. And frankly, I've made that case in public appearances for a few years now. At the same time, for some of the reasons I just mentioned, there are some really important differences. The level of unbridled, and this may seem insane to some people living through now who did not live through then, but the level of just unbridled enthusiasm really is not quite what was then, having lived through, again, the tail end of it. Oh, the. The just off the rails insanity. Ipoing with no revenues.

[Liz Thomas]

Stocks isn't that. Well, I guess not. No revenues, no earnings right now, and

[Dan Greenhouse]

no path to revenue. The stocks splitting three times in a year, IPOs quadrupling, quintupling on opening day, going up by 2,300% in a matter of weeks, if not months, if not weeks. So there are differences. So the answer is yes and no. And we can obviously explore further. But I think the important part for investors out there from my standpoint, is there's no reason one should Shy away

[Liz Thomas]

from the comparison, but do you think we'll get to that point and we're just not there yet? Right. I mean, it's been sort of this heating up machine and things are, it's like every few months we add on a few more things to the list. Now we've got these mega cap IPOs coming, you've got some stocks, more stocks being added to the list that are up hundreds of a percent over the last year, some that people hadn't really even talked about or heard of before. So are we working towards that unbridled, what did you call it? Unbridled enthusiasm?

[Dan Greenhouse]

Unquestionably, I think the answer is yes.

[Liz Thomas]

Okay, but not there yet.

[Dan Greenhouse]

The famous saying that we all know on the street is nobody rings a bell at the top. You have no idea. So yes, we are building up towards something. But it's also important for everyone to remember that, that no investment cycle in human history has not been characterized by unbridled investor enthusiasm. That's how things get done. This is the. For all the poor words about capitalism these days, taking risks with your money, investing in unknown technologies, that's how things happen. And the modern technological world, Google, Facebook meta on down was built on the unbridled enthusiasm and overinvestment of the 2000s. And I imagine 10, 15 years from now, whatever that will look like will be built on the unbridled enthusiasm and overinvestment that's occurring now. So the answer is yes. And as an investor, obviously you have to be conscious of that. But from an, from a larger standpoint, from a broader economic standpoint, from a big thought standpoint, this is going to lay the groundwork for some incredible innovation down the road. And we should all be incredibly excited about that.

[Liz Thomas]

If we're looking at it from a market cycle perspective, a just market behavior perspective, I'm very much of the mind that this time is never different, that it really does happen in similar fashion almost every time. The only difference is what drives us there. So maybe it's a technological innovation, maybe it's some kind of exogenous shock. Maybe there's too much debt in the system. Right. Take us back to the mortgage crisis, something like that. Not enough transparency. So there are different drivers or different pockets of where that irrational risk taking occurs. But the way that it sort of plays out in the economy, in the market, if it unwinds, is really not that different.

[Dan Greenhouse]

History doesn't repeat, but it does rhyme. Sayings have, or they're born for a reason.

[Liz Thomas]

Right?

[Dan Greenhouse]

That's. That's a good one as well. Listen again, the question becomes now getting away from the larger this is going to be great in 10 years from an investor standpoint. I have a lot of nits to pick about how people discuss this. And the first point I would love to make is for people who are not there, the 90s was not one long giant bubble. It's not as if the market was going up 50% per year, 80% per year, year after year after year. And to that point, to illustrate it, if we compare the release of the Netscape IPO or the Netscape IPO in early August 1995, which if you were not there was a seminal moment in making the broader public aware of the Internet. If we take that date and we compare it to the release of ChatGPT today, and they're both similar in the sense that we all knew AI was being worked on for many years, but ChatGPT's release in Nove 22 was the first time that the broader public gained access in a meaningful way.

[Liz Thomas]

The technology trigger.

[Dan Greenhouse]

That's right, yeah. If we take the nasdaq, which is the, the tech heavy of all the indices, and we plot them together from that date and this date, we're doing basically the same thing. So if we use then for now, and what I mean by that is if you use the Netscape IPO date, we're in about February or March of 1999, that's about duration wise. That's a, that's about where we are. And obviously today being the distance from, from ChatGPT and why that's important is to people. Again, the NASDAQ is doing basically the same thing that it did during this bubble period. But again, I don't think it was a bubble then at this point, and I don't think it was a bubble now. The important point on this topic is it wasn't until November and December of 1999 that things went haywire.

[Liz Thomas]

Okay?

