Pod Insights The Prof G Pod with Scott Galloway Prof G Markets: Robinhood’s Retirement Accounts and Disney’s Next Move — with Aswath Damodaran About this episode This week on Prof G Markets, Scott shares his thoughts on why Robinhood is starting to offer retirement accounts. Then Aswath Damodaran, a professor of finance at NYU Stern, joins Scott for a Lightning Round on Apple, Amazon, Bob Iger, Chinese stocks, and opportunities in the markets. Finally, we hear a prediction for Disney in 2023.
Show Notes:
Robinhood
Bob Iger
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Transcript 4,887 words · 11 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:18 Scott Galloway? This week's number, six. That's the number of people who showed up to the EU's $400,000 party in the metaverse. What should they have done? Given Hunter Biden $300,000 and a ticket to Vegas? And just see how things unfolded.
1:45 Scott Galloway? Welcome to Prof G Markets. Today, we're discussing Robin Hood's retirement accounts and a lightning round featuring our colleague, Aswath Damodaran. Aswath is perhaps one of the clearest blue flame thinkers we know. You'll hear his thoughts on Apple and Amazon's valuations, the Chinese markets, and where to look for investment opportunities, and more. Here with the news is Prof G Media Analyst, Ed Elson. Ed, how are you?
2:10 Ed Elson? I'm great. How are you feeling after your, your big day yesterday?
2:13 Scott Galloway? My big day? You mean my colonoscopy? That's right. So I asked Dr. Joseph, my gastroenterologist? Gastro, my gastro, that's what they call them, I guess. I went in, nurses all around, they're giving me the Michael Jackson drug. And for the first time, I felt like I empathized with Michael Jackson. Like, I sort of understood him just for a brief moment. He used that drug, I think it's called
2:34 Ed Elson? Where this is going?
2:35 Scott Galloway? They, he used that drug every night for 11 years to sleep. And I could actually see doing it. It is a really good sleep. But before I nodded off into Never Neverland with Michael Jackson, I said to him, I said, "Before you enter me,"
2:50 Ed Elson? Oh, God.
2:50 Scott Galloway? Uh, "will you scream, 'Surrender Dorothy' and pull my hair back?" And there was a pause, and then they all busted out laughing. I am a huge hit at Liberty gastroenterology. So anyways, they, they love me there. But anyways,
3:05 Ed Elson? How many of those tweets were you like drugged up on yesterday?
3:07 Scott Galloway? Uh, one, definitely one of them.
3:09 Ed Elson? I could tell.
3:10 Scott Galloway? Yeah, no, definitely one of them. But my offer stands. I've said, anyone who schedules a colonoscopy and tags me on Twitter, I will donate $250 to Charity Water. At the end of the year, I try and raise some money for them, or I try and come up with an interesting way to virtue signal and give money to Charity Water. So 250 bucks. This is, unfortunately, it's the third leading cause of cancer death. Chadwick Boseman, Kirstie Alley, Ertha Kitt. Who knew Ertha Kitt died of colon cancer? But anyways, it's a very curable form of cancer. And we have this fantastic preventive measure called colonoscopies. Anyways, I'm a big fan of these things.
3:49 Ed Elson? Looking forward to it.
3:50 Scott Galloway? Yeah, there, there you go. Another reason to get older. All right. What's going on with the markets?
3:54 Ed Elson? Let's start with our weekly review of market vitals.
4:03 Ed Elson? The S and P 500 declined through most of the week. The dollar fell against other major currencies. Bitcoin was relatively flat at around $17,000. And the yield on 10-year treasuries continued to fall. Shifting to the headlines. London became the world's biggest centre for fintech investment this year after receiving $9.5 billion in fintech venture capital. That was more than New York and San Francisco. Coinbase CEO Brian Armstrong said the company's revenue will be cut in half this year. The crypto exchange continues to struggle with the collapse of FTX and falling trading activity. The price of oil reached its lowest level this year at less than $75 a barrel,
4:46 Ed Elson? erasing much of 2022's gains. Russia's invasion of Ukraine briefly sent oil prices up to $140 a barrel in March. China announced a rollback on its zero COVID policy, loosening some restrictions such as mass testing and mandatory quarantines after the approach prompted protests across the country. And finally, the Trump Organization was found guilty on 17 counts of criminal tax fraud and falsifying business records. At issue was the company's practice of paying for employees' personal expenses, including apartment rentals, car leases, and even private school tuition for their children. Trump himself was not charged, but the Manhattan District Attorney says the investigation is ongoing.
