Euphoria Has Taken Over The Markets — ft. Barry Ritholtz

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for free at Odil.com, that's Odil.au/com. Today's number, 31,500. That's how many years it would take to count to one trillion. Ed Fristory, I had a sex worker over my house the other night and I thought, oh no, I do I got really fucked up past out and I thought, oh god, he's probably left with my money in my watch and I was going to take my car and so I ran down and through my worst years,

all of those things were in the trunk. What was the start? 31,500 days to count to a trillion? That's how many, no, how many years it would take to count to one trillion? Yeah, so get better get started. Yeah, I got to get started. Truly in a status soon. Do you think you'd want to be a trillion now?

Well, I never missed a chance to talk about myself in virtually signal, but I never imagined

being a trillion error, but when I sold L2 in 2017, I had very distinct plans in a path to a billion dollars. And I just, I thought, I just like the sound of Scott Galloway billionaire. It just felt right as rain to me. It does sound good. Yeah. It doesn't it sound good. And I lost a friend and I was at that age. Let me see that was nine years ago. So I was 42, 52. And I don't want to say I had an epiphany, but I realized

okay, I've got enough money unless I fuck up again, which I have done several times. I'm going to be able to do pretty much whatever I want, whatever I want. And I have decided and I'm kind of on this rant, but there is a purpose here. Pick a number and then beyond that. And everyone has different needs or different appetites. But beyond that, once you get above that number, spend it or give it away. And I have not increased my

net worth in nine years despite an unbelievable, one of the greatest bookmarkants in history

“because I either spend it or I give it away. And I believe I am happier than your average”

bearer. Also, I believe a virus that, in fact, it states as hoarding. And I think hoarding capital beyond. And when I say, I don't want to say basic needs, you know my life, I live an exceptional life. But above a certain amount to believe that you're going to be a better allocator or a capital and to keep striving for billions and billions and hundreds of billions, I think it not only doesn't make you any happier, I think it's mostly, you get less

happy. I don't, I think that's true either. But I think it is a weight on society. I think hoarding, in fact, and I think we're going to have a really interesting conversation over the next few years. And it's the following. The last two decades we've been having a conversation, have been totally obsessed with how do you create wealth? I think we're going to have a more interesting dialogue in the next few years around what is your obligation

around what you do with your wealth? And I'm convinced that I've got the ultimate life

victim to the virus of hoarding, spend it and give it away.

“Well, my number is a trillion dollars. I think beyond that, you'll give away or you spend”

it away. I've thought about what your number is. It's just very hard because you constantly see more and more things that you might want. I mean, I walk around and I see these beautiful townhouses in Manhattan. I'm sort of like, oh, that, like, if I can comfortably get that, it would like, it would, I'd be good. Everything I wanted is there. But then, of course, I'm going to start seeing, like, oh, well, there's people who have houses out here in the

house. There's people who have houses here. And I'll say, New York, and then Scott goes to Florida, sometimes. Like, I just think I'll keep going. So it's very hard for me to like pick a number. But I certainly want to make lots of money. That's for sure.

Now, there's a bit of a hamster wheel. And there is always more. I found that the problem is,

you spend so long on the hamster wheel that you forget how to get off. All right, with that, let's get into a conversation. We're going to talk about how to become as rich as possible. There we go. It's a very frittal. It's been a historic year for the stock market. The S&P 500 has climbed 25% in the past year and not 23 new all-time highs along the way. And it's showing no signs of slowing down. The index has now posted nine consecutive weekly

gains. It's longest winning streak since 2023. The optimism has extended to the IPO market as well last week. SpaceX completed the largest IPO in history. Day viewing at a 1.75 trillion dollar valuation and reigniting excitement around the public markets. The stock

has been on absolute tear in its first few trading days. But the question on our mind this week

is simple. And that is, have we reached peak euphoria. Joining us to help answer that question is a veteran investor who spent more than two decades making sense of market cycles and investor behavior known as the blog father for his influential finance blog. The big picture. He's one of the most respected voices on Wall Street. Here is our conversation with Barry Rick Holtz, co-founder chairman and chief investment officer of Rick Holtz Barry. It's great

to see you. Thank you for joining us on the show. I would love to start with SpaceX and then we'll get into the stock market at large. But I mean, the stock is just absolutely nuts to me currently valued at more than two and a half trillion dollars. We'll see how that number will change by the time the episode comes out. Fifth most valuable company in the world more valuable than Amazon apparently. It was briefly more valuable than Microsoft. Apparently I just

love to hear your thoughts on the valuation. Well, the difference between SpaceX and companies like Amazon and Microsoft is they have trillions and trillions of dollars of shares that trade hands

every day. Whereas this supposedly to trillion dollar public company has a float of 75 billion dollars.