[Dan Greenhouse]

The NASDAQ was up 90% in 1999 and like 50% of the 1999 was just in those two months, the tail end of 99 became completely unglued from even the enthusiastic assumptions and forecasts that were going on before then. I don't think we've seen anything like that. And it's important to remember I mentioned earlier about the valuation differences. Yeah, stocks are going up at absurd rates. And sure there are exceptions, but if you look at something like Micron or Broadcom or any of the semiconductor stocks that have gone chart wise parabolic, they're not going parabolic because valuations are getting completely out of whack. They went from 100 times earnings to 500 times earnings. They're getting out of whack because there's been a fundamental rethinking of the earnings power of these companies for the upcoming third quarter. I looked the other day, Micron's revenue expectations are up like 100% for just the third quarter from just six months ago. Broadcoms are up like I'm making the, I'm rounding, but Broadcoms are up like 50% or 100% from a year ago. We've completely changed the earnings generation expectations for these companies in the last six and 12 months. And so what are the stocks supposed to do now? Should they have gone up less than they have? Maybe. And none of this should be an endorsement of either them business wise or investment wise. But you are seeing a wholesale change in the assumption. Contrast this with the 90s and we mentioned stocks going up multiple times after their IPOs. You had a whole host of companies and anyone my age and older will Webvan, iVillage, eToys.com, which at one point was valued more than Toys R Us despite having basically no revenues. You had just total unbridled excess in a lot of these valuations where stocks were going up 100, 200%. Again, some people will say not dissimilar today. However, the fundamental underpinnings of a lot of those moves were entirely theoretical. You were seeing nothing to demonstrate that the company's earnings power was changing, such that you should drive up valuations or multiples or prices. They were just the cab driver wanted to buy Webvan and so it went up. It became almost a larger, greater full thread.

[Liz Thomas]

But isn't that sometimes the indicator when the cab driver buys Nvidia?

[Dan Greenhouse]

Well, yes, but I think it's much different today because the invest and I was a kid back then, but the ubiquity of cnbc, of investment television, of investing as a sport, there's nothing like that today. CNBC ratings have not tripled. Bloomberg ratings have not tripled. People are not. I mean, there is obviously an enthusiasm.

[Liz Thomas]

Let's stick on that for a minute because maybe it's that CNBC has not grown, Bloomberg has not grown. But what about all the other content, the social content, the YouTubes of the world, the podcasts of the world? Hasn't the content grown? And the retail investor has. The retail investor base has grown. So the narrative has picked up because I feel like maybe it is closer to the 90s than you're saying.

[Dan Greenhouse]

Maybe my perspective is, is that it's not okay now. Again, I'm happy to be wrong by that. I just, my gut says the level of ubiquity then is greater than it is now. But, but I mentioned earlier that this is a. That had some nits to pick. This gets me into this. One of the second nits I want to pick, which is people are always looking right now. And more than any other debate that I've had on cnbc, this is the one that gets me. The most animated people are always looking for, well, this happened, therefore that, and in the 90s this, therefore that. Yeah, valuations were higher then, doesn't mean they can't go down now. Yeah, there was enthusiasm then and I think there's less now, but doesn't mean you can't go down. There's nothing about the comparison that says if we haven't achieved 90s version of X, therefore we keep going. And the point I want to make here is if you're investing in this, my advice is simply I mentioned earlier, no one rings a bell at the top. And what you want to be doing is not worrying so much about the 90s or the laptop or the shift from desktop to mobile in the case of phones in the 2000s. You want to be looking for some evidence, for lack of a better word, that the investment cycle is ending. You want to be looking for profit warnings or capex curtailments, not just because we've achieved our end, but because maybe ROI isn't turning up. You want to be looking for those sorts of headlines. And when you start feeling like, okay, what's been driving us higher is slowing down or reversing, that's when you want to start getting a little more, a little more reticent with your investment. And again, I'm not telling anybody what to do. Everyone's risk tolerance is different. But that, I think is an overriding point. Stop worrying about we haven't done X and just wait for someone to tell you this isn't going to go anymore.

[Liz Thomas]

Yeah, well, okay, let's come back to that. I want to talk about irrational exuberance for a minute. So, a term coined by Alan GreenSpan Back in 1996, my freshman year of high school, is it possible that the irrational exuberance is actually happening in earnings instead of stock prices? And what I mean by that is, to your point, let's not look at the 90s and say, okay, valuations are still below where they were. Then we're not there yet. The bubble isn't big enough. But look at the earnings projections, the revenue projections. And again, to your point that we've basically had to rethink what this looks like over the last six to 12 months because we're starting to realize how much demand there actually is. Right. We, we took it mainstream, AI has gone mainstream, not to mention all these new models coming out that we realize can do everything that other stuff used to do for us. Are we pulling too much of that into the now, too much of that expectation into the now and saying demand at this rate is going to stay this strong for the foreseeable future, therefore revenue is going to stay this strong. Companies are going to book out their semiconductor capacity by March of every year. Right. And that's probably not possible. So then is the irrational exuberance actually in the earnings, in which case the, when people make the case, well, but the fundamental support is there. You can keep buying because the fundamentals are there. What if the fundamentals are crap?

[Dan Greenhouse]

Yeah, unquestionably the answer is yes. I mean said simply, are we over earning?

