EP10: Howard Lindzon - Investing in the "Degen Thesis"

Martin Tobias (00:00) Hello, this is the first bet. And every successful person gets interviewed about how they won. Very few people drag them back to the moment before they knew it would work, when the information was thin, when the money was real, and they push their chips in anyway. And that's what we do here at The First Bet. I'm Martin Tobias and I've made money three ways as a CEO, as a VC, and a poker player.

My guest today invented the cash tag, which you've probably seen, the dollar sign ticker symbol that Twitter copied wholesale on every financial platform on earth now use. He also built StockTwits in the 2008 financial crisis, and then as a social network sort of before Twitter, he was a seed investor in Robin Hood, and since then has also started social leverage, which is I think on fund five.

doing early stage venture capital. Howard Linsden, thanks for joining me here on the first bet.

howard (00:57) You got it.

Martin Tobias (00:58) Thanks. So we were talking just before. you know, maybe you could take us back to one or two of your investments, Robin Hood or Alpaca, and tell us what you were thinking at the time when you wrote those checks.

howard (01:13) Yeah, I mean, definitely had low information, but I but I had but I also had the most information. So that's what's so interesting. If you if you really unbundle that, like not to brag, you know, it's easy to say, we had no information because we didn't. We had extremely low information, but but I was the right like I'm supposed to have made that investment based on everything that I had done before that. So I think that's you know.

One of the issues I have with that whole era is that like you were s it was the easiest time to ever have made money. You know, ZERP, the cloud, the iPhone, you know, open APIs, everybody was friendly. You could grow, you know, customer acquisition costs were zero. So you gotta understand all that too. So as little as everything. Yeah.

Martin Tobias (01:58) Okay. So there there was there was a setup that that

and and and you were looking for something that would leverage some of those trends.

howard (02:08) Yeah, so I'm saying like again, like I of course I'll take credit, but you gotta give people like the fair background is like if I don't do that investment, it's almost worse than having done the investment. So part of my job is to make sure that when those come along, and I've definitely missed a few, like I we can talk about that too, but the ones that come along that you're supposed to do, you gotta do.

And because that's my job. and so as little as inform and that's part of the thing is you still have to do it even with little information. And so that whole era was just an incredible setup for almost every category because I said ZERP, zero cost of customer acquisition, Twitter to knowing to monitor. Everybody was just figuring things out. You had the cloud, you there's just kumbaya era

of

Martin Tobias (02:47) Yak.

howard (02:48) growth. yeah, so so

Martin Tobias (02:50) But why did you decide to write a check into Robin Hood versus

the ten other things that were on your plate at the

howard (02:56) Yeah.

Martin Tobias (02:56) time? What sort of tipped you to a yes about Robin Hood? Was it b your interest in retail trading? W what was it s some of the trends? Was it the

howard (03:04) Yeah, so

Martin Tobias (03:05) founder?

howard (03:06) so let me get you to the setup. So so so the setup is with all that as background, this is the incredible setup, is that I had started, you know, I grew up in the ninety nine retail era of so you know, everybody got their head handed to them because we were working off twenty minute delay quotes. So

in nineteen ninety nine. Yeah, we thought Yahoo Finance was great, which was kind of the equivalent of Twitter, Reddit, and Stock Twits, which is now real time. But you know, nineteen ninety nine, twenty minutes seemed like unbelievable, you know, it was such a great thing that we only had to wait twenty minutes before the professionals, you know, professionals were seeing stuff twenty minutes before us, but we thought that was great.

Flash forward to me starting stock twits inspired by Twitter was we went from 20 minutes to zero. So that was an exponential change in how information came, right? We had the crash in 2000, 2001, because everybody realized retail was idiots for being 20 minutes delayed and nothing. But then, and this is where what this is what set the setup as because people were so burned by like the internet era.

When Twitter came along, no one was thinking about finance. You know, and all I thought about was holy shit, this

is an exponential. We just went from the real problem, 20 minutes delayed, to even playing field to f actually, in fact, greater opportunity because no one would believe it. Like if the president tweets something, you know, which back then they didn't do, but in a way, you know, plane lands on the Hudson, we get Osama.