I mean, that's walking around pocket change. That's not real public company money. And so whether

“you love Elon or hate Elon at the very least, you have to be aware that he is a brilliant”

engineer and I'm not talking about space or electric cars. He is a brilliant Goldman Sachs level financial engineer because really everything he's done has been in order to drive the valuation of this to record heights. The inclusion in the NASDAQ 100, the tiny, tiny float, just all of this smacks of engineering, which tends not to be fantastic for investors. I'm so glad you brought up the point about the small float. And I'd love for you to expand on that. I mean, just just to

frame it for people, only 4% of the shares are publicly traded. And that's what we call the float. And as we have mentioned in previous episodes, the rules for NASDAQ for NASDAQ inclusion were changed. It used to be that you needed at least 10% of your shares publicly traded. And they changed it 4 SpaceX and the SpaceX only 4%. So it's a very, very small float. And your point is this means that it's, I guess, less serious that we should take the valuation perhaps less seriously

than you would a company like Microsoft or Amazon where trillions of dollars worth of shares

“being publicly traded. Could you just expand on that? Why is that important?”

And why does that smack of engineering, as you say? It's artificial scarcity.

over what this should be going for. So that's a problem number one. And number two,

“you end up with this crazy imbalance, which is artificial. Look, Rolex has been doing that”

very successfully for 10 years. They sell 2 million to 3 million watches a year. Why can't you just

walk into a Rolex dealer and buy the Daytona you want? Well, you can because they've created this imbalance, this artificial imbalance between, hey, they could double their production and not sell out. Still still sell out, not have a problem. But by keeping production low, they keep profits high. They keep demand high. They're very foremost in buyers minds. And what SpaceX did was very much the same thing. 4% of the float is nothing. They will eventually get to almost all of the floating

public, but it's like a 12-month process. So we will really have a better idea of what the price discovery, what the collective belief of the true value of SpaceX is sometime in 2027. I would add on to that. I mean, if we're making the Rolex comparison, what would happen to the price of Rolex is if there was a guy who owned the majority of the Rolexes in the world. And then one day he decided, okay, now I'm going to list it on the market. Now I'm going to sell them.

That would have a significant impact, which brings me to the lockups and the the expiration of the lockups for SpaceX, which will happen over the course of the next 150 days. They have a slightly strange lockup expiration agreement. But the point is, many of the inside is cannot sell yet, but eventually they will be able to sell at which point you got asked the question,

“oh, they get a sell. And if they do, what will that do to the price? What do you think?”

My frame of reference is looking at the dot coms that one public looking at every time there's a hot sector. And suddenly there's a few hundred newly minted millionaires. The weird thing,

and I'm going to pull from Scott's line, it's never been harder to become a millionaire. It's never

been easier to become a billionaire. When you look at these companies that finally go public after a long time, you know, the challenges, how do you keep the staff motivated, how do you keep them working? Suddenly, you tend to be a little less excited about going to work when your bank account is 10 or 11 digits, when you're a hundred million dollar, how much are you going to be grinding away, handful of exceptions, like Warren Buffett, who just keep working for the love of it. It doesn't

“matter what they're worth. So I think you're going to see some stock shake loose. This company has”

been private for a while. It's raised incredible amounts of venture and secondary financing, and there have been very slight opportunities for liquidity. But the expectation was, there's going to be a big IPO we should all sit tight. And if you've been with this company for three years, five years, seven years, and you suddenly have the opportunity to ring the bell for $50 million, $100 million, $200 million. I think any financial advice you would tell you, you've won your

foolish not to lock in the sort of generational wealth. And if you don't, we've seen this happen with everybody from not just the disasters like Lehman Brothers or the missteps like General Electric, but Peloton. They were hot for a while, then they weren't. And the stories were that that round trip cost insiders billions of dollars. So the general insight is sell more to myself. At least

per half, and lock in never having to worry about money for yourself. Your kids may be even their

kids. The company itself has created different, what I would argue are different classes of shares of stock with lockups that some shares are subject to and others aren't, other outside of the insiders. But also the demand side by being included in the NASDAQ 100. And I can't figure out if it's $10 or $50 billion of incremental demand that has to go find these shares. Has anyone of Bloomberg done the analysis or had rid holes around when that demand? How long

did they have to put that money to work? I mean, I look at this thing and I'm like, okay, let's agree it's overvalued. But as long as there's money out there buying it any price,

that money from the indices are is deployed and no longer will enjoy that sugar high?

“Overvaluation is always relative. And just because something is overvalued, doesn't mean it's”

not going to get more overvalued or undervalued, doesn't mean it's not going to get cheaper. So that's number one, the whole hysteria around the index inclusion and I use the word hysteria purposefully was really about the big dog. It was really about the S&P 500, which is multiples the size of the NASDAQ 100. While it's a fun index and like myself and my wife own it for the high octane portion of our portfolio, but it's tiny relative to the S&P 500,

which is measured in trillions. Like if there was a mandate and putos to Dow Jones S&P for not giving in to Elon and making an exception, it's called seasoning for a reason.