[Liz Thomas]

Right.

[Dan Greenhouse]

And the answer is almost surely yes, but we are still over earning. But in the meantime, the numbers are real, the revenue numbers are real. And whether it's Dell or. I don't need to list the companies, we all know many of them. You listen to the conference calls and the AI related revenues. Some are off low bases, but even those off higher bases are up 48, 50, 100% year over year. And they every, every call to A, to A T says demand is greater than supply. And as long as you're in that type of environment, the bias for a lot of these names is going to be higher. Now that doesn't mean that some won't go. Obviously there have been some high profile misses, so to speak. I use Miss Loosely. Just they weren't as enthusiastic right about.

[Liz Thomas]

They didn't guide up as much as they could.

[Dan Greenhouse]

They didn't guide up as much. And that's the market being fickle. But the totality of the argument right now is you are still in the middle of this huge demand cycle and until that slows down, I don't know how you can, how you can be bearish. And I know those are famous last words, but it's been true for two years now and I think at least in the immediate future is probably the case.

[Liz Thomas]

So let me propose this, this is something I put in my outlook for 2026. The idea of befriending the bubble, even if it is a bubble, so what? Just get on board with it. Because you can make a lot of money as the bubble is inflating and we won't actually know whether or not it's a bubble until after it pops anyway. So who cares, right? Who cares while it's happening? Enjoy the ride. And isn't this is going to sound very, maybe heartless, but isn't a lot of our jobs in this industry to help people make money? So shouldn't we be befriending the bubble in a lot of ways?

[Dan Greenhouse]

Yeah. So I'm fond of shorthand saying, you know, we're not here to cure cancer. We are investors to some degree. Investing is supposed to be heartless. You're supposed to look at things stoically, unemotionally. And the better you are at that, I imagine not, I imagine, I would argue, the better investor that you would be. So, yes, you're supposed to in that sense befriend the bubble. And whether it's the tulip mania or railroads or AI, any bubble throughout modern history, they go on for much longer than people forecast. And my favorite talking point on this front is. The earliest reference I can find of the stock market being in a bubble in a publication is in the summer of 1995 when Floyd Norris called it a bubble. That was 1995. You had quite a run between 95 and 99. Obviously you brought up Greenspan and irrational exuberance. That was December 96. The market was up 130% from there until that real ending in 99. And then it went up obviously another 50%. At least in the case of the NASDAQ. The problem from an investment standpoint is when the, and we'll use a 90 analogy here because it's, it's a, it makes the point when the market peaked in on March, I think The Nasdaq was March 10, and the S&P was March 24 of 2000. The Nasdaq was down 33%, whatever, 30% in a month, 40% in two months, and by the end of the year was down 50% and by the end of the burst was down 80%.

[Liz Thomas]

So again, single stocks in there down even more.

[Dan Greenhouse]

Single stocks, Apple, Amazon, those stocks are down 90%. So to repeat that. So the NASDAQ was down, call it 30% in a month, 40% in two months, and that's the NASDAQ. And again, any number of names were down 50, 60% over that timeframe. You had very little time and there was no ring a bell at the top. You had very Little time to react. So as an investor riding the bull in 98 and 99 and then that tail end of 99 in early 2000 there were some warnings but they were discounted. But even if you paid attention to Lucent warning to some of the profit warnings from several companies later in the year it was intel and Apple and Dell. But even if you caught wind of some of those warnings earlier in the year, you had to decide. I'm lightening up on what is a generational run in stock prices, that super bowl ads are all.com companies. Everyone's getting rich. I know better than all these people telling me this is a once in a. And it was a once in a generation, once in a lifetime opportunity to make money, I'm going to start selling. That was an impossible.

[Liz Thomas]

But that's why I argued this time is. It's never different, right? You're people that are taking part in this. Most people are taking part in this. As you say, a generational stock opportunity. Markets are at. We've hit now 20 something all time highs in the S and P this year, right? And every single year we seem to hit a new record of that. There is this tendency in a time like that to think to yourself I am a genius, right? I have gotten this so right. Look at my unrealized gains. I am a genius. Therefore I will know before it bursts, I will lighten up. But the actual doing of it is not what people do. And then I want to go back to a point you made before about don't, don't bother trying to figure that out until you get some of those warnings. Wait until somebody tells you that profit guidance changed, whatever the case may be. In this case I think it's probably more like Capex starts to come down unexpectedly. But isn't it too late then once that's happening? Because if that goes out on an earnings call, if it's a bellwether company like Nvidia or one of the big, you know, hyperscalers that suddenly says, you know what, we were planning on spending that much on CapEx in 2020 going to do this instead the market will react to that immediately. So if it starts this cascade of stock prices back down by the time you hear about it or by the time somebody's told you okay, now there have been a few warnings we should, you know, what if it's already down 30%?