Markets are gonna move, and you could see that before the institution. So, in fact, if

Martin Tobias (04:33) Mm-hmm.

howard (04:37) you were using Twitter properly, you had an edge on the institution. Okay, so that's the

Martin Tobias (04:41) Right.

howard (04:41) setup, and I saw that setup. That's why I started Stock Twitch. Now, the the crazy thing was with the app store and the cloud and whatever, everybody was so burned on each, you know, the brokerages, and no one wanted to build a brokerage. And web two era was more about like build it, like Uber.

Airbnb, we'll worry about the law later. But when you're dealing with financial regulation, you can't just build it. The SEC will shut you down. So there was no innovation,

Martin Tobias (05:03) Can't do that. Yeah. Yeah.

howard (05:07) even though all this innovation was happening in real time economy, financial real time economy went nowhere until, let's say, Robin Hood.

In 2010, I had invested in eToro out of Israel. So they were the first to really mobilize and do this. They're now a public company. So that was another investment I made. But they weren't in the United States. They were they were like global. And so I had stock twits, but I was too wimpy and not a good enough entrepreneur. I you know, not wanting to take the risk of dealing with the SEC and FINRA. I didn't want to build a brokerage. And I went to Jack and Ev back in 08 at Twitter and said, guys.

you're selling ads, you guys should just be a transaction machine and and you use my dollar sign and connect. You know, when you click on dollar sign, you know, Apple on Twitter, this is really I went to Jack and Ev, Fred Wilson had sent me up and I said, guys, just you be the broker. Like everybody's talking about stocks on Twitter. They were doing it on stock to it too, but they had scale. And I said, just as you click to it to your

Martin Tobias (06:04) Right.

howard (06:06) brokerage account.

And you should do a trade. And Fred Wilson was like, this is genius, clever, blah, blah, blah. But Jack and Ev were like, they didn't really, they're not fin. They just, they just said, you build on our API. We built on their API. Flash forward seven years to 2013, 2014. No one had yet built a mobile brokerage. And the reason was again, SEC, no one wanted to do the hard work. Everybody was just like, you know, Uber's running, government suing them. They're just like, who cares?

But if the FCC sues you gotta shut down. Anyways, I get a call from Vlad andor Baijou, I don't remember who, you know, an email, and they were like out of money. They had they had this company called Kronos Research. and they had been trying to knock off stock twitch. They had back in those days, a couple engineers could build products, you know, you pivot a bunch. and they had raised some money from Andreessen and a and a few people, and they'd

But a million bucks and they'd run out of money, but now they had this idea from all the work they had done to build a mobile first brokerage. So they call me and because they knew stock twits, and they said, you know, we'd love to show you this, you know, mobile first brokerage. And I really was bullish on I couldn't believe no one had still done this. And I had seen a few, but like no one had done it right. I fly up to Silicon Valley and and they show me.

They had a a guy from Facebook, Joe, their first kind of partner, Joe, who's their designer, and he showed me the app. It wasn't connected to the SEC, it wasn't connected to FINRA. They just showed me the design of a trading app. And I said to them, if you build this, this is this is huge, right? But you gotta go through FINRA, you gotta go through the SEC.

Martin Tobias (07:39) Yeah. Yeah.

howard (07:40) And and they weren't scared. They were Silicon, you know, they were math guys, they had Stanford guys, and they said, Yeah, we're gonna build it. So

You know, back then our fund was a six million dollar fund. We wired a hundred thousand dollars. So we had no one I just knew it. I called my partner Tom and got back on the planet. I said, let's just do the maximum that we can do. we ended up investing a lot more as as it went along. But so we we did a hundred thousand dollars, I think around an eight, eight, nine million valuation. They cobbled together, you know, five hundred grand more, a million more, and then they started raising notes. But

The the the thing that the thing that made it interesting was Wallst Silicon Valley wasn't looking for this idea. They hated this idea. Okay. So this is what. This is what.