“The company needs to trade for a year. It has to show that it's profitable. It has to show that”

it's got all the requirements of being a public company and all the requirements that make it appropriate for inclusion in a major index, not that I want to piss off anybody at NASDAQ, but what they are essentially saying is, hey, we're a minor index. We can wave the rules for Elon because we like the sexiness of it and we're not going to stick to our own here are the guidelines for being admitted unless you're this guy. But wasn't it also the MSCI? I mean, on again, a small flow didn't the

inclusion in some of these indices, again, create this effect of more people rushing through a small door. And I guess the question is, at what point do some of these, this manufactured scarcity exogenous forces begin to abate and the company has to find something resembling value, if you well. So the predecessor, ironically, to SpaceX in terms of this exact issue, float profitability, trading volume and admission to an index was famously Tesla in 2020. Everybody knew it was going

in the index. Everybody knew they had crossed all sorts of requirements, and rather than jump on that, by the way, the company had been public for a few years at that point. The S&P sat on their hands and

when they finally admitted them kind of later than sooner, there were a lot of people that sort of

this huge artificial pop. Most famously Kathy Woods of arc. She did nothing wrong. She just in 2020, had a giant position in Tesla, as well as Bitcoin, and was plus 160% for the years. One of the greatest years of any mutual funds or ETF manager in history. And then, of course, both Tesla and arc came back to earth and have been a little, I don't know if I want to call it normal, but a little less frenetic. Now we're seeing the same thing play out with SpaceX and to answer your questions directly,

I'll send you a sheet we put together internally that shows all of the individual dates where different share classes come live, different things happen. It's like a 12-month process to get some. I don't want to say all, but some of the stock out. But there's going to be so much excitement. The fear was not that this would be another Tesla, but that this might be another Facebook. It's very retail. Everybody's enthusiastic about it. Not exactly the smart money,

but, you know, the price score up across 200 bucks, not too long ago. It's been trading for all of 48 hours. The underwriters have to be pretty happy. When you say not exactly the smart money, the division between the dumb money and the smart money, which I, I've also held that view, which is I, I feel as though this IPO is predominantly marketed to retail investors,

basically Elon Musk fans who will buy whatever he puts out there at whatever price the price

“doesn't matter, which might sound maybe a little patronizing, but I think it's generally speaking”

pretty true. But at the same time, I do see a lot of people on Wall Street who seem to have this similar sentiment, who say, I mean, season investors who say, the fundamentals don't matter here,

the most important company in the history of the world. They're kind of buying into that hype.

“And they are putting real capital to work here. And it seems to be reflected in the stock market,”

though, as you say, the float is so small that it's a little bit hard to tell. I just be interested to hear what your conversations with other investors on Wall Street have sounded like when it comes to SpaceX, and are you seeing that level of exuberance and enthusiasm from institutions, the same level we're seeing from retail? Let's start with the retail first. In three decades on Wall Street, I was a newbie when Netscape, when public, I was on a trading desk, and I very explicitly was told,

hey, newbie stay away from the IPO. That's not for you. So that was 96. That was 30 years ago,

over the ensuing 30 years, I have never had more people reach out to me and ask about an IPO.

Friends, family member, colleagues, professionals, hey, what do you think is going on here? What's going to happen? And my answer to all of them was the exact same thing. Generally speaking, IPOs tend to be a crappy investment when you take them in mass a year later, most of them have underperformed the broad market, but this seems to have so much buzz. I expected to before it goes down, I expected to go up, which is a very merely mouth way of not taking any position.

Because, and I've said this to people over and over again, hey, I have no frame of reference. There's no history. You're asking me what is the collective insanity of everybody who is experiencing phomo, experiencing sightmen. I don't know if Elon still has the same,

“he still definitely has a deep following. But I think the cult China”

got dinged up by both his affiliation with the president and with Doge. So I think the Elon brand while still very strong and still very shiny witnessed the SpaceX IPO is definitely a little more tarnished than it was two years ago. So generally speaking, there was a ton of interest, but I don't know how that interest is going to translate into conviction. Are these in the crypto world? Are these diamond hands? Or are these people who just

like free money? I'll flip this, I'll make 30, 40% and I'm done. What we're asking you to do and whatever investor is being also due is to measure and figure out, put a number on the collective insanity of the market, which is a very difficult task. However, we have seen many moments in history

“where collective insanity was on display. I think you could make a decent argument that it was”

on display in the crypto market. There was a time where people said that NFTs would change the world. And a lot of credit, both people said that they did it. They did it. They did it. With a lot of money and invested a lot of capital into that movement, web three, all of that. There was, I'm sure, and you've seen many more of them because you've been in this game and at the top of this game for a long time. So I guess how does this compare to previous

periods of collective insanity and can we draw any parallels? We'll make any distinctions. What makes this era so challenging is that everybody's muscle memory, everybody's recall of the last few times we saw a boom like this. The obvious compare is the dot coms. And I think that's the wrong comparison to make. And that comparison leaves people to go down the wrong, to reach the wrong conclusion, and to use a totally wrong framework. So let's look at SpaceX and let's

be blunt, $75 billion. Like it's a tiny float. It's a time. If it was a $75 billion market cap with

all the stock trading, it's barely in the S&P 500. It's in the bottom 20%. Hold this speculative frenzy aside from the cult of Elon, and when we look at the broader market, you have a couple of things going on that is just perplexing people and causing them to reach the wrong conclusion. So number one, we have just had a series of all-time highs year after year after year. And I love to say this because it pisses people off. There is nothing more bullish than all-time

the argument that the very last one in March 2000 was really bad. But the previous 581 were nothing