[Dan Greenhouse]

I'm not here trying to say to the average investor, for lack of a better word, a non institutional investor, ride it all the way and then have the foresight. What I'm trying to argue is research would show that more money is lost trying to time the top than riding it and selling on the other side. I am much more comfortable buying 10% after the bottom, knowing that I'm at the bottom. Yes, we're having at least more confidence than I am buying 15% before the bottom. Speculating, etcetera, etcetera. I mean, they're both going to end up being right. But on the way up, I mean, I can show you articles from 2014, from 2018, from 2021, all talking about the market being in a bubble. I mentioned the word ubiquity earlier and this is different from the 90s. The ubiquitousness of we're in a bubble talk has been pervasive. There are authors in newspapers that I have read for 10 years, 15 years that I can show you. They talked about a bubble in 2014, 2015, they talked about it. Now when we were doing the shift from desktop to mobile, there was tons of conversation as those stocks meta, et cetera. Then Facebook began to move higher. Google, there was tons of chatter about the stocks being in a bubble. And that was 10 years ago, 15 years ago. So I've, I guess the point I'm trying to make is that type of talk doesn't help in a bull market. And I guess to round out what I'm arguing, it's going to end when it's going to end. I have no idea when. You have no idea when. There's not going to be one conference call that says X is Y. And if you talk to people who are actively trading in 2000, they would tell you in March of 2000 there was no indication, there was nothing. The market just stopped going up. If I told you we were in a bubble in 2024, as many people did, you would have missed out on all the subsequent 2025, et cetera. It's very, I, I don't think Anyone who owned NFTs in 2021 would have told you we were in a bubble.

[Liz Thomas]

Yeah, that's fair. Do you think debt is something that investors should watch right now? That's, that's one of those indicators that is usually part of bubble periods where you start to see too much debt being used either by companies or consumers are overextended.

[Dan Greenhouse]

Oh, absolutely. It's going to worsen the downturn. This is a fundamental shift in the environment right now. Where you from as we know, you know, you and I know, but maybe the viewers don't. You are shifting from Funding this out of operating cash flow. You, you're now effectively in some cases eating up all operating cash flow. And so you need to borrow. That changes the complexion. Someone else is on the hook, so to speak. There are other cooks in the kitchen, the, the debt owners. And so it does change the equation a little bit. These companies are, are not constrained in any way. They borrow at exceedingly low interest rates, leverage ratios. It's, it's not at least thus far a problem for those companies. But again, you're sort of making my point earlier about whether it's the credit cards or the auto delinquencies or now we're borrowing. There's all these things, the mosaic we call it, there's all these pictures you can paint a mosaic of. Things are starting to get not great and yet that we're up 10%, 15%, 20%, whatever the number is, since each one of those observations got made. And again, I don't want to beat a dead horse here. This is going to end, it's going to end, it'll probably end badly. Money will be lost, overinvestment will have been exposed. Is that 2027 befriend the bubble in the meantime.

[Liz Thomas]

That's my point.

[Dan Greenhouse]

I know there's going to be people watching this and they're going to be like this guy

[Liz Thomas]

Doomsday out of his mind.

[Dan Greenhouse]

He's putting all these people into a bubble when it's obviously a bubble. And I'm not making any investment recommendation, that's an obviously time horizon, individual risk tolerance, et cetera. I'm just simply, I've watched the investment landscape become co opted since 2007. By, and I mean this, I say this all the time, no disrespect to him, but Nouriel Roubini wannabes. Now what do I mean by that? For people who don't know, Nouriel Roubini was a relatively unknown market prognosticator, economist who got very famous for cogently laying out the case for 2008 and then became a Wall street rock star, if you will. Deservedly so. And since then, the landscape is littered with people who want to be the next Nouriel Roubini. Calling everything a bubble. Downturn is just around the corner. And if you listen to any of these people for 15 years, you would have missed out on a generational bull market. College funding, healthcare funding, et cetera, et cetera, et cetera. And so my point, when, when I say people are watching this, going, oh, he's putting people in the. I just Simply say none of those people knew when it was going to end, despite any number of warnings that would have supported. And today no one knows when it's going to end, despite any number of warnings that would support that case.

[Liz Thomas]

Yeah, so back in 2022, we obviously we had a bad market in 2022 through 2023. I was pretty bearish. And coming from the macro side of it, there were warnings, right? There were a lot of tech layoffs in early 2023. The labor market, I think drives a lot of what the economy does. It drives consumer sentiment, all of that. So there were, there were a lot of cracks in the pavement at that time. And I was bearish all the way through 2023, much, much to my chagrin afterwards, because that was wrong, I think the risk. And I had to sharpen my pencil, go back and say I missed that. I was wrong about that. So what did I miss? And some of this is, you know, there's a technological revolution going on that does change the way that investor appetite looks at risk and it starts to change the way that the sector is made up. And I think that's maybe where a lot of people go wrong, is to like really dig your heels in and say, well, it's going to happen eventually. Of course it's going to happen eventually. And I'm not saying this to be self congratulatory, like, oh, I, I shifted and I became bullish. I didn't really overnight. I mean, I got more constructive and had to say, what did I miss? What did I get wrong about that? And I have been relatively bullish for the last couple years. So then the question is, okay, how do you be bullish but still be responsible? Right? How do you still give investors advice that's responsible and tell them to manage their risk? Do you tell them to trim positions on the way up? Are there, do you have rules? Do you have like, you know, if you're up 50% in a name, you trim it by a third?