5:31 Ed Elson? Scott, what is actually illegal about paying for employee expenses?
5:36 Scott Galloway? It's pretty squishy. And one of the advantages of having a small business or having your own business, quite frankly, is that you just get to expense a lot.
5:43 Ed Elson? I was just going to push back. Tuition, that seems, I mean, you're talking about a gray, squishy line here. That seems way over the gray, squishy line.
5:51 Scott Galloway? Yeah, tuition for someone's kid seems a little, that does seem over the line. And I'm sure he's guilty. The issue is everyone will go to jail except him. I mean, Michael Cohen went to prison. What was Michael Cohen doing? He was doing the president's bidding. That brings up a host of issues, specifically the IRS is underfunded. And it's very difficult to enforce regulations unless they're making a statement. When they went after Kim Kardashian for her endorsement of a cryptocurrency, there's probably a lot of people that have done something similar, but they wanted it to send a signal, so they go after high-profile people. I'm glad it happened because I think former President Donald Trump is a stain on the fabric of America that'll take decades to starch out.
6:36 Scott Galloway? But I think this is very political.
6:45 Ed Elson? For the first time, the commission-free online stock trading company Robinhood is offering retirement accounts. The company will offer IRAs and Roth IRAs, and also said it would pay a 1% match on all contributions made through the program. In other words, for every $100 you deposit, Robinhood will add an extra dollar. Scott, do you think this is a good idea by Robinhood?
7:09 Scott Galloway? Well, Robinhood needs to find something here. They were getting about 2/3 of their revenue from commissions on options and cryptocurrencies. So they were saying, hey, it's hysteria. Young people who are more risk aggressive have some extra money in their pocket because of stimulus payments. They built a shitty business that wasn't sustainable. And as a result, the stock is off 90%. My prediction is it goes down another 90%. So they need to actually find something that's enduring. And retirement accounts are sticky capital. If you put $1,000 into a retirement account, it's likely that that $1,000 will stay in that account for a long time. So, look, this is a good idea. Them offering 1% is just a discount. They're just saying, we raised a lot of money,
7:51 Scott Galloway? so let's try and buy retirement funds and go out and say for, you know, for $99, we'll give you $100 worth of retirement. This is just pure discounting. We'll see if it works. If you can set yourself up as the retirement account for young people such as yourself that are about to come into their prime income-earning years, it's probably a good idea. The problem with this is there's nothing differentiated here. It's not very difficult for another. Financial services company, whether it's Charles Schwab or TD Ameritrade, or you know, name your brokerage to offer the same type of discounting. There's nothing enduring here. I think what they're trying to do is take advantage of the fact that they have several million accounts and offer a new product. On the whole, it's probably a good idea.
8:31 Ed Elson? How much of this do you think is branding? I mean, you're talking about how they were sort of known as this risk aggressive, not investing but trading app. And this is now sort of leaning into now we're a safe place to store your assets and for people to buy and hold. Do you think a lot of that is branding or do you think this is purely financially motivated?
8:53 Scott Galloway? I don't think it was a brand move. I think it's essentially their business is collapsing. They took advantage of a bunch of drunk, you know, it was, it was 10:00 PM at Levin, the strip club in Miami, and it was the crypto convention on a Friday night and, you know, roll out the champagne and the cocaine and people are spending like drunken sailors. That doesn't last. That's not an enduring business.
9:18 Ed Elson? We all know we should save for retirement, but how many of us actually do it? This week, Prof G Media's Mia Silverio took to the street to ask people how they're preparing for retirement.
9:30 Speaker 03 You know what a 401K is? Yes. Do you have one? Yes. Do you contribute to it? Yes. What are your views on your retirement, like, financial planning wise? I feel like it's never going to happen. I don't contribute enough and I'll be working forever. Do you know what a 401K is?
9:52 Speaker 04 We're from Canada, so we may not be able to help very much. I don't, I mean, I know it's a savings plan in the US, but.