“but more gains, more upside, and what are the odds that this all-time highs are going to be the”

last one, and you're going to tap out and avoid the down draft. So that's number one. Number two, hold decide AI, which is a big issue. Number two, we have seen earnings across every other sector, just about every other sector, hit record levels and record levels of growth. So not only have earnings been at all-time highs, but earnings growth, it pretty close to all-time highs. Super

powerful one-two punch. If you were to say to me, "Hey, I'm going to put you in a room with a computer,

but you're only allowed to see one data point in order to manage portfolio, what would that data point be?" My answer is easy, earnings, because if you look at a long-term chart of stock prices, it follows earnings growth very, very consistently. But then the third thing, and this is where people kind of lose their shit over, artificial intelligence, again, is not a good comparison to the dot coms. Not only because there's huge revenue, huge growth, real profits, real products,

it's not clicks or eyeballs, it's enterprise level, multi-billion dollar contracts, but the better

comparison in my mind is the industrial revolution, not mobile, not even semiconductors,

which played out over time. This is so much more rapid than semis than mobile than internet. This is having an impact on so many companies at such a level. Everybody's been talking about the magnificent seven for so long. Maybe they didn't notice that last year and this year, the 493 are doing much better than the magnificent seven. It's two years in a row, and secondly, the reason for that is we don't know which of the AI companies are going to be the winner.

Well, with their 3,000 car companies, you're left for three car companies in the United States, even just go back a couple of decades to the HPs and gateways and all these different computer companies. Now, it's Apple, Dell, maybe a couple of other Korean manufacturers and Chinese manufacturers, but essentially what was hundreds of competitors. So, I, is it, is it? In traffic, is it? Open AI? Is it going to be Microsoft? Is it going to Google? I have no idea who's going to be the AI winner,

other than to say the rest of the market, the 493 that are not that that tech stack of concentrated technology and AI focus, they're all going to be more productive. They're all going to be more efficient,

“and I think they're all going to be more profitable. And that's what with the enthusiasm comes from.”

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“replaces multiple expensive platforms for a fraction of the cost. That's why over thousands of businesses”

have made the switch. So why not you? Try Odo for free at Odo.com. That's OdoOo.com. We're back with property markets. One of the things you mentioned when we compare like Dotcom era to today to what we're seeing in AI today is that the business models like we're seeing

real revenues agreed, incredible, unprecedented revenue growth agreed. But then you'll see

we're seeing real profits. There I think you might have a little bit of content, because the big companies that we're talking about like Open AI, like SpaceX, the profitability isn't there, they're losing billions of dollars. And in addition, if we're talking about like what metrics are real and what revenue is real and what profits are real, what we're also seeing is this issue of the circular deal making where a lot of those enterprise contracts, which are

massive, are being handed over by their investors. Google goes and buys billions of dollars worth of GPU chips from SpaceX and Google is an investor significant shareholder in SpaceX, which makes you question how real that revenue actually is and how long it will actually last. So that's one point that I'd like to get your views on. And the reason I bring that up is because the Dotcom era had similar metrics which seemed real, but when you looked at them, clicks, eyeballs, how real is

it really questionable. And the second thing I want to get your reaction to, you know, back in the

“fall, there was a lot of the comparison to the Dotcom bubble to today. Are we seeing the same thing?”

And a lot of people said, you know, there's an AI bubble, valuations are getting stretched. And our view on this show was maybe there's a bubble, but the valuations don't hold a candle to what we saw in the Dotcom era. But now I'm looking at the Shiller PE ratio today. And as of today, the Shiller PE is 42. It's the second highest reading ever. The only time it was higher was in 1999, but it wasn't that much higher. It was around 44. And that was right before the Dotcom

crash. And my point is it seems like right now valuations actually are comparable to the Dotcom era. Yes, we're seeing significant earnings. But prices are pretty high at this point, at which point I'm starting to think maybe this actually is Dotcom all over again. I just want to get your reactions to those two points. So let's start with the Shiller PE has been showing that it's the market's been overvalued pretty much straight up since 1991. So it's a useful tool, but certainly not as a timing,

“vehicle, or even as any particular insight as to whether or not you should be long equities.”

What I find the Shiller tape, the cyclically adjusted PE ratio is useful for is it gives you a pretty good sense of what should your expected returns be looking out 10 years. I don't know why we continue to see it get used so often because it just doesn't give anybody any sort of timing. That's number one. And then number two, you threw a lot at me there so I'm trying to unpack. I was talking about the profitability and the fact that many of these aren't profitable and that

there's the circular revenue question which makes me question all of it.

initial Jeff Bezos letter from Amazon. These companies are as profitable as they want to be.