[Dan Greenhouse]

Well, I mean, listen, we're just full disclosure, we're a hedge fund, right? So we don't deal with retail investors and managing portfolios. As to opposed portfolio planning, et cetera, we're just trying to make the highest risk adjusted return for our investors in the fund. But I imagine if I were to talk to retail investors, the answer is that as something goes up and becomes a larger portion of your portfolio, you have to reassess over time. And selling something down to right size it as a percentage of your portfolio doesn't mean you don't like the name or you want to get out of the name or anything like that. It just means there's a level of exposure I want to have to X. And when it gets to x plus 1, x plus 2, x plus 3, I just have to go back. That also means that it's been working. And so you can. And I know this in my personal life, I have seen people, well, the stock's up a thousand. Sandisk is up 2000% in the last two years. You're supposed to sell that down a little bit and take some chips off the table, as we say. But you can stay bullish and reorient your portfolio. I think the problem for a lot of investors now, I imagine, is the market is so darn dominated by AI and technology that, okay, I'm going to lighten up on my total AI exposure into what should I go? And the best number I can give you on this front is when you look at the S&P 500 and you X out tech and comm services, which is the obviously the two big technology sectors. The S&P is up 1.7% year to date. There's not pretty underwhelming. Yeah, there's not a lot of other names that are doing exceedingly well outside. So I understand why people would say, well, this is the theme of the day. It's working. How do I possibly reduce my exposure to it? But. But there are other things that are doing okay. And I think you can still be bullish and not maintain an irrationally exuberant exposure to technology. But I would reiterate, someone might have said that to you two years ago, three years ago, last year, and here we are, however many percentage higher.

[Liz Thomas]

I'm curious your thoughts on, on this and, and maybe give me an answer for institutional versus retail investors too. There's a school of thought out there that says the way to build true wealth is through concentrated positions. And you have to have concentration in order to do that. You don't have to get everything right, but you got to get three or four of them right. And then you're off to the races. And then there are stories, you know, famous investors over time who have done such things. Concentrated positions are required in order for you to really build wealth. And then there's obviously the diversification school of thought. You have to maintain a diversified portfolio to manage your risk and your exposure and so on and so forth. And your drawdown risk. Where does a retail investor fall out on that? And how do institutions. Because you see institutions do Things more so how do institutions manage that?

[Dan Greenhouse]

So from a retail standpoint, I would argue the vast majority of retail investors should be in what's called core satellite. And what I mean by that is the core of your portfolio. I defer to you and people who deal with retail investors much more than me. But the core of your portfolio should be a passive index. Do you want it to be the QS or the IWM or the spider, whatever it might be? But the core of your portfolio, 50%, 2/3 of your portfolio, should just be a passive index. The odds of you beating that are relatively low year in and year out. And then you have satellites around that because you follow the stock market and so you Want to own SpaceX or you want to own SanDisk or Micron or whatever it might be to try to tilt your portfolio and have fun with some individual names. So you have a core that's passive and satellites around it. And so any given year that core is going to anchor you to the broad market that I and the research would argue you're not going to beat year in and year out. But if you want to have fun, and that's totally cool, the satellites on the outside give you the ability to gain exposure to utilities vistra that, that are, that are providing electricity to the data centers or, or vertive, because you think the cooling story, et cetera, like you can do that. So for the retail side of things, I think that's the way that you're supposed to do things for institutions. And I don't want to speak for everybody, but so I'll speak for. So I'll speak for mix. SOLUS runs pretty concentrated portfolios. I can't talk about what we own, how much we own, et cetera, et cetera. But I'm of this, me personally, I'm of the school of thought that says why should I put more money into my seventh best idea when I can put it into my six best idea? I random hedge fund, Solus or whomever am a portion of your investor total allocation. You have some private equity, you have some hedge fund, you have some stock market, you have credit, et cetera, et cetera. For me, hedge fund, to be diversified on top of that allocation on your part would be to double up diversification. You already sprinkle your money in various places. If I then go and sprinkle my money in various places, I'm watering down the return stream that you'd like to get from someone like me. And so I believe wholeheartedly that if I find Something that is a high conviction, high educated idea that I feel strongly about forecasting, my ability to forecast it. I should be very heavily exposed to that name, that sector, et cetera. And so that means in my world, a portfolio might be 20 names. Now there's plenty of hedge funds that have many more names and of those 20, the top five, top seven might be 50%, 60% of the book, something like that. Now again, I'm not speaking for solace. I'm just saying in my mind, sure, that's what you pay me, an institution to do, to find these off the beaten path, not Walmart names that are going to do exceptionally well and, and through the type of due diligence that, that hedge funds and institutional investors are able to do, gain tremendous exposure to it. Can retail do that? Should retail do that? That's up to them. But it of course comes with tremendous risk. Assuming this isn't what you do all day, every day.