9:58 Speaker 05 No, I ain't retiring no time soon, actually.
10:00 Speaker 03 I think I just offended someone who was older when I asked her about retirement. Oh dear. Do you know what a 401K is?
10:09 Speaker 06 Sort of.
10:11 Speaker 03 Do you know an IRA is? A Roth IRA?
10:14 Speaker 06 Not really.
10:15 Speaker 03 Oh good, have you started saving for retirement?
10:18 Speaker 06 Have I?
10:20 Speaker 03 Yeah, how old are you?
10:21 Speaker 06 Like 22. Just like, no. Just like, yeah.
10:28 Ed Elson? We'll be right back after the break with a lightning round featuring NYU's Aswath Damodaran.
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12:57 Ed Elson? We're back with Prof G Markets. Scott, we're going to listen to your conversation with Aswath in a moment. But first, what have you personally learned from Aswath, specifically about how to value a company?
13:08 Scott Galloway? So Aswath is very unemotional. That's the thing I love about him is he can look at a company, first off, anyone who wants to learn how Aswath values a company can go to his YouTube channel. It's one of the most viewed YouTube channels in the world for financial advice. And one of the more interesting things he's been talking about recently is that, and it's really struck me, is what happens when baby boomers can't come to grips with the fact that they're no longer teenagers. And what he means by that is that what you're seeing in the growth market is all of these cloud-based companies and all of these go to big tech, high-growth companies are no longer growing, but they refuse to believe that they're aging. And they refuse to return money to shareholders in dividends or in stock buybacks because they believe that they should continue to
13:53 Scott Galloway? invest, they continue hiring, even when it's well beyond the fact that, okay, no matter how much botox you pump into your face, you got to get over it. Every company ages. He also talks about companies that are over punished or over rewarded. I think Meta is going to outperform the markets next year because it has been over punished, that everybody's assuming not only will Meta lose every dollar they're investing in the metaverse, and that's probably accurate, but they have decided to punish the rest of the business, which is still an amazing business. So I like Aswath because he's kind of like a just-the-facts man kind of guy. And he's, I think if I've learned anything about him, it's to be unemotional.
14:33 Scott Galloway? And I find that my emotions or my affection for a company or my disdain for it unduly affect my confirmation bias. I want to find reasons that Meta stock is going to go down. And after listening to him, I realized it's probably going to go up in 2023.
14:49 Ed Elson? Okay, with that, here is our lightning round with Aswath DeMudra, the Kirschner family chair in finance education and professor of finance at NYU's Stern School of Business, where he teaches corporate finance and valuation.
15:09 Scott Galloway? What are your thoughts on Apple's valuation right now?
15:11 Aswath Damodaran? You know, I own Apple because I think it has the most valuable franchise in the world in the iPhone. But the terrifying thing for me in Apple is I'm buying a smartphone company. I'm not buying a smartphone company that has an ecosystem that it can use to make money through the App Store. But it lives or dies with a smartphone. It has the most valuable franchise, but it's also the most concentrated in one product. So that's a plus and minus of Apple. Very valuable franchise, incredibly profitable, but all focused on that one franchise. The thing I find most impressive about Apple is the fact that they've had the discipline not to invest $200 billion in cash. You can buy
15:54 Aswath Damodaran? whoever, they can buy Netflix, they can buy Disney. To not do any of that, I mean, imagine the number of investment bankers and consultants lined up around one infinity loop saying, hey, we've got exactly what you want. And I think that discipline is what Tim Cook has brought to the company that I think has made Apple the most valuable company in the world.
16:15 Scott Galloway? Thoughts on Iger's return to Disney and Disney's valuation?