Martin Tobias (08:20) Right. It was counterintuitive at the time you did it, but you but but

but what you had been in, you had been looking for this for almost a decade and

howard (08:31) users

would swipe right and trade. I didn't want to build a brokerage, but I knew that PIs. Again, I was still wrong in many ways, but right about the intuition about if you build it, my users will come. Right. And the the reason it's was so successful. And again, you see a lot of luck, a lot of timing, a lot of everything is no one was looking for it. Okay. Because no one was doing them. How are they gonna everybody was asking how are they gonna make money? The other thing

Silicon Valley was doing at the time, they had gone hard into assets under management. So Silicon Valley had decided because they got their asses kicked, you know, and they didn't want to know the world doesn't need another e-trade. Silicon Valley hated this idea. And I knew this from me trying to help e-Toro to raise money back in 2010. Silicon Valley just hated the idea of trading. They believed anger.

Martin Tobias (09:18) And and why why why do you think they hated it?

howard (09:21) So every VC.

Had committed to building a better vanguard. So every VC was trying to build the

Martin Tobias (09:27) A band card.

howard (09:28) Wealthfront Betterment. These are companies

Martin Tobias (09:30) Right.

howard (09:31) still around, never, you Wealthfront got public at a couple billion valuation recently after raising hundreds of millions of dollars. The VCs were enamored with we'll build a better vanguard. And typical state.

Even if you built a better Vanguard, it wouldn't be 10 times better than Vanguard. And the margins were so small on the switch. So they went down this whole rabbit hole. Every VC committed to like a wealth front type product, which was easy to build. but you know, they haven't done any better than the S P five hundred. And and the marketing anyway, that was the opportunity. The low information that I had was that like I wired quickly because

if

Martin Tobias (10:08) Yes.

howard (10:08) I had no choice. Like I this was my deal. And unfortunately we didn't have a lot of capital to deploy at that time. And then the other thing that that was important was, and this is why we did the series A and S P V is along the way, is people didn't understand I knew the brokerage industry from stock twits and from doing this, and I knew that Schwab was paying $150 through you know, because they have to have all these huge marketing c costs to broker.

Martin Tobias (10:34) Expense, yeah.

howard (10:35) So so they on average were spending a hundred and fifty dollars for a new customer with their TV budgets and blah blah blah, you know, e trade baby. And we knew from watching you know, the way people shared on Reddit and the way people were growing Uber, you know, like they were like net posit, like their their their customer retention was like net meaning like people would show the app to we were in that era where people would show the app to other people if it was good.

Martin Tobias (10:59) Yeah.

howard (10:59) Never can't even get people to download an app.

But in that era, I believed we were just herbing the cost of customer acquisition. So I knew that if Robinhood could pay $1 or $0 cost of customer acquisition, again, this was that era that if you built it well, you could get customers for zero. I'm saying if we get to a million people, that was my thesis. You know, and I remember writing to it to my LP, like if we get to a million users and it costs us zero, it's a hundred and fifty million dollar company. If we just Schwab just will buy it.

To just cut the marketing costs. I got that wrong because Schwab like avoided this whole, you know, but I'm saying like that was my thesis, and it was dead right. The only thing I got wrong was much bigger than than I thought. So

Martin Tobias (11:41) Bigger than you thought.

howard (11:42) yeah, it got to a billion dollar valuation by like 2015, maybe. Back then, a billion

Martin Tobias (11:48) So

howard (11:49) dollars in 2015 was like that was not

Martin Tobias (11:51) That's a lot. Yeah.

howard (11:54) heard of other than Uber and Airbnb. So, you know.

Big mistake was selling a bunch at like one to ten billion, you know, early.

Martin Tobias (12:01) Well we could we we could talk about how to take money off the table at as as you as you go later. But so you you wrote the first check because you you had some money to deploy. you had been looking for something like this and you found, you know, the right team at the right time. But then you put additional money in. And why is that? Because as they continued to execute, you saw that they were doing something like customer acquisition and order magnitude less than so the information that you got

as the company executed confirmed that it was actually doing something better than the competition. That's why you continued to invest? Is it they is that

howard (12:37) Yeah.