[Liz Thomas]

Well, and I don't think it's even just whether or not you do it all day every day. You shouldn't do that sort of thing with your rent money or of course not with the money that you need to pay your mortgage. Right. If, if you're going to take those risks, that's fine, right? Swim at your own risk. Everybody has a right to do whatever they want in their own portfolio and they don't have to tell anybody about it either. That's the nice thing about investing. You don't have to admit it, but make sure that you're not playing with money that you need to live your life. And, and I would say over the next, make sure you're not playing with money that you need over the next two or three years. Because if you hit at a part in the market cycle where we're right before a recession or a downturn, it doesn't recover.

[Dan Greenhouse]

You know, to that point. The talk about a well diversified portfolio, if you're in it. You mentioned earlier about long term holding periods. If you are someone who I've, I've got a 16 year old, my kid's going to college in two years. I can't lose that money.

[Liz Thomas]

Right.

[Dan Greenhouse]

I have, I'm, I know I'm going to buy a house in a year or whatever it might be. I have some expenditure you can't. So, so yeah, the market goes up over time but if you are approaching the time when you need that money to fund tuition or retirement or whatever, you, yeah, you better not be playing games because that, you could go through a period. I Mean, everyone may not know this, but after the market peaked in 29, 1929, it did not get back to its peak on a nominal basis until 1954, when the market peaked in 2000. Yeah, you almost got there in 07, but you basically didn't get back there. I think it was until 2014. The market does go through these long stretches where it does. That 1970s were a lost period for real stock prices for someone who. And as I'm stumbling to figure out what I want to say here, because I have another thought, which is when people sit here and say, well, why does he get to be all in on one stock and I don't, I can call up corporate management, management of the adjacent company, every sell side analyst who's known management who knows the industry for 30 years. I can get so and so on the phone who used to be a corporate insider. I can fly out to see the chemical facility or the mine or the headquarters. I can talk to other investors who've been in the name for many years and have ridden through the ups and downs. Institutions just have an enormous number of advantages on that front. By the way, the Internet's been enormously democratizing. You can get stuff on Twitter and the Internet that provides information for the average investor far beyond what was even 10 years ago, let alone 15 or 20. However, those institutional advantages I think would give an institutional investor a little more comfort being a little more concentrated in names. Give. Not that I'm not conveying anything like on the inside information. I just mean that Mosaic I mentioned earlier, it's called the Mosaic theory can be more holistically formed for someone who has that level of access as compared to an average investor.

[Liz Thomas]

And doing it as their job. Right. Doing it as their job and doing

[Dan Greenhouse]

it all day, every day. And this is another thing I don't think people understand. Finance is not the only industry. But I'm up at 4:00 in the morning. I've read every newspaper before some people even get out of bed. I know what's going on in Asia, what's about to happen in Europe. At nighttime, at dinner, my phone is on a Bloomberg vacation. You're doing conference calls on vacations? I did a conference call on my, on my wedding. I'm sorry, on my, my honeymoon. I've done conference calls from ski lifts. Yeah, it's. There's just a dedication. And that doesn't, that doesn't mean I'm better or institutional investors are better. I just mean this is what we do for a living.

[Liz Thomas]

You're living and breathing. And I mean, I think. And I get asked a lot. You know, how do you keep up with everything? How do you come up with talking points so much? You know, there's a lot of activity that I write all the time and we're on social media and I'm doing broadcast all the time. I do this podcast and it's like how I get asked the question, how do you keep that all in your head? And it's like, well, I'm doing it constantly. I'm constantly reading the headlines, I'm constantly reading research, I'm constantly talking about it, which means that I'm constantly synthesizing all of that into what my thoughts are on the topic or a handful of topics.

[Dan Greenhouse]

And you've seen Howard Marks level investors say this. Also, writing is incredibly crystallizing. If you had to sit down the royal you had to sit down and write about every day something you were passionate about, basketball, arts, whatever it might be, you would have rattling around in your brain all sorts of thoughts because you'd have to sit down and write a page on it every day, whatever it might be. It just helps you focus on what matters, why it matters. And that just is immensely important for thinking about investing and analysis. Just saying stuff out loud and oh, I read the headline. That's not good enough.