16:18 Aswath Damodaran? It's chaos. I mean, I trace this back to the board of directors at Disney allowing Iger, and in fact, it was both sides were complicit in this because he was supposed to leave in 2014 or 15, when he decided to stay on the bench cleared. So by the time you get to 2020, there was nobody on the bench, which is one reason Bob Chaper became their parent because really there was nobody, you know, who's left to take over the company who could, I mean, Alan Bergman is amazing, but he's, he doesn't want to be CEO of Disney. He wants to be a content guy. He wants to be in the, in the movie business. So I think that by doing what he did in 2015 and the board going
17:01 Aswath Damodaran? along with it, Iger set the stage for what we have today, which is a person ill-suited to run Disney coming in as CEO and essentially over the next two years managing to
17:15 Aswath Damodaran? Go to war with his own company on almost every dimension. And because there's no bench, they had to go back to Iger. So I'd be worried in 2023 that Iger is convinced to stay on another two years because they're not quite ready yet. So for the moment, people are celebrating the return of Iger, but I think there's a long term issue of who's going to run Disney after Iger leaves. What are your thoughts on Amazon? I think, you know, Amazon has gone through these cycles over its 25 year history. I think that it's almost like people go from never questioning Amazon to questioning them on every dimension. So right now, the big issue is will they ever make money again?
17:54 Aswath Damodaran? If you look at every business other than the cloud business, because all of a sudden people magically discovered that the margins outside of the cloud business are about half the margins that everybody else gains in that business. I've looked at how that business has changed over the last 25 years. They used to lose money. They've at least started to make money on Amazon Prime, you know, net of the shipping cost. So I think they're moving in the right direction. They're not moving at the speed I'd like them to. So I think Amazon is cheap at their 800, 900 billion dollar market cap. They're a company that knows how to load up bad earnings report with all the bad news. So in many ways, what you saw in their earnings report was they're dumping everything
18:36 Aswath Damodaran? that they wanted to reveal to the markets into one earnings report, say, hey, respond to this guys because it allows us to bring expectations down there. I mean, maybe I'm attributing too much power to them, but they're masterful at bringing expectations down and then beating them in future periods. Chinese stocks, what do you think of Alibaba and Tencent? Do you think there's opportunity there? If you're willing to have Beijing in your room as part of the story. I mean, that's the reality with Chinese companies is Beijing is always part of your story. And the problem with Beijing being part of your story is it's completely unpredictable. And it can make good stories bad overnight. So, I mean, I, I think Alibaba and Tencent are look incredibly cheap on any traditional metric.
19:22 Aswath Damodaran? But the realities of Beijing decides that they're not cheap enough. It could make them even cheaper. So I think for a long time, we actually gave premiums to Chinese stocks because we thought the government was in the room with them. Didi was given a premium valuation because the assumption was, hey, the Chinese government is on their side, they can keep Uber out. And they were right, they did keep Uber out. But now the Chinese government is in the room, they seem to have a different agenda than than Didi has about what the future should bring. And all of a sudden, investors are waking up to it. So, I mean, it is a reality that you have to accept. And if you are OK with Beijing being part of your story and you think that eventually Beijing is going to find a way to make the story a good one, then by all means, invest
20:06 Aswath Damodaran? in Chinese companies. But if you're uncomfortable with governments throwing their weight around and altering your story, stay away from Chinese companies, no matter how cheap they look.
20:16 Scott Galloway? What does look cheap to you? Where do you see opportunity in the market right now?
20:19 Aswath Damodaran? Big tech, because I have a feeling that big tech is being marked on way too much. I understand why people are down on it. Don't put your money in any one of them, because any one of them, you know, disaster could strike. But a portfolio of young tech companies, which have, you know, hit hard times, I think that that the upside that you might get in that portfolio is a good one. So I think there's a lot of potential in tech especially that has been marked down a lot over the last year. U S stocks have held up surprisingly well, given how much risk premiums and risk free rates have gone up this year. I mean, it's, you know, I think that, you know, my implicit cost of equity for U S stocks
21:00 Aswath Damodaran? has increased by the most I've ever computed in a in a single year. In the 40 years that I've been tracking that number, it's gone up from about five and a half percent to almost nine percent during the course of this year. And if you told me at the start of this year that your required return on equities is going to go from five and a half to nine percent, what do you think will happen to stocks? My answer would have been about a thirty percent drop in stock prices. And we haven't seen that. So in many ways, I think stocks have been resilient, given what's been happening in the macro environment.
21:33 Scott Galloway? It feels like for the first time, bondholders are getting some return or getting rewarded a little bit around some of the risks that they've taken. In terms of the market's moves in interest rates over the last twelve or twenty-four months, how should people be thinking about their portfolio allocation?