Martin Tobias (12:38) the information was that they were they actually had cracked a better model? Is that part of the framework that you decided to continue to invest?

howard (12:46) I mean, you know, I had good mentorship like Fred Wilson, Brad F we

Martin Tobias (12:50) Yeah.

howard (12:50) had LPs, we had good and I you know, I'd learned from some of the best. And we don't do series A, but it was one of the only times we ever by by the time they were raising their A about six months later, we were now on to fund two, which is a bigger fund. And we didn't have the money raised yet. And I and I looked and and Vlana Baijou are very smart guys.

And they were very aggressive as as Silicon Valley kids tend to be. And they were like trying to raise more money at a crazy at at what at that time was a crazy valuation. They they called me and they were like, can you give us a we want to raise money at like a 60 million valuation? And I'm like, I don't have, I wanted to leave the deal, but I didn't have, you know, eight million dollars. No, I needed like eight million dollars.

Martin Tobias (13:32) You needed like three million dollars, yeah.

Eight.

howard (13:35) So so I remember calling Fred Wilson and I'm like, what do I do? He goes, write a term sheet, you'll figure it out. And so we wrote it was like July, it was like July fourth weekend, I remember, and I called my partner Tom and I said, let's put up together a term sheet for eight eight eight million bucks. You know, we sent him over a term sheet at a sixty million valuation with like a sixty day close because we would have to go raise an SPV and beg people for money. We had about a million bucks to put in.

from our next fund that would have been about five percent of our fund and you know they shopped the deal as they were smart to do and insight no index ventures yawn hammer wrote them a term sheet off of our term sheet for 11 million with like a nine day close or something something you know it was that era

Martin Tobias (14:19) Very favorable.

howard (14:22) and all of a sudden we were screwed but by writing the term sheet

You know, Baijou and Vlad, you know, carved out like index give a fuck who we were, but by writing the term sheet, index Vlad and Baiou protected us and and and said, Listen, we're gonna give these guys a million bucks. and I think we did about eight hundred thousand, and for our, you know, some friends and family. And off we went. We wrote another check from our f we write we ended up writing about a million, two, million three, and then did some

Martin Tobias (14:50) Yeah, yeah.

howard (14:50) along the way. So it was a it was an intr incredible investment for such a small fund, even the hundred grand. it's a hundred billion

Martin Tobias (14:57) Sure. Absolutely. So

howard (15:00) dollar company today, so yeah.

Martin Tobias (15:02) Okay. So in in in Robin Hood's case, it it it was something that you'd been looking for, you found the right team, the timing was right. It was very counterintuitive at the time, but then it became when index came in, you know, they outperformed on their metrics, and then it became a little bit more consensus, which is why other in investors joined. And I think that's something I've heard other investors talk about is that you want that first check to be non-consensus, but then you want over time

your investments to become a little more consensus so that other investors will come in. Maybe you could talk about another in investments that that that you made, how you came to that one. There was another one you mentioned in the pre-show.

Alpaca alpaca,

howard (15:47) Yeah, so

Martin Tobias (15:48) yeah. Tell us about alpaca and you know how you decided that one and was it a similar thing, something you'd been looking for, or what?

howard (15:55) We we weren't looking for but 'cause we're not tech guys. Like I'm more of a consumer guy, even though Robin Hood's a tech company, it was a consumer idea, right? As an

Martin Tobias (16:03) It's definitely a consumer app, yeah.

howard (16:04) Yeah. And so was ETOR, even though there was a lot of tech under the hood and and financial plummet. So we had this other thesis, you know, where I as a user of stocks that like, you know, plaid had been around, you know, all the piping was bad, right? So it's like

And I knew that Robinhood was built on Apex, right? And I hate and it was terrible, right? Apex is like an older plumbing company. They're still around and it's a great company, but like it's old plumbing. And that's where all the clearing would happen underneath. So Robinhood was really a very lightweight app at the beginning. They eventually built clearing, and that's what happens to the plumbing companies. If you don't have good plumbing and the company in the United States become big enough, they build the plumbing, right? And then and so Apex. So I knew.

From Robin Hood's problems that Apex was like old plumbing. So I was always on the look for a plumbing, you know, a tech plumbing brokerage business, right? You know, what would be the pipes for the next 500 Robin Hoods? Right? Okay, so I had been pitched many of these, you know, and I got an intro from Ed Sims to a company called Alpaca. Yoshi

was

YC guy not a YC guy at the time. He he and they were working on some it was like two thousand sixteen, two thousand fifteen. They were working on AI trading bots and this stuff really early, really smart guys. And I'm like, you know, it's not for me. But I said, you know, they they I said, you know, if you build this, you know, the plumbing to build what what Robin Hood needs, these are really smart tech guys.

Martin Tobias (17:34) Yeah.

howard (17:35) opportunity because there's gonna be a thousand Robin my thesis gonna be a thousand Robin.

Martin Tobias (17:39) thousand Robin Hoods on the consumer side, but they needed better plumbing, yeah.

howard (17:42) And

to end the new day. I said everybody's gonna need this. And and sure enough, you know, they understood that and they they they they they they built this product and they went to YC. So they come so they come back to me and they said, Listen, we're gonna do this. and so again, no information, I have very little information then other than I like the team and I knew if you build it they will come. But the risk is can they build it? The second thing is it's a lot of

there's a lot of reg tech involved. And and thirdly, it's B to B. It's a really tough space. And you're not gonna win Robin Hood's business 'cause they built their own, right? 'Cause they've raised hundreds of millions of dollars and they hired

But of course, you know, because of that era, you know, they go to YC and YC gives them a three million on a seventeen million valuation. And I almost have a heart attack.

And I'm like, Good luck. I'm like,

Martin Tobias (18:27) Yeah, that's very high.

howard (18:28) good luck. I'm not, you know, I'm and it was a mistake in in in general, but we were very price sensitive. And we said, Good luck, good luck, you I'm not I'm an anti YC guy, you know. And

Martin Tobias (18:39) Yeah.

howard (18:40) they raise their money, and about six months later he calls me back.

And goes we're out of money, we we kind of missed you know they they hadn't built the right product and

Martin Tobias (18:48) They blew

three million dollars in six months.

howard (18:50) Not six months, maybe 18 months or whatever. 18

Martin Tobias (18:52) Yeah, okay.

howard (18:53) months go by. And a lot of young kids started to play with Robinhood. A lot of young kids by this time were playing with a pet like other clearing kind of ideas, pipes-based businesses. And and one of my f LP's kids was using alpaca to like build trading, you know, things and called me one day and said, This product's great. And I I checked in with Yoshi, and Yoshi goes, Yeah, like we

kinda out of money and we're the product wasn't right and our blah bla blah blah right and so we ended up and I'm like hate YC I'm like well I'm not doing business with YC at those valuations so I said listen Yoshi we're the right investors you know and we ended up leading a recap which we never do

Martin Tobias (19:33) Right.

howard (19:34) and Yoshi to his credit was like he he was really kind of screwed. You know it's very hard to do recaps, right?

Martin Tobias (19:40) It is.

howard (19:40) You know.

It's just almost stupid. I'm not a private equity person. That's almost like private equity and you gotta clean you know. But Yoshidu's credit like fell on his sword as we joke, Japanese style, and had to go back to all the investors and we came in with True Ventures and did a six million dollar round at like a twelve million valuation and got this thing priced right and I think they just raised now they're doing

you know, 300 million almost 250 to 300 million annualized. They're in a hundred countries. they're powering three, four hundred brokerages around the world, including Binance, including Kraken for US stock trading and options. And so, you know, seven, eight years later they're, you know, three they raise money at a three billion valuation. But this company is on the path to be a hundred billion dollar company.

Because there's gonna be a thousand Robin

Hoods. And now you got token. Yeah, yeah.