[Liz Thomas]

No. Well, and to be fair, you forget what you say out loud.

[Dan Greenhouse]

Writing as an investor, even on the buy side, is just so incredibly important for again, coalescing your thoughts and a narrative. And when people ask me, where do you come up with ideas? I always, I'm like, I'm always thinking. And I hope that doesn't come out pretentious.

[Liz Thomas]

Right.

[Dan Greenhouse]

I just mean we're always thinking, right? You have to think to write, you have to think to talk, you have to think to invest. And if you're doing something else, you're a dentist, a doctor, a librarian, whatever it might be, you are thinking about something else while I'm thinking about this.

[Liz Thomas]

Exactly. Yes. I think that's a great way to put it. Okay, back to some market stuff real quick before we finish up. Where do you stand on. On where we are with software?

[Dan Greenhouse]

I am not a large tech investor. Solus is not a large tech investor. So I'm not Dan Ives or an expert on this particular topic to the degree they are. What I would say is it was pretty clear we talked about parabolic charts earlier. When you've been investing for a while, you can just sometimes look at not charts per se, but narratives and know when something's not 100% and whenever anyone writes off an entire sector immediately like that, quite often it's a little overdone. And that was my feeling about what was going on with software. And I think you've seen the igv, which is the ETF that follows software for, for just a quick overhead view, has bottomed and come back not every name. But I think then the correct way to think about this is there are a lot of companies that are going to have different terminal values, they're going to have different cash flows and revenue expectations, seat based SaaS companies than was previously the case. And they are going to have to see a, have seen and will likely continue to see rerating lower on the back of those changed forecasts. I mean, because after all, what is a stock price but a sum of expected cash flows? So if you think those cash flows are going to be lower, you're going to mark them down and you're going to put a reduced valuation on them even with exceedingly high margins, 70% in some of these cases. But then there's a lot of other, and any number of people have made this case. There's a lot of companies, particularly the cybersecurity companies that are not going anywhere. No one is vibe coding well and

[Liz Thomas]

you could even argue the, a lot of the reason the IGV has rebounded, the software ETF has rebounded was because of those cyber names and not, not the SAS companies that everybody.

[Dan Greenhouse]

That's right.

[Liz Thomas]

And that part of the SaaS apocalypse.

[Dan Greenhouse]

That's correct. And that was sort of the point I was making, which is you were selling everything, which is a normal investor response to something to just sell first and ask questions later. Given the liquidity of markets, especially these names, you can get right back in, assuming you don't have compliance issues. But a lot of these companies are probably going to be okay. And again, I'm not, we're not very big, if at all in the space, but a lot of these companies are probably going to be fine for the immediate future. Now that said, ChatGPT is going to come out with its own more prominent coding agent. And so this is going to start becoming a bigger theme over the, over the coming however many months and quarters even bigger than it's been. But I think a lot of these companies are probably, they've got moats, they've got, they're ingrained in corporate America to a degree that no one is going to rush to change and they'll probably be fine. But, but that's the correct delineation. How do I want to divide up these software companies and which bucket is the bucket I don't want to be near? And which bucket's likely going to survive to a degree and do the work on those companies?

[Liz Thomas]

Yeah. Yeah. Okay. Before we wrap up, a few quick fire questions first, what's a sector that you think is opportunistic that has nothing to do with AI?

[Dan Greenhouse]

Well, we've been big in energy. Before the Iran war, the risk premium was virtually non existent. We've been in it for a few years now for this reason. The companies spit off a ton of cash flow up and down the market cap small, medium, large. They are intent on shareholder returns to a degree that they have not been. They've restrained investment. They are in some degree the AI companies before the AI companies in terms of just spending willy nilly returns be damned. That's not the case anymore. The refiners are able to print money right now, which is why the charts have done what they've done. So I still think the space is of interest because even when this war ends, and God willing it ends sooner rather than later, oil cannot go back to $50 anytime sooner. So, so let's say you settle in at 70 to 80 bucks. A lot of energy companies are perfectly fine and profitable to a large degree in that. In that range and will likely continue to perform pretty well.

[Liz Thomas]

Yeah. Okay. What do you think about health care? Asking for a friend. I've been pounding the table about healthcare for a long time and one of these times it's gonna work. I thought it was starting to work at the end of last year. Biotech was up so much by the end of the year and then it just sort of fell off the conversation list again.

[Dan Greenhouse]

We tend to shy away from areas where the government has involvement and a lot of healthcare does. It restrains productivity, it restrains investment, and by extension restrains capital returns. But I think biotech being the high growth area, if you will, GLPs are obviously a revolution. There are all sorts of ancillary benefits. They curb demand for everything, gambling, et cetera. They're probably not going to help the baby boom, but so there's a lot of ancillary benefits that'll come from those drugs. And so I think the biotech space is incredibly interesting on that front. Plus they're always innovating. Obviously it's a high growth, high risk area, but outside of that we don't go near something like managed care or I mean the hospitals are perennially high yield issuers so we've sort of been exposed to them from time to time, but hospitals aren't exceedingly profitable either. So, yeah, I think biotech's probably a great area of interest, but to the degree, that's always been a great area of interest.