Like if they choose to consistently reinvest reinvest reinvest reinvest. So they're not shown a profit, they don't have to do dividends, they don't have to pay taxes. Like Bezos famously said that letter, "Hey, don't expect profits from us for 20 years and they didn't get, they didn't

“that profits for 20 years." So there's that. The circular question I think is a little”

overwrought. All these companies have a side venture arm when they find something they like and they say to someone internally, "Hey, not for nothing but we think these guys are going to be huge.

Maybe you want to take a piece of it. I'm less concerned about that circular stuff because it's

still real capital investment. You're getting real dollars. Now let me show you my favorite contract to that when Cisco went public in the late 80s early 90s. They manufactured routers which were sold to start-ups that were all venture funded and those venture funded companies would buy these routers for cash. By the time we got to the late 1999, Cisco started a couple years earlier, manufacture of financing from their purchasers, sort of like Ford credit and

GMAC and those sort of things where the builders running a separate finance aren't. And it turned out that Cisco was financing something like 93 or 94% of all their sales. So in other words, they weren't selling all these routers. They were giving these routers away and accepting a promise to pay one day from sketchy, borderline, maybe they'll make it, maybe they won't. Vcfunded startups. And so when the dot com implosion happened, Cisco, which was a big stable company,

because of that sort of circular financing. So those companies vc's were the same as Cisco's vc's, everybody knew each other, everybody played each other. The problem was it was a promise to pay not actual cash. And so when the tide went out, Cisco fell 93%. By the way, this was happening just this fortune put or Forbes, I don't remember which. Cisco on the cover, the one stock you have to own stock did nothing but go down for the next 20 plus years, down 93% was only last year.

“It finally got back up to that level. 25 years of zero returns for the one stock you have to own.”

So that was truly circular. If I see just like a lot of stock swaps or a lot of paper and notes,

I'm very skeptical. But if Google is going to the bond market to get 75 billion dollars to buy

more of these chips and build more of these data centers, this is real money. All right. So admittedly, they're taking the debt, but it's not just a piece of paper. They're getting cash for it. So yeah, the degree of circularity is a little annoying, but it's certainly nothing like what we saw in the 90s. So the farm team players, whether it was rocket lab or virgin galactic, they sold off. And I think a lot of people decided why on the farm team, when you can own the

Yankees, but what was impressive or more shocking was that the ETFs holding Nvidia Apple Amazon alphabet were down the same week. Usually when you see this, there's kind of these players trade up in sympathy or people get excited about the market. So it's not, it's not the rock lab went down. It's just a space-sex was large enough to pull cap a lot of Nvidia Microsoft Amazon and Apple. I'm curious if you think there are other going to be other losers here that there is a finite

amount of capital for IPOs of these types of companies. And when you have space-sex on top of open

“AI on top of anthropic, do you think generally speaking, the rest of the magnificent 10 gets hurt?”

I don't really think so. There's a great chart at a Deutsche Bank that looks at the market capitalization percentage of new issuance, new stocks like Yos as a percentage of total market market cap. And if you look at the last peak, that was 2021 during the little bit of that spec frenzy that we saw. And at the worst point in 21, 2.2% of the total outstanding market cap of U.S. equities

we're just about at the halfway points of 2026 and that's 0.8%. So not even a little more than a third

“of the peak we saw in 2022. Now, by the way, you go back to like the late 90s and you end up with”

1.1, 1.2, 1.3. So that spec peak was unusual. If we end up at 1 415 for the year, yeah, that's a high amount of money. But when you think about it, you know, everybody was complaining companies don't want to go public. There's so much cash around. These firms can stay private forever. So it's weird to hear people first say, ah, you know, the clearly is something wrong with the market, then none of these companies want to go public. And then just a few short years later,

oh my god, look at how much money is coming out of everybody else because these companies are

going public. I don't think one, one and a half, 2% is all that meaningful to companies like Apple, Amazon, Google, Microsoft. It really isn't when you think about the way professional managers buy stocks. And I love the phrase my partner Josh came up with for this called the relentless bid. When you own 60 stocks in a mutual fund or 30 stocks in an ETF and flows continue to come in, this is absolutely true when it comes to 401k money, every paycheck people have

a little piece of money peeled off and it goes into their 401k. Rarely are these managers going out and opening up a brand new position. It happens a few times a year, but nine out of 10 flows go into their existing holdings. So if maybe $1,000 comes in and instead of that getting spread out amongst 100 or 500 stocks, maybe now it's going to be something like $990, it really just gets lost in the wash. I don't think that's going to have a significant impact on the long-term

prospects of companies like Google and Apple. So many cross-currents, so many different things

“are going on. It always forces me to recall and to remember how little we know about the future,”

how little we understand about what's happening right now, the predictions of forecast, the hot takes, you know, they have such a short life, such a short shelf life because everything changes so rapidly and it takes a solid, like I'm really amazed how many people were whining about market concentration throughout 2025 even as it was pretty clear of the magnificent seven, only two of them beat the S&P 500 and video in Google. So a five of the seven underperform the broad index is at and the market

was still up 18% for the year and by the way, that was the worst returns, the rest of Europe in Asia and Japan and Korea did much better and so sometimes you dig into the data and it's all right, we think we know it's happening but we really don't. You introduced the concept to me that I had

“considered before and I think it's a really novel concept and that is we have this natural instinct”

that when something hits an all-time high we should think about selling and you introduced me to the concept that if you invested just on the days where the market hit all-time highs you would have done really well. Better than investing on any other day which is mind-blowing today. Yeah, I think that's an incredibly unique concept. Let me ask you this though, at some point when and I don't know what the metric is you look at if it's not case chiller or PE or the buffet index but at some point do you

bury red holes? Would you say at some point it is time to start hedging and whether you had an all-time high or not. When you look at it and go okay folks we have officially entered crazy town and it would be very I look at I look at the valuations of these AI companies and reminds me of 99 was this notion that we moved to a different model of economics and that this is new in these companies will compound at five times in the revolutionizing every portion of the economy.

And that multiples are forever that there's a floor on multiples. Yeah. A permanently high plateau was Irving Fisher's famous line in 1929. It's different this time.

It's basically what they're saying again. Is there a point at which Barry Redholt says okay folks

understanding that it is more art than science. There isn't just a series of data points where you can

“say when A and B and C happens here's guaranteed where the market's going next. For a couple of reasons”

first it's every the setup each time is unique because 2025 isn't 2000 is in 87 isn't 29 like the

world is very different even though human nature when people the line about the most expensive words and the English language or this time it's different it's because human nature is unchanged and you can rely on people to panic at the exact work where worse possible time number one there have only been two moments in my entire career where I said sell everything or get short and move to cash one I was a little early in January 2000 and for the wrong reason I thought hey

everybody who's sitting on a ton of gains in 99 they're not going to want to pay taxes on that in April

“so they sell in January you got to April 2001 totally wrong had nothing to do with it the second time”

was January of '08 and I had been pounding the table for I don't know two years before that

talking about some prime mortgages talking about the backwards low rate real estate driven economy talking about derivatives and I spent about a year being the biggest putts on Wall Street because I I wasn't even forecasting this I was just saying we are wildly underestimating the risk that is taking place today and that was '07 and '08 and so move at the time the farm I was at was all institutional so it was very easy to move the model portfolio to all cash we were short companies

like CIT and Lehman and AIG by the way very hard to hold the short even as they're heading down because nothing goes straight down they every jank up just it's a knife in and twist and you're waiting for the stock to get cold away and I wasn't savvy enough to own a putt with each short all right the stock gets cold away I have a putt who cares the hedging question is really interesting and we all hedge every day we just don't realize it you have health insurance and auto insurance

and homeowners insurance and that's a hedge against the loss of this property or an unexpected cost we don't get upset if our house doesn't burn down oh I wasted twenty five thousand dollars on homeowners insurance I didn't make a claim but when it comes to investors and I'm going to say

to somebody you have a ten million dollar portfolio I need about four hundred thousand dollars

to hedge your downsides totally and there's no guarantee it'll work all it means is you're going to prevent the downside from being too large while still maintaining the upside people are upset that wait I'm taking a four percent hit and the market I mean if you did that in twenty five and the market's up 18 percent I spent almost half a million dollars a ten million dollars I have nothing to show for it well you are hedged you are your downside you have a whole year of nowhere is about downside

people hate that so in my personal account I I pull around with a few hedges I am long emerging markets I'm long Japan I'm short silver I think this is before the war was ended or settled or I didn't even know what the hell to call the is it a war is it a military action is this is this a a temporary truce like I will find out sometime but as oil prices and come out at least start

“to come down you you should see gold lose a little bit of its luster and and silver which had a”

crazy run for me to really want to hedge my portfolio I would have to see a lot of things start to go wrong right keep in mind this has been an incredibly robust economy I continue to see profits growing what's the other side of that well the mayhem of this presidency is a risk factor the tariffs were problem I'm long companies like Ford and GM and I previously were long things like Walmart that did well when the tariffs were overturned so we survived that the war maybe this is

over so this respect there is done all of the ice stuff which is a contributing factor to sentiment at record lows that's another factor and on top of the k-shaped economy where you know

not a sustainable situation so I look at all those factors and I'm tracking sentiment which is

“useless except at extremes so when the sentiment is at record lows at least short term that tends”

to be bullish we're not seeing massive layoffs we're not seeing a lot of hiring and we're only seeing modest wage increases like all the things that are risk factors that would make me say hey I want to get out of these equities or at least hedge my court portfolio and get out of the iron the cues I own an AI ETF B-A-I which is you know doubled over the last year all of the wacky high

growth high octane stuff that's the first thing I would do when I start to say and again more

art and science all right we're pretty close to the top I'm going to cut this this and this I've held them long enough that the taxes are going to be as low as I'm going to get and then let me start watching these factors but it's so much feel and so much intuition and so much craft and so little science that you're making these decisions and in the back of your head you're constantly saying what happens if I'm wrong what where's my line in the sand where I say because I start on a trading

desk and there's no difference between being early and being wrong right if you tap out at 50,000 down it goes to 60,000 on a weight of 30,000 you weren't early you were wrong could have tapped out it 55 or 60 or wherever the hell that number is so so the the biggest the biggest warning sign is going to be a major trend break in a number of these different sectors and broad indices we're not seeing that we're seeing positive momentum we're seeing all-time highs yeah I say this every cycle

they're absolutely 100% is a top out there there's a top coming there's a shit storm coming away there's going to be an ugly ugly market of down 20 25 30 35% I just don't see it happening tomorrow or the rest of this week or probably not the rest of this month and when I take my magic April the outlook is cloudy beyond that we'll be right back and for even more markets content sign up for a newsletter at propertymarkets dot com support for the show comes from Odo running a business is hard enough

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“we're back with property markets. I think that a decent lesson and I want you to”

validate or notify the thesis but when people immediately go to the notion of hedging what I would suggest they do is they think about diversification as opposed to hedging.

was when YahooBot Broadcom.com and Mark Cuban said oh my god not only am I suddenly a billionaire

“but all of this is tied to Yahoo Stock and I think he was limited with what he could do for six”

months and then put on a zero-cost collar which is just a way of saying listen I'm not selling the stock I'm locking it in this tiny range and if it goes over that range it gets sold and if it goes under that range it's sold but I'm stuck here so it doesn't look like a sale until it's sold and of course Yahoo proceeds to drop 90% and he sold somewhere around 200 and it was one of the greatest trades of all time that's a legitimate hedge how do I prevent downsides from affecting

this specific holding when when people are broadly invested in indexes or broad mutual funds

you end up with a different situation where markets are down one out of four years you look at the history of the S&P going back to 1929 it's about 26% of the time markets are negative on the calendar year and if you look at 5% draw downs happen two or three times a year you get a 10% draw

“down I think it's like every 1.2 years on average meaning it doesn't come along like clock”

works sometimes you get a few of them in a row sometimes you know get any the down 20% is like once every three or four years and the down 30% are kind of generational it's 10 15 20 years you know if that's what you're trying to hedge that's just the normal course of how markets want but in a lot of that's the semantics where you just described with Mark Cuban I would say is a is diversification not a hedge he didn't go short the stock he didn't buy puts he he legally sold the stock effectively

such that he could put the money in something else without triggering a capital game and that's zero course collar includes as part of one of the legs is a put that when the stock fell he's essentially locked in from there so but then he did roll it into a whole bunch of other things including the Dallas Mavericks he did you know I I love that approach of saying maybe the stumbles from here but I don't want to be greedy I want to lock in a big win and then do really good things with it

so so diversification is useful if any given sector or geography or style falls out of favor

but think back to you know the first quarter of 2020 or think back to 08 or 9 in a real crisis all

correlations go to 1 and everything moves in lockstep down and so that's the risk hero is facing when when people say am I diversified do I need to hedge I really look at that as two two different questions if you're diversified two things first in a real crisis it will matter for the most part

“but second being diversified means is always something in your portfolio that you have to”

apologize for we spent the better part of the 2010s apologizing for overseas equity forces Europe Asia even South America they all did really poorly and yet over the past two and a half almost three years they've been significantly outperforming the US perhaps this is a start of a ten-year period of overseas outperforming so could the US crash and not drag the rest of the world down most of the time we we do drag the rest of the world down maybe if we have just let's say we're up

14 15% for the year let's say we give that up by the end of the year and the rest of the world is done isn't doing this poorly is doing okay you're not hedge but you're diversified and and that offsets the risk of a concentrated US domestic portfolio you mentioned earlier that that's a difference between being early and wrong that if you if you think you're going to see a correction and you take some action based on that belief either you sell or you hedge or whatever it is

and then the market goes up another 10% after that then you were wrong and I guess I want to hear a little bit more about that philosophy because I'll just tell you how I'm feeling about this market I think it is frothy I think these valuations are crazy I think SpaceX has giant red flag

but I think that we might see something like 2022 and by the way you mentioned that the the

“SPAC supply which did proceed almost immediately this pretty negative year for the markets especially negative”

for tech companies in 2022 and my expectation I my feel and I yet no one knows I don't know is that we'll see something like a 2022 start to transpire over the next call at six months or so and then the question becomes like what do you even do about it about that if that is your belief my view is that it would make sense to start thinking about how to hedge against that event but if I have it in my head that I need to make sure that I time it correctly such that I'm

correct as you say between the difference between being early and wrong then I don't know that's another thing to deal with so I guess how how do you think about that you said that you don't see this market turning negative in the next day or the next week or the next month but if you think it's gonna happen over the next I don't know six months or the next 12 months then what would be your approach to hedging in that situation all markets and all cycles ends and this will like every

other cycle before us will eventually reach its natural or unnatural conclusion when you make the decision to hey this market is crazy for off the overvalued whatever you are making three decisions

and most people don't think about the third decision so decision number one is all right I have too

much exposure to this equity whether it's technology or US or just equities in general so you're choosing

“where you're overexposed decision two is all right so maybe I think I could pick the top and I'll”

try and get out there or maybe I think I can and I'll peel 10% of my holdings down to wherever I want to take them every month the opposite of dollar cost averaging dot dollar cost liquidation so all right I'm not gonna get the exact top but I'll get enough of the curve that by the time everything gets really

ugly I'll have a cost price sale way above where we are but the third decision is the one the

people forget which is just simply what are the rules what are the parameters that and what what will trigger me re entering these markets and I can't tell you how many people we were getting emails not just 2010 but 2013-1415 hey I followed you out of US equities in January 2008 and when you jump back in in March online I thought you were nuts and by the way I'm still sitting in cash that's the real right you can't miss that recovery because like the market very quickly recovered it took till 2013

from the from the 07 October 7 peak March 09 lows back to 2013 like if you're not back in then

you're never gonna get back in ps academic research has found that people who panic sell into a crash

“about 30% of them never come back to equities so you want to avoid that I think that's really”

really great advice and by the way that I would just put another option out there which is another one that I'm considering which is do nothing and stay invested for the long term and how old are you because I think you're a little younger than me and Scott 27 so wait you have a 40 year time horizon exactly your your responsibility is don't just do something sit there because the math of bear markets is kind of fascinating think about 2013 or 1966 to 82 in anticipation of the 82 to

2000 bull market if you dollar cost averaged into either of those periods you know you you lost 75% on a in real terms inflation adjusted terms of the money you put to work from 66 to 82 and as soon as 82 cross then we started this bull market you're just accumulating assets of unloved indexes at deeply discounted prices and they exploded higher over the next you know the market had a series of giant rallies and sell-offs including 73 74 which was very equivalent 56% to 0809 and so

returns in nominal terms and minus 70 75% in real inflation adjusted returns you just don't

everything so much cheaper and it's weird to think about this but as much as we love the bull market and that's where the gains start to show up setting up for that during a bear market especially if you have decades to look out Scott and I have a few years left but I don't think we have 40 years of dollar-crossed averaging in us you will find that nobody like the equivalent today is the 87 crash right not even 40 years ago right so someone your age in 1986 if they just kept buying

straight through that the worst one day 22% crash like yeah I'm a buyer yeah I got 40 years on I'm care think about the market which had born from like 900 to 600 on the Dow it's now 50,000

“that's what having a poor decade time horizon does for you and the other side is what are the”

odds that you'll get out remotely close to the top and get back in remotely close to the bottom if ever if at all yeah and I think you know every time I talk about any reasons to feel bearish whatsoever and I've said I think we're kind of close to the top I think your point is a born one and it's something I would like to make on this show right now I'm not saying when I say that oh you should sell I mean I should be very clear about where I am I'm still very long equities

in my full portfolio position just because I think that stocks might go down tomorrow doesn't mean I'm

like oh my god we got to sell everything now that's not the implication the reality is we got to

“talk about markets because we're here and we're talking about markets sometimes they go down”

but ultimately yeah we should all be long equities we should all be invested so I'm glad that you point that out by the way this is the reason I love having a cowboy account take 5% 4% of your liquid net worth trade to your heart's desire by crypto short what it silver get long whatever you want speculate on the hideous meme stocks and and shit coins there are yes and the beauty of that is twofold so first when it's not your real money and stuff is running

you can let it run because it's a small portfolio you know very often we'll speak to people

I have a 15 million dollar portfolio 14 million of it is Nvidia Amazon or Microsoft

I don't know what to do well you're highly concentrated let's work out a plan for you and very often those people are rare because most people the stock doubles or triples and they're out and they don't let it run but the other thing is that scratches the bias towards action is the technical term and then you can do something you could sell that all day long but leave your proper main account unmolested and it'll be fine school around all day long

“with the cowboy account that's what it's there for that's my behavioral act Barry Redholtz is the”

co-founder chairman and chief investment officer of Redholtz he also hosts bloom bugs masters of business podcast writes the big picture blog and has authored multiple best selling books including bailout nation and how not to invest great title Barry this was awesome thank you so much for joining us thank you Barry I was good to see you thank you guys thank you Ed thank you Scott this episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer

Our video editor is Jorge Colty our research team is Danchen Lahn is a balance cancel christenodana Hugh and Mia Silverio Jake McPherson is our social producer drew bars is our technical director and Katherine Dylan is our executive producer thank you for listening to Profty markets from Profty Media if you liked what you heard give us a follow and join us for a fresh take on markets on Monday you have you and come for you yeah as the long term and the good for you and love you.

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