21:51 Aswath Damodaran? Well, new bondholders are really being rewarded. Old bondholders are being hammered. I mean, I think this has been perhaps the worst year for government bond and corporate bondholders in a long time. Because as interest rates have gone up, prices of bonds have collapsed by levels I don't think I've seen in a really long time. But I think finally, if you're lending money, if you're investing for the first time in bonds, you're getting a rate of return. You look and said, I could live with that. For the longest time, I looked at bond rates and said, I'm not investing at a one percent coupon rate for the next thirty years. I mean, it doesn't make any sense to me. In hindsight, you look and say, why did we ever settle for that? And I'm surprised that more companies didn't borrow more, to be quite honest. Lock in those rates for the long term.
22:35 Aswath Damodaran? Surprising number of companies have short-term borrowing that they took at the low rates, which actually gives them very little benefit. Because when that debt gets rolled over, you either have to replace with equity or with much higher rates. But I think the same thing could be said about individuals who didn't lock in thirty-year mortgage rates at one point five, one point seven percent. Because that might have been the best financial decision you could have made in hindsight over the last four, five, six years. But I think that we're getting back to a steady state. I think that the last decade was the aberration. Because in a sense, two thousand eleven through twenty twenty, if you look at it relative to financial market history,
23:16 Aswath Damodaran? was the strangest decade that you could have lived through as an investor, as a lender. So rather than think of things as being unusual now, really, this is a return to normalcy. A seven percent mortgage rate might strike you as insanely high if you're twenty-five or thirty years old. But I look at a seven percent mortgage rate and said, hey, that's what I borrowed at. Thirty years ago. So I think we're returning back to some degree of normalcy with interest rates, and that's a healthy thing, in my view.
23:53 Ed Elson? For more from Aswath, check out the December 1 episode of the Prof G pod, where he and Scott talked about Twitter, Meta, and the economic outlook. For now, let's take a look at the week ahead. We'll see inflation data for November on Tuesday, and the Fed will deliver its last interest rate hike of the year on Wednesday. The only question is whether it will be 50 basis points or the fifth 75 basis point hike in a row. Scott, do you have any predictions for us?
24:20 Scott Galloway? So my prediction is that Disney is going to make a big acquisition in the first half of 2023. I think Bob Iger, at the age of, I think, 71, has just come back. I have no idea why he decided to come back. He sort of rang the bell at the high. And I think the ad-supported media ecosystem is under attack, and he needs to do something kind of big and bold. And also, he has the license and credibility to do it. He didn't come back to just sort of manage the company slowly downward. And I think there's an outside chance that he acquires, makes a big acquisition like Roblox. And my thinking here is that, just as they've made a lot of really deft acquisitions where they could suck the IP or the characters, whether it's The Mandalorian or, you know, Woody and Buzz Lightyear,
25:05 Scott Galloway? and those are Lucasfilm and Pixar acquisitions, respectively. I think if they were to acquire Roblox, which has seen its stock, like every other company, get hammered pretty severely, it's now got about, I think, an $18 billion market cap, they could push Disney parks to Roblox. They could create the Disney-verse. 50% or more than half of kids in the US under the age of 18 are on Roblox. And I think the idea of taking the parks and some of that imagination and joy and characters out to, or disperse it out to, the Roblox community, if you will, would be an interesting idea. And I think Disney has about $160 billion, $180 billion market cap. They'd have to pay 25. So it'd be a 10% or 15% dilution, which would be a huge acquisition,
25:50 Scott Galloway? but it wouldn't be a Bet the Ranch acquisition. And if Disney were to say, all right, we're the leader in intellectual property and media for kids and family, and we have this unbelievable Parks business, and we've also moved the Parks business into, quote unquote, the Disney verse via Roblox. I like that type of acquisition. Anyways, my prediction is that Disney is going to make a pretty big acquisition in the first half of 2023. That's all for this episode. Our producers are Claire Miller and Jason Stavert. Special thanks to Catherine Dillon, Ed Elson, Mia Silverio, and the Prop G Media team. If you like what you heard, please follow, download, and subscribe. Thank you for listening to Prop G Markets from the Vox Media Podcast Network. We will catch you next week.
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