[Liz Thomas]

Okay, last question. What is your most unlikely but could still possibly happen prediction for the year in markets?

[Dan Greenhouse]

Unlikely, but could still happen.

[Liz Thomas]

I'll give you mine while you think about yours.

[Dan Greenhouse]

Sure.

[Liz Thomas]

El Nino.

[Dan Greenhouse]

I'm not going to think about mine. I'm going to be listening to you.

[Liz Thomas]

El Nino is really strong this year in summer.

[Dan Greenhouse]

I was going to say that.

[Liz Thomas]

And takes out all the crops for the rest of the year and you've got this big boom in agriculture stocks. That's, that's my outside prediction.

[Dan Greenhouse]

Okay, so we're all really.

[Liz Thomas]

That has nothing to do with the war, nothing to do with AI it's like actually it was a weather pattern that changed the market.

[Dan Greenhouse]

That's very interesting. I, I honestly, nothing comes to mind. I'd have to think of it. That's a good question and I don't want to give you a short shrift answer. Off the top of my head, and I don't love this, let's pick a sector. Staples. Unlikely, but I guess could happen is Walmart and Costco re rate lower for some reason? I mean they are in effect tech companies, which is why they have such premium valuations. Again, I'm making no investment recommendations here, just thinking out loud. The rest of the space has really struggled under the weight of input costs being elevated and volumes being down. But maybe that's something that could possibly happen if interest rates go up up Walmart and Costco maybe come down a bunch. Again, I have no, we're not invested in those names in any meaningful way or at all. But off the top my head and again, I'm not happy with that answer, but I'll go with it now.

[Liz Thomas]

Okay, well, now it's on tape. You're stuck with it. Dan, thank you so much for coming.

[Dan Greenhouse]

This was my pleasure. This was great.

[Liz Thomas]

This was a clinic, I think, for investors.

[Dan Greenhouse]

I was told I was one of the sharpest minds on Wall Street.

[Liz Thomas]

So again, among. I said one of definitely not the.

[Dan Greenhouse]

So a clinic is what you should have expected.

[Liz Thomas]

Thank you.

[Dan Greenhouse]

No, thank you very much for having me.

[Liz Thomas]

As I said at the end of that episode with Dan, that was a clinic on investing and I knew it would be. He was the perfect guest to talk about all of that with some of the big takeaways. First and foremost, we talked a lot about comparing this time to the 90s, which, which I am sure many of you have already heard done a lot over the past few years. But basically the point being, you can't not compare it to the 90s because there are a lot of parallels and we should be aware of what those parallels are. But to his point, nobody rings a bell at the top. You're not going to know exactly when we hit that peak. So in the meantime, more my words than his, befriend the bubble, because even if it is a bubble, there still can be a lot of time between now and when that may burst. And case in point back to the 90s. A lot of the warnings about it being a bubble started in 1995, 1996, and the market didn't really turn until late 1999. So there was a lot of time in between. Second thing that I want to reiterate from what he said about retail investors is the approach to take as core and satellite. So having the core of your portfolio be some of that passive index exposure so that you're anchored, and then the satellite of your portfolio being the places that you might want to take a stronger position in. Maybe you have a strong opinion, maybe you feel a certain way about a certain company or a theme, and that is great and fine. But take it in a satellite position. And then some of the things that I talked about don't use money that you need to live your life in some of those really risky areas. Don't make big concentrated bets, cuts with money that you need to pay your rent, pay your mortgage that you need for liquidity in a soon period. And lastly, which I did not expect to talk about in this episode, is about writing. So as investors, or really just anybody, writing is such a good way to synthesize your own thoughts and even sometimes realize what you think about a certain topic. So if you're an investor out there trying to make sense of your own portfolio, trying to decide on a certain topic, I would suggest that you sit down and write about it and see what comes out. Thank you for listening and watching and I look forward to bringing you the next episode next week. For more from me, read my weekly column in SoFi's newsletter on the money and on the SoFi website, or follow me on xizthomistsstrap. Follow the important Part Wherever you get your podcasts. Important Important Part is produced by SoFi in partnership with Sony.

[Dan Greenhouse]

Podcasts Investments are not FDIC insured, are not bank guaranteed, and may lose value. Elizabeth Thomas is a registered representative of SoFi securities and a registered investment advisor with SoFi Wealth. This podcast is brought to you by SoFi Invest, which is a trade name used by SoFi Wealth LLC and SoFi Securities LLC. This podcast is for informational purposes only. Investing involves risk.