Martin Tobias (20:32) A thousand Robin Hoods. So

your your original so so that's a very interesting story because you saw the idea originally it was mispriced, they were doing it slightly wrong, but you still so where did the confidence that that the new plan you were recapping was the right one come from? Was it because you understood all of the thing or in part because the CEO

you know, was willing to to to do that repricing at the time or where w you said

y that was the only

howard (21:04) Yeah, you're

Martin Tobias (21:04) time you done a recap and recaps are not things that VCs generally do, but where did your

howard (21:08) Yeah, but they're both.

Martin Tobias (21:09) confidence come from to to get a little outside your normal deal range into making the decision that turned out to be right?

howard (21:17) Well, I'm not very good at this. So my partner, Tom, obviously has a lot of patience in he trusts me and Gary. Like the my partner's trusted me. We're good friends. You know, I bring him a lot of crazy ideas. And you know, the last thing we're gonna do is a recap. But they knew Yoshi, obviously my Robin Hood understanding, stock twits, eToro. But like my cleanup was correct. So it was hard not to do it. And then the price was right, and the cleanup is the cleanup, right? Like I didn't do the cleanup, Tom, and and we brought in

we sent the

We sent it to I was just on a board call with him, Santo, who was at Spark Capital, who had done eToro with us. So Santo really knows financial markets. We had worked with him at e-Toro. he's just wash buckling, incredible venture capitalist. And once once they were in, we had like again, like we're confident that we know what to do. But then we brought in the right VC with us. And you know, they have endless capital, Spark.

Right. And they had worked with us before. And they so they had the chops to really help as well. So we kind of structured the right people around the table for Yoshi. Now Portage is in it. They're LPs of ours. They're the biggest fintech firm in Canada, and around the world. They're a huge fintech fund. So when we come into a deal, we've stayed in our lane over the years, right? Like I don't love that term, but like social leverage in in I think in our business is important.

like Fred Wilson, we just stay at we stayed at you know under a hundred million. And so we can write one to two million dollar checks that affect the outcome of of of a file. We don't have to write $20 million checks. And and so you know the world's changed a lot, but like we stayed where we are. And so we can work with the same people over and over again. And I think when fintechs come to us, they know that if they execute and we're their partner, they're gonna get a shot at you know the next rounds

capital. So I think that helped us. Bringing bringing Spark in was helpful. Bringing Portage in was very helpful because they have so much knowledge, global knowledge about how financial markets work. And then we know what we know, right? We know who the customer is going to be. Like I was so confident that if you build it, they will come, both in Robinhood and in alpaca. Now that doesn't happen all the time because I don't have expertise across a hundred different subjects. Right. But I talk to a

Martin Tobias (23:28) Right.

howard (23:29) million people a day on stock twits.

So I know what they want. I know what the degenerates want. And but again I wouldn't have predicted prediction markets. So again, like you d you can't get it all

Martin Tobias (23:38) Right.

howard (23:38) right. I I I didn't see that coming. so

Martin Tobias (23:40) But but

that that that is interesting. Maybe you could talk a little bit about the your your D gen thesis, which I love and we've talked about on on on Twitter. you know, w how how did you come to to that thesis and how did you think that that, you know, relates to good opportunities for returns, this D gen thesis.

howard (24:01) Yeah, I I don't like the term I love the term degenerate, not because not as a degrading term, which is how everybody thinks about it, right? Like when the crypto guys took over that, it became more of like gross, right? Because it was only about money. Like if you think about what a degenerate was before Robin Hood and prediction markets, it was, you know, a drinker, a guy who smoked, he went out at night, you know, he got in trouble. he was a bit of a degenerate.

You know what I mean? Like in h and when I went to college, you had degenerate friends. They didn't they gambled. There wasn't

Martin Tobias (24:30) Yeah.

howard (24:31) like they didn't trade, but I'm saying they gambled, they speculated, they took risks, they got in trouble. And if they kept doing that, they would be they truly would be a degenerate. Anyways, flash forward to two thousand seventeen, two thousand eighