Prof G Markets: Carta and the Secondary Market, Bitcoin ETFs, and Scott’s 2024 Investment Strategy

Scott shares his thoughts on who stands to win and lose after the SEC’s approval of eleven bitcoin ETFs. He also discusses a scandal in the startup world and explains why there’s enormous opportunity in the secondary market. Finally, he breaks down his investment plans for 2024. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 0:59Scott Galloway?

  This week's number 34. That's the percentage of Japan's unmarried adults over 50 who have never dated. My wife has said that if we get over a million downloads of the Prop G pod, she'll let me do anal. So please stop listening. Her cock is huge.

• 1:17Scott Galloway?

  Oh my God, that's bad. That's bad.

• 1:20Ed Elson?

  Let's just fuck it.

• 1:33Scott Galloway?

  Welcome. Welcome to Prop G Markets. Today we're discussing the SEC's approval of the Bitcoin ETF. A scandal in the startup world and my investment strategy for 2024. There was a segue here with the news is Prop G Media Analyst Ed Elson. Ed, what is the good word?

• 1:54Ed Elson?

  I just you're you're such an old bloke. I'm sorry. It's gone.

• 2:01Scott Galloway?

  You should have seen, you should have heard me on Pivot this morning, or actually you won't. They're literally like, it's me, Cara, and three producers who are all women, and they literally like, every other minute they're like, oh, we're editing that out. Stop, Scott, we're editing that out. We can't, can't say that. We can't say that.

• 2:16Ed Elson?

  Claire, what do you think?

• 2:19Ed Elson?

  I think it's a good start to the year.

• 2:20Scott Galloway?

  What do you think, Claire?

• 2:20Speaker 05

  No, that's staying in.

• 2:22Ed Elson?

  Yes.

• 2:22Scott Galloway?

  Claire, gangster Claire, taking risks with my career.

• 2:26Ed Elson?

  That's right.

• 2:27Scott Galloway?

  Good. Okay. Go ahead, Ed. What's going on? What's going on in the market?

• 2:29Ed Elson?

  Let's start with the market vitals for 2023.

• 2:39Ed Elson?

  The S and P 500 posted a 24% gain for the year and saw its longest winning streak since 2004. The dollar ended the year down about 2% after tumbling on potential interest rate cuts. Bitcoin gained more than 150% as hopes for a Bitcoin ETF grew. More on that later. And the yield on 10-year Treasuries finished 2023 back where it started despite peaking above 5% in October. Shifting to the headlines, here's what's been happening over the last few weeks. Adobe abandoned its $20 billion acquisition of Figma after hitting regulatory roadblocks in Europe and the UK. We discussed that acquisition back in 2022 on our September 26th episode. The New York Times is suing OpenAI and Microsoft for copyright infringement.

• 3:21Ed Elson?

  The Times alleges millions of its articles were used to train chatbots that now compete with the newspaper. OpenAI has said the lawsuit is, quote, "without merit." A Boeing 737 MAX lost a door-sized section midair during an Alaska Airlines flight. Since then, more than 170 Boeing jets have been grounded, and the company's stock is off more than 10% to start the year. Activist investor Elliott has built a position of about $1 billion in Tinder owner Match Group. Elliott intends to improve the company's performance and boost its stock, though specific demands were not disclosed. Match Group's stock rose by as much as 12% after the news. And finally, the Consumer Price Index rose 3.4% year-over-year in December. That's higher than expected and the most in three

• 4:05Ed Elson?

  months. Housing contributed to more than half of the overall increase in the CPI. Scott, welcome back. Any thoughts?

• 4:13Scott Galloway?

  So, we talked about Adobe Figma and the idea of the new upstart innovator disruptor being purchased by the Death Star, Adobe, which is a great firm and does a great job. You can just expect that naturally over the next few years, you'd have higher prices and a concentration of power. So, one, I think it's the right decision. What's probably most interesting about this is that the EU would constantly stamp its feet and get angry at big tech. But the general consensus was it doesn't matter. It's a nothing burger because they can't break up a company that's domained or headquartered in another country. But effectively, the EU was the one that weighed in here and they killed the acquisition.

• 4:55Scott Galloway?

  Because Adobe said, if we're not going to be able to operate this company in Europe, we can't do this. And they paid, I think, a nine-figure breakup fee. At the time the purchase agreement was announced in September, the $20 billion represented 12% of Adobe's market cap. And European regulators are effectively putting on a masterclass and saying, look, just because you guys are either obsessed with big tech, or that they have weaponized government, or that you're so old, you don't understand this technology, or you want to feel like you're younger again and being pro-big tech feels like, you know, Botox in your face. We don't have to go that way. And so, I think this was the right thing to do. I think it's interesting that the EU regulators were the one that inspired or

• 5:40Scott Galloway?

  got in the way of it. And I think the design market and the creative market benefits from having lower prices and competition here. The Boeing crisis-

• 5:48Ed Elson?

  Just on Adobe, that $20 billion number, and you mentioned it's 12% of the market cap. It feels like that was the major clue here. Because at the time that they made that- Bid, the company's last valuation was $10 billion and at the time it was making $450 million a year. So that's 45 times sales. So I think the question that probably the regulators are asking, were asking themselves is like, what is this premium that Adobe was willing to place on Figma and why were they willing to pay it? And in my view, it's like, it's a monopoly premium.

• 6:23Scott Galloway?

  I think that's exactly right. I think if they had both the kind of subscription base, creative, you know, kind of creative tools with relationships with the biggest companies in the world, and then they own the upstart disruptor innovator that everyone is excited about, that has better future functionality, they kind of own it. I love that the EU here has stepped in and got in the way of an acquisition or a merger. Yeah, it's an acquisition, not a merger, that just shouldn't have happened. It would have been bad, bad for consumers. So let's talk about Boeing. It makes for a great headline. I would argue that Boeing is probably a good buy right now because

• 7:04Scott Galloway?

  while I think their primary business is commercial jet manufacturer, they're a big defense contractor. I do think it's a well-run company. Nobody was hurt. And, you know, my guess is more people, more people had, you know, were killed by EVs yesterday. It's just, it's very dramatic to see the side of a plane bust open. And the 737 plays such a critical role. The 737 is really the workhorse of the skies. And so there's a real vested interest on the part of airlines and manufacturers and parts manufacturers to get 737s back in the air. But the thing about it is speaking of a concentration, the commercial jet manufacturing business is really a duopoly. It's Airbus and it's Boeing.

• 7:48Scott Galloway?

  So I think Boeing is going to be fine. Its stock is down. I mean, what happened here? A teenage passenger had his shirt sucked off his body. That sounds like a pretty good TikTok. I hope someone was filming that shit. But I don't know why the idea of a piece of the fuselage just coming off randomly like mid-flight, I find that funny. I don't know why. I imagine it was terrifying. I just, I mean, you're really not expecting that. It's like, You're, you're sitting in the aisle seat and you'll hear a sound and you look over and all you see is terrain because there's no longer a fuselage. I mean, how do you even process that?

• 8:32Scott Galloway?

  How do you, I'm glad no one was hurt.

• 8:34Ed Elson?

  Off at all.

• 8:35Scott Galloway?

  And no one was hurt. You gotta think that those people might have a wee bit of a fear of flying for a while. It's just not easy. Like, imagine how many drinks those people are gonna order the next time they get on a flight. By the way, if you have a fear of flying, just, I find that Bloody Marys, there's something about tomato juice and vodka that helps in any situation, but I find it really helps. I had a bit of a fear of flying for a couple of years, no idea why, I don't have it anymore. But, yeah, I think Boeing, I think Boeing's gonna be fine and I think this makes for...

• 9:07Ed Elson?

  I mean, to be fair, it's the, it's the, it is the third crisis in five years for them. And the previous two, and the first one was in, in 2018, when the MAX 8 crashed and it killed like almost 200 people. And then the, the other one was in 2019, when another MAX 8 crashed and it killed close to the same amount. So, I mean, there's been some serious damage and lives have been lost in the past. I guess the question is like, does the image of the fuselage falling off, is that enough for buyers of the commercial aircraft, i.e. the airlines, to say, uh, we don't really trust Boeing anymore, this is the third crisis in five years and we're gonna switch to someone else? And as you point, that it's probably their only other option is Airbus.

• 9:52Scott Galloway?

  The purchase cycle for these things is so intense and long. I mean, you're, if you're, if you're selling an Airbus, if you're a salesperson for Boeing or Airbus, you're literally talking to people 10 years before they take delivery of the aircraft. These are such enormous purchases, they're, they're so complicated. And the 737 is so intrinsically rooted in airlines' businesses from their operations, their parts, everything, even the, you know, the jetways that are calibrated for a certain type of aircraft. So, I don't think, I think everybody has a vested interest in getting these things back in the air. What I would, the loss of life from the 737 MAXs that crashed is tragic, but the question

• 10:34Scott Galloway?

  I would have back is like, how many people died in General Motors cars this past week? And what's interesting is that it's all relative and it's based on expectation. And one of the gangster moves... Business in the FAA and Boeing was early on, they created a set of safety standards that were just unparalleled in the world of transportation. When you think about it, flying technically to skirt along the atmosphere and near the speed of sound, technically, you'd think if you didn't know anything would be more dangerous than driving 30 miles an hour around your town. But guess what? It is a fraction is dangerous. It's exponentially more dangerous to drive to the airport than it is to fly 3,000 miles once you get there.

• 11:16Scott Galloway?

  And so our expectations have been sort of zero tolerance for air travel. And there have been entire years where there has not been a single commercial airline disaster. And that is such a remarkable victory. And it makes flying, just the whole concept. I mean, I don't know about you, but occasionally I'm up in the air and I'm looking out the window, I'm like, what the fuck? How does this thing?

• 11:37Ed Elson?

  It's crazy.

• 11:38Scott Galloway?

  How is this thing even up here? And I start freaking out and I start ordering more drinks. And like, this just makes no sense.

• 11:43Ed Elson?

  Yeah.

• 11:44Scott Galloway?

  And the fact that 98% of the public is willing to get in this steel tube with recirculated oxygen and skirt along the atmosphere and feel fairly relaxed is just a remarkable achievement. So I think this will go away, hopefully as fast as it popped up.

• 12:00Ed Elson?

  Let's talk about New York Times and AI lawsuit. I think that thing's crazy and worth talking about. What are your thoughts on it?

• 12:07Scott Galloway?

  Well, so I don't know if you know this, but I was on the board of the New York Times.

• 12:12Ed Elson?

  Bingo. We need a sound effect every time.

• 12:16Scott Galloway?

  There you go. Every time I say that, it should be a drinking game. Every time I tell people, remind people I was on the board of the New York Times.

• 12:22Ed Elson?

  Yeah. Actually, please, if you're listening to this, please take a shot every time Scott says that.

• 12:27Scott Galloway?

  So no joke, in the second board meeting, I said, all right, I'm not going to say anything in the first board meeting. And the second board meeting, the chairman, Arthur Sulzberger, says, what are your thoughts? What do you think? We should, you know, any suggestions? I'm like, we should immediately call all the major publishers and form a rights group, a consortium, and we should turn off Google. And I basically got laughed out of the room because they thought, oh, we're, they're going to send us a ton of traffic and we're going to do ads. And it was pure idolatry of innovators and us pretending that we were younger than we were. And that was the time to have done it. And we could have all bound together and then pitched all of the content from Condonast, Pearson, News Corp, New York Times, Russian Post as one unified group and somebody would have bid a lot of money.

• 13:09Scott Galloway?

  This is that moment for AI, specifically the Washington Post, New York Times, and they're making the same mistake again, and that is they're going about it alone. Reuters has cut a deal, the New York Times is thinking they should do their own deal. And the New York Times now, like then, is incredibly arrogant and doesn't recognize that they alone are much less powerful and important than these AI folks, that it needs to be almost everybody speaking with one voice. And somebody, it might be an anthropic, that is trying to catch up to OpenAI, might say, we're raising money to $30 billion market cap. Dear consortium, if you give us all of this amazing content to feed into our LLMs, Penguin Portfolio and Random House, Axel Springer, all of them, right?

• 13:50Scott Galloway?

  We will give you 3%, 5% of our, you know, of our shares. We'll give you a billion or billion and a half dollars for a three, four, five year exclusive. So it's, they need to get real cheddar. And the problem is none of them want to cooperate or coordinate. They all have a outsized sense of their own importance. And I worry the same thing's going to happen again, where they're going to atomize it. So I think this is a unique moment in time, and I hope they don't fuck it up again. Any thoughts on Elliott and Match? Well, Elliott now arguably has the best brand in activist investing because right on the announcement, the stock's up 12%. And I think they do a great job. I think Jessica Coen does a great job, and they embody what is the key approach to activist investing. And also to be learned a lot in terms of negotiating.

• 14:33Scott Galloway?

  And that is, when I was an activist investor, my counsel was a guy named Stuart Stein at Hogan and Hartz and announced Hogan Lavelle. And this guy was just, is brilliant. And he used to advise me on how to handle these things, write the letters, or I would draft them, he would edit them. And he said something that has always stuck me. He said, you always want every campaign and every communication, when you're a cognitive company, you want to be two things. You want to be forceful, yet dignified. You never want to make it emotional. You never want to make it, you know, personal or win lose, but you want to stay your objectives very clearly, what you want, be very forceful, but be dignified. And that, I think Elliot reeks of that. They're not writing

• 15:18Scott Galloway?

  poison letters. I know some of their targets. I've talked to some people they've taken stakes in, including AT&T. And generally speaking, the CEOs like those guys. Having said that, if they don't do what they want, they're not afraid to nominate directors. So the market clearly has a lot of respect for them. Whenever they do something, I think I wish I'd thought of that because the Match Group, you know, it's done okay, but the whole market cap for what is kind of the leader in what is the way people meet now is $11 billion. So it's, it strikes me that there's opportunity here and that, you know, I think they're going to do really well. I think the investors in Elliot and I think in this situation, they're going to make money. What do you think?

• 16:02Ed Elson?

  Yeah, just to add on, I think the other thing that you got to recognize with Match Group, which I don't think people talk about enough, it's kind of like the least discussed monopoly in business because Match Group owns basically every major dating app apart from Bumble and Grindr. It owns Tinder, it owns Hinge, it owns OkCupid, Match.com. And then if you put all of its assets together, it makes up around 60% of the American dating app market. So I would bet Elliot looks at this and sees it's trading at like three and a half times sales compared to Bumble, which is at two. So it's higher, but still comparable. In addition,

• 16:43Ed Elson?

  it's, it's offering competitive pricing, like a Tinder subscription costs five bucks a month and Bumble's at something like 10. I could imagine one, one strategy they would employ is just, let's just raise the rent. Like we have a virtual monopoly on this space. We have more pricing power than anyone in the industry. So all we have to do is jack up prices and make sure that we don't get broken up.

• 17:06Scott Galloway?

  I mean, what you just said is really powerful. 60% of the online dating market? I mean, when you think about If if half of people are meeting on relationships are important. Young people are stupid in the sense that they'll spend a lot of money on high margin products.

• 17:21Ed Elson?

  Right? Thanks.

• 17:22Scott Galloway?

  And well, and they also, they also like to switch a lot. They're not very loyal. A cursory view, you'd think, well, this thing is under managed. We have, we have monopoly like share in what is an increasingly important market in a category that has a lot of emotion and emotion is Latin for margin. Right? People don't have a lot of emotion around cleaning products or toilet paper. They have a lot of emotion around the shoes they wear. And so one is low margin, one is high margin. And anything, you know, I hear, when I hear young people such as yourself, they kind of identify. They'll say, oh, I'm, I'm on the league or what's the new one era or aura or?

• 18:06Ed Elson?

  Raya.

• 18:07Scott Galloway?

  Raya shit. And they say it as if almost in the same breath where they say where they went to school.

• 18:15Ed Elson?

  Well, the league is literally, you have to go to an Ivy League to get on the league.

• 18:19Scott Galloway?

  Well, that's it.

• 18:20Ed Elson?

  It's literally the same. Yeah.

• 18:21Scott Galloway?

  Or it's like saying, it's like saying that you're from an incredibly privileged background and really haven't earned any of your, any of your achievements, i.e. went to Princeton. And the fact that Match has been able to aggregate 60% of the market without having Lena Khan run around with her hair on fire and try and break them up. I like this a lot. I would even say after a 10 or 12%, whatever it is bump, that this is a good, this is a good play and I think they're going to do really well here.

• 18:50Ed Elson?

  We'll be right back after the break with a look at the SEC's approval of the Bitcoin ETF.

• 19:05Scott Galloway?

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• 21:18Ed Elson?

  We're back with Prof G Markets. As we discussed last month, the SEC has been reviewing 11 applications to issue Bitcoin ETFs on US exchanges. Last week, the SEC approved all of them. The decision allows more everyday investors to invest in Bitcoin through standard brokerage accounts instead of crypto exchanges. Bitcoin was volatile in the hours after the announcement, spiking and then dropping dramatically. This wasn't without its standard crypto drama, though. On Tuesday, two days before the approval, the SEC's official Twitter or X account was hacked and announced that the ETFs had been approved. Bitcoin then soared to a 19-month high before Gary Gensler revealed the announcement was false and it fell back down 6%.

• 22:01Ed Elson?

  According to X, the hacker obtained access to a phone number tied to the account and the SEC had not enabled two-factor authentication. So Scott, we'll discuss what this approval means for the markets in a moment, but I first wanted to get your take on the hacking scandal. What does this say about X? What does it say about online security and about government communications at large?

• 22:24Scott Galloway?

  Well, immediately, I think X tried to position it as a failure of the SEC. It said if they'd only follow two-factor authentication. My viewpoint is this poses a question in that should any government agency that can move markets, including the SEC, have an account on Twitter? Or should they only be going through more secure channels? I thought what was most interesting about this, just speaking about the Bitcoin now has this SPOT ETF market, markets have been approved by the SEC, is that there's a lot of big winners here. I think crypto and specifically Bitcoin get some legitimacy. The SEC has kind of said, blessed it and said that it's a legitimate asset.

• 23:05Scott Galloway?

  People who trade Bitcoin are going to see much lower fees because immediately the biggest players are going to come in and they're going to try and incorporate or attract a new customer set, kind of young crypto folks. The question is who is the biggest loser? And I would argue that the biggest loser is Coinbase. And the analogy I would use is that Coinbase is the AOL of this generation. And that is, in the 90s, you really didn't know how to access the web. I had no, I mean, people just didn't know how to get on the world wide web. But people had inserted a floppy disk that they got on their cereal box from AOL, and it was friendly and had a good user interface. Welcome, you've got mail. AOL was a safe place to enter the world wide web. And I think that's what Coinbase was for crypto.

• 23:50Scott Galloway?

  And that is, I think if you ask 90% of people that didn't already own Bitcoin, how do you actually buy it? I don't think they knew. So in the first place they would figure it out was, well, if I go on Coinbase, this large public company run by good management, they seem legitimate, they seem a lot less sketchy than FTX or these other guys. It appears to be a safe on-ramp into the world wide web of crypto. Now, when all of a sudden you can buy it through Schwab and JP Morgan and Vanguard and Fidelity, Coinbase is no longer the best on-ramp into Bitcoin. There's going to be much more credible on-ramps. And having said that-

• 24:30Ed Elson?

  To be fair, sorry, just to be fair, Coinbase is a co- issuer of several of those ETFs.

• 24:36Scott Galloway?

  I think eight of the 11.

• 24:37Ed Elson?

  Eight of the, exactly.

• 24:38Scott Galloway?

  But the problem is, the dislocation in the market created, I would bet, really healthy margins around trading in crypto. And those margins are about to get starched out as the bigger volume, low-cost players come into the market like a Schwab or who have you. And in addition, just generally speaking, Coinbase did $3 billion in revenues and it has a $30 billion market cap. I mean, relative to other financial exchanges, it's just, in my view, it is insanely overvalued. So I think it's a good company. It'll, you know, probably benefit a little bit from this, but it's got new competitors, a lot of the margins will get starched out, and this company is wildly overvalued.

• 25:22Scott Galloway?

  So I think this, I think, quote unquote, the biggest loser here over the long term will be Coinbase.

• 25:37Ed Elson?

  Carter, which makes popular cap table management software, is in hot water for how it tried to grow a new line of business, its secondary markets platform. A Carter salesperson used confidential customer information from its cap table business to make sales calls for the secondary markets business. This sparked outrage in the startup community, which counts on Carter to protect highly sensitive information about investors and their stakes. Now, as a result, Carter is exiting the secondary markets business. Now, before we get into this story, just some quick definitions. First off, what is a cap table? It's basically a list of a company's owners with all the data on their ownership and their ownership stake. And second definition, secondary markets. Broadly speaking, this is any market where you buy assets from someone who isn't the

• 26:21Ed Elson?

  original issuer of said asset. The NASDAQ, for example, is a secondary market. You buy and sell from other investors instead of buying directly from the company issuing the stock. In this case, though, we're talking specifically about private companies. Carter was essentially trying to build the NASDAQ of private markets before it got shut down. Okay, Scott, many are saying this is the end of Carter, which is one of the most well-known names in the startup community. But the fact that Carter was willing to put its core cap table business at risk to get into the secondary market shows just how much demand there may be for that market. So what do you make of what happened here with Carter? And more broadly, what are the implications for the secondary markets?

• 27:04Scott Galloway?

  I think Carter's going to be around. I think a lot of people have gone through the rigmarole of setting up on Carter. I believe it tracks stakes and does a good job of, I think, distributing equity when there's a liquidity event. But the fact that some salesperson used that information to start calling people and saying, would you be interested in selling some of your stake or adding to it? Obviously, that's a violation of trust, but I don't think it puts the company out of business. It may put them out of the secondary business, but the secondary market, I think, is only going to get bigger because when you don't have an IPO market, and that means there's a lot of companies out there that investors either don't have access to buy shares in or the shareholders don't have access to liquidity.

• 27:48Scott Galloway?

  It it just creates demand or a void that is filled by these secondary players. So it strikes me that there isn't one that's sort of bigger. I do think it's an opportunity or more efficient. I wonder why JP Morgan and Goldman aren't in this game. I get called a lot by a company called Setter, which I think is a Canadian company. And there's, is there one called Forge? I get called by these folks a lot who read that I'm on the board of something or a shareholder or something. And I used to get calls to say, do you want to sell shares in, you know, public, which I'm a shareholder in, or multiverse, which I'm a shareholder in, or ledger? Because the demand for the new cool stuff was really hot a couple of years ago.

• 28:27Ed Elson?

  And to be clear, these are all, these are all private companies.

• 28:29Scott Galloway?

  Private companies, yeah. And now I get calls saying, do you want to, do you want to add your stake? Which means that there's more sellers than buyers right now. And I think the reason why is that these markets are fairly inefficient. And what you have is a lot of sellers who are anchoring off the old numbers and said, well, if I can still get, if I can still sell my shares at a market cap of $2 billion, not realizing the company's worth 200 million now or probably, I'd like to. So they return the call and say, if you can get me this, I'll, I'll sell. And they're now calling people and saying, do you want to add your stake? And then what happens to me is I hear the number and I'm like, these people are smoking crack. The company is just no longer worth that. I mean, there's just very little liquidity and price discovery right now.

• 29:11Scott Galloway?

  But this is a market that I think will just grow, especially if the IPO market continues to seize up. And I mean, things have changed so dramatically. Back when I was an entrepreneur, you, you just weren't allowed to sell your shares in a secondary sale. It just was very much frowned upon.

• 29:29Ed Elson?

  Yeah. Take us through why that's so, so frowned upon? Because it's, it's such a strange concept that you, you build a company and then you, you think that the founder can do whatever they want with the shares. But as you say, it's, it's, yeah. Take us through why it's bad practice to do that for founders.

• 29:46Scott Galloway?

  So generally speaking, the kind of the Gestalt or the Zeitgeist in the startup community was that startup founders were crazy. And that while you sort of needed us, once the company became real, you know, air quotes, you needed to bring in John Sculley or someone with gray hair from General Electric. Who had big boy pants to manage the company once it was real. So you kicked out the founders of Cisco. You kicked out Steve Jobs. You kicked out Scott Galloway. Yeah, that happened too. Um, but basically we were seen as reckless and crazy. And there was probably some truth to that. And then two people changed everything. Specifically, Steve Jobs came back when the company, you know, whatever it was, was at,

• 30:28Scott Galloway?

  uh, you know, 10 billion and grew it to 300 billion when he died and revolutionized the company. And made it arguably the most important company in history, taking it back from the gray hair who was, you know, running Pepsi, which was a fucking disaster. And then Bill Gates took a company from A to Z. He took a company from startup to, I believe, almost a trillion dollars. No one had ever done that before. So all of a sudden, the VCs switch from founders being a necessary evil that will eventually hand over the reins to some gray hair that the VC picks to the secret sauce. And it swung entirely the other way. The people were willing to put up with frat bro like behavior or totally, they're willing to put up with an Adam Newman. They're willing to put up with the Travis Kalanick parties.

• 31:13Scott Galloway?

  They're, they're willing to put up with Elon Musk's antics. Then it became a regular, accepted function of the markets where senior management got to sell shares into the secondary market to try and get their first home. Before it was just considered sort of verboten and there was this general bullshit dogma in the market, mostly fomented by VCs who were often selling as fast as they could on their own, that as entrepreneurs, we were sending the wrong signal to the marketplace. So then that shifted and in order to get into deals, VCs would say to the entrepreneur, you can sell shares. And now it's pretty much an accepted.

• 31:53Scott Galloway?

  A structure that once a company gets to kind of call it $100 million plus in valuation, that the CEO is able and the senior management are able to sell some shares. Now, I did the same thing at L2 in 2014. General Callis came in and said, we want to invest. And I said, fine. And they said, we'll invest 10 million bucks. And I said, great. And then they came back and said, we really like this deal. We'd like to invest more. And I'm like, I don't need more than 10 million bucks. And they said, okay, well, we'll invest 17 and existing shareholders can sell $7 million worth of stock. And what I did, and I'm virtue signaling here, was I said, anybody who's been here longer than a year can sell up to X percent of their equity. So everybody got to sell up to the same amount as a percentage of their holdings.

• 32:38Scott Galloway?

  Because what I thought was terrible is typically what happens is the CEO has a good relationship with the VCs. He or she gets to sell a shut ton of stock and de-risk. But a lot of times, the kind of, the rest of the employee base isn't given that opportunity. And that's total bullshit. But you're seeing as a regular function of the markets now, that when there's a hot company, the way a VC gets into the deal is by offering them the opportunity, senior managers to get some liquidity.

• 33:02Ed Elson?

  Yeah, I mean, what you're describing here is with this private secondary market is kind of this like, it almost sounds like a black market. Like the idea that you're, there's no real centralized platform where you're supposed to be trading on. You're literally fielding calls from people like it's the 70s. Plus, it's extremely liquid because there are so few buyers and sellers, partly because, well, almost entirely because you have to be an accredited investor to trade private stock, i.e. you have to be already rich. And as you say, it's, it's generally considered bad form to sell your stock. Bad form for the employees, for the investors, and especially for the founders who are expected to be putting all their chips on the success of the company.

• 33:44Ed Elson?

  At the same time, you're also saying that that's changing now, that, you know, it's becoming a more liquid market, people are more amenable to founders selling their stock, more people want to get involved in, in the private markets. It's growing faster than the public markets. All of this, to me, signals that Carter had the right idea here. I mean, from the business side, this is a $7.5 billion company that makes around $350 million a year. So. That's 20 times sales, not absurd, but not great. It still has a lot of work to do to grow into its valuation. And it seems unlikely that just managing more cap tables is a reasonable path forward to achieve that. So then you look at this secondary markets business.

• 34:28Ed Elson?

  It's like, this feels like this is such a good idea. There's a market for it. There's growing interest. The existing infrastructure is clunky. It's ineffective and Carter is sitting on this goldmine of all this proprietary data. They know all of the ownership structures of all of the top startups in America. And they could come and they could change the whole system with more efficiency and lower costs. I mean, they were charging a 2% transaction fee. And I think what you told me is that when these guys call you up, they say, hey, do you want to sell the stock? By the way, I'm going to take 7%. And it feels like what's happened here is they've, some employee at the company was an idiot and made some very bad calls.

• 35:09Ed Elson?

  They bungled a PR crisis and now they've decided that the only way out of this crisis is to sacrifice this massive opportunity for hundreds of millions of dollars in ARR and the potential to possibly change the industry and change liquidity as we know it in the private markets. So, I mean, I'd just like to get your take on this. Like, do you agree to this? Isn't this like a massive missed opportunity?

• 35:33Scott Galloway?

  The secondary market, the opportunity you've outlined is enormous because to your point, and I'll use a specific example, I invested in public. I invested a million bucks and I think about two years later, Seder or one of them called me and said, would you be interested in selling your stake? And I said, well, what can I get for it? And the company was doing great. The market was wide hot. And I think they said, we can get you like eight or nine million bucks for your stake. And it's, and I'm like, okay, I want 10. And they said, it's going to be a 7% fee. I was greedy. The deal didn't happen and, and. Those shares are worth a lot less now because the market has pulled back dramatically,

• 36:15Scott Galloway?

  given that I think Robinhood is kind of seen as the proxy for value in the space and that stock is kind of trading at cash plus right now. So I wish I'd done the deal, but the thing that really turned me off doing the deal was, wait, you want 7%? I mean, Schwab takes, I don't know, a 10th of a percent? And I'm like, you want 7%? And it's because this market is so illiquid and people are smiling and dialing, but that just signals to me that there's got to be someone who's going to pop up and offer this as a marketplace.

• 36:47Ed Elson?

  We'll be right back after the break with a look at Scott's investment strategy for 2024.

• 37:03Scott Galloway?

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• 38:44Ed Elson?

  We're back with Prof you markets. For our third segment, Scott, we want to start the year by checking in on your investment strategy for 2024. You mentioned on last week's episode that you're looking to get out of tech and transition into credit. How is that going?

• 38:58Scott Galloway?

  Slow but well. If you just look at, if you just look at the P multiples on kind of the magnificent seven of which I own two of the seven, I think I own Amazon and Apple. And they've both had really, really good years. And I'm at a stage now where I'm trying to practice what I preach. And then I just, I don't want to be too concentrated on anyone's stock. And I'm very concentrated in these three, and I'm also overly concentrated in tech. And if you look at the tech multiples right now, they look eerily similar to 99 and 07. It would just be hard to argue these aren't strong valuations. So given kind of the stage of life I'm at, 49, I want to start to de-risk a little bit.

• 39:41Scott Galloway?

  And for the first time in a long time, you're getting paid, as we've mentioned, for the risk you're taking credit and you don't take, you don't take quite the risk, right? Because if you're sort of senior in the cap structure, it's unlikely you're going to lose 60 or 70%. Famous last words, it probably means I don't understand credit. But I have been, I have been trading out. I have been selling down a little bit of my stake in Airbnb, Amazon and Apple. And I'm going to take the hit in terms of taxes and I have been looking at putting some money into distressed credit funds because I don't want to be as actively involved in looking at these things or tracking them. But I have some friends in the business and they'll diversify for me, manage all my headaches so I can just sit around and, and do this shit

• 40:26Scott Galloway?

  with you. But I am, I am de-concentrating out of tech and trying to get into distressed credit. I think there's going to be a lot of money made if you have, if you have capital in, in 2024 and some of the stuff that's kind of, I don't know, semi-broken, if you will, that's been hit really hard.

• 40:42Ed Elson?

  Have you made any calculations to determine whether it's worth taking that tax hit? Because I think that's probably what's on a lot of people's minds right now is they're looking at their Amazon, their Apple, holy shit, all-time highs, but do I want to take the tax hit right now?

• 40:59Scott Galloway?

  A few things here. When I bought Apple and Amazon, it was after 2008. I had gotten run over by the Great Financial Recession. I didn't have a lot of money left, but I had some and I took it and I divided it into three stocks. I divided it into Netflix, Amazon and Apple. Netflix went down 10% and I wanted the tax loss, so I sold it. And since then, I never bought back in. And since then, I think it's up 60X. So I want to find a time machine, go back in time and kill me before I kill myself. So that was very upsetting. I held on to my Amazon and Apple stock and they're up respectively about 30 and 40X.

• 41:43Scott Galloway?

  And I didn't have a lot of money back then, but when something goes up 30 or 40X, it turns into a lot of money. And I've sold along the way when I bought a house and stuff like that. So I'm not going to get 30 or 40X, but Apple and Amazon have been very, very good to me. But I'm selling them now and I'm taking the tax hit because I don't want to say they're fully valued, but they feel, they just feel rich to me. Now,

• 42:07Scott Galloway?

  The thing here, from someone of your perspective, is what this represents is the greatest intergenerational theft in history. And that is, in 2008, when we had the Great Financial Recession, we bailed out the banks, but we allowed the economy and other stocks to fall. And Amazon and Apple got hammered, as they should have been. And that happens. The markets are cyclical. Now, your opportunity to buy into a depressed market was in 2020, when we had a pandemic. But instead, the government said, I know, a million people dying would be tragic, but what would be profoundly tragic is if the NASDAQ went down and rich people got less rich.

• 42:52Scott Galloway?

  So they flooded the market with $7 trillion in not only your money, but on your kids' money and your credit card and your future, to bail me out and to ensure that my stocks stayed high. So you have never had the opportunity, as you come into your prime earning years, to buy Amazon or Apple at $7 a share, which is the opportunity I got as I was coming into my primary income earning years in the earlier part of the millennium. So this was the greatest intergenerational theft in history. And because we have decided that we're a nimbus rejectionist society that just wants to put more money in the pockets of seniors, because our government is run by ridiculously

• 43:33Scott Galloway?

  old people, younger people haven't had a chance to take advantage of market cyclical and buy in cheap. I got that opportunity. You should have had that opportunity two years ago. And instead, we said, no, Scott needs to stay rich. So, young people in their 20s and 30s, fuck you. Fuck you. I got mine, you get yours. That was nothing but exceptional theft between generations.

• 44:01Ed Elson?

  What should young people be getting into, then? You're getting into distressed credit. Young people can't, because we're not legally allowed to, because the rule is that to be an accredited investor and trade these private investments and get into private credit and distressed credit, you have to have a net worth of $1 million, or you need to be making $200,000 a year. That may change when the Equal Opportunity for Investors Act may pass in the Senate. That's a whole other discussion, but either way, currently, young people can't play that game that you're in.

• 44:32Scott Galloway?

  So the general advice I would give to any young person, and there's, we talk about this. We have a book coming out called The Algebra of Wealth, and I do believe there is an algorithm or an equation. The first is focus, find something you're good at, work your ass off to become great at it. Aspire to be in the top 10, ideally the top 1% of something that has a 90-plus percent employment rate. That means don't open a restaurant, be a DJ, or be an actor, decide you want to be a professional athlete or a model.

• 44:57Ed Elson?

  Or a podcaster.

• 44:58Scott Galloway?

  Whatever it might be. But fortunately, you're drafting off of the, drafting off of the tails of someone who is much more credible than you.

• 45:05Ed Elson?

  I hit the big dog, that's right.

• 45:07Scott Galloway?

  So find your focus, find something you're good at, commit to being great at it. Two, stoicism, try, and you're, I think you're pretty good at this. It is really tempting when you're young and you're mating ears to throw out your feathers, buy the nice car, buy the, you know, buy, buy bottle service, take fat vacations to Tulum, try and live like a stoic. Try and be really, try and gamify, to just commit to saving money every month. I mean, being rich isn't a function of how much you make, it's how much you save. Simply put, you want to make more than you spend, and that's really hard in a capitalist economy, where for just 50 bucks, you can upgrade from economy to economy comfort. I mean, there's just so many amazing ways to spend money.

• 45:50Scott Galloway?

  I don't want to underestimate how hard that is, but try and live like a stoic. And your job in your twenties is to save and deploy an army of capital, such that you can start letting time take over. Now, in terms of what stocks or what sectors to go into, take a third of it and buy individual stocks or individual things because it's fun and you'll learn about it. But take two-thirds of your money, and don't try and find the needle in the haystack, because the reality is your co-host, Ed, like everyone else, has no fucking idea. We don't know, none of us know. So you don't want to buy the needle in the haystack, you want to buy the haystack. You want to go into ETFs and low-cost index funds, and you want to, every month, put more money in. You want a dollar-cost average in, and then you want to ignore them, and then find, so that's diversification.

• 46:34Scott Galloway?

  And then finally, you want to try and embrace the competence our species doesn't have, and that is appreciate how fast time will go. You will wake up, Ed, and I know this is horrific, and you will find that you are 49 like me. And you will say, oh, my God, I can't believe how fast that went. And while I picked one stock that might have done really well, or one stock that didn't do so well, the fact that I just bought SPY, or bought the whole market, or invested a third in European index funds, low cost, that if I just do six, seven, ideally 10% a year, which is what the market's done since 2008, you're going to wake up in my age and you're going to be rich. That's the good news. The good news is I know how to get you rich.

• 47:16Scott Galloway?

  The bad news is the answer is slowly. So when people say, what should you get into? Sure, have some fun. I have some ideas, but the bottom line is nobody knows. So what do you get into? You get into everything. You get into everything because the market's natural trajectory over the long term is up. And what do young people have on their side? What is their core competence? They have a shit ton of time ahead of them that will go really fast. So if you were smarter than I was at your age, and you managed to save 500, 1,000, maybe at some point, as you get into your income earning years, 2,000 bucks a month, I can guarantee you by the time you are my age, if you diversify and you let time take over and you don't trade, you are going to be financially secure. Because while I lecture everybody, my attitude when I was your age is I don't need to save. I'm

• 48:00Scott Galloway?

  going to buy a BMW 318i and put my swim goggles on the rearview mirror, even though I didn't swim because it signaled to people that I was somehow an athlete and that they should sleep with me.

• 48:08Ed Elson?

  No, you did not. Are you serious?

• 48:10Scott Galloway?

  I should have had a vanity plate that said douchebag. Anyways, I 100% did that. And I lived in a fat apartment in the Hollywood Hills.

• 48:18Ed Elson?

  Ridiculous.

• 48:19Scott Galloway?

  Such that the once a year, I managed to convince someone to come home with me. They'd be impressed with my glass brick wall. I mean, literally, first word douche, last word bag.

• 48:29Ed Elson?

  Oh, I love it.

• 48:30Scott Galloway?

  Because my attitude was, I don't need to save. I'm such a baller. I'm so good at what I do that eventually one of my companies is going to get sold or go public. And that happened to me, but between divorce and not planning and not diversifying, I ended up in a very scary spot in my 40s. Now, things have worked out really well for me then, but you do not want to be where I was at 40. And you don't need to be because you're you have found your focus. I'm not sure what that is, just just attaching your cart to my horse. Two, double down on it. Stay loyal to the dog. Three, spend less than you make, deploy your army of capital around a diversified set of assets and let time

• 49:12Scott Galloway?

  take over. And everything, everything else will work out. And then the most important financial decision you can make is spend a little bit of money on that monopoly called Match and find a great partner. Find a great partner. That's actually the best financial decision you can ever make is to find, not only find a good partner, but to work on yourself such that you're a great partner.

• 49:34Ed Elson?

  All right, no more saloon trips. Got it. Let's take a look at the week ahead.

• 49:40Ed Elson?

  Fourth quarter earnings season kicks off with Morgan Stanley, Goldman Sachs, Charles Schwab and US Bank. And we'll also see Birkenstock's first earnings report since it went public last year. Do you have any predictions for us, Prof G?

• 49:55Scott Galloway?

  It's just a bad idea to talk about stocks, but I can't help myself. Coinbase is the AOL of crypto. I think this thing is sub 100 bucks in three months when people realize that there's just about to be a ton more on ramps. It's overvalued. Good company, good management, dramatically overvalued. And it's about to be, it's about to be rationalized, if you will. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Catherine Dillon and Jason Stavers. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Prop G Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours and we'll be back with a fresh take on markets every Monday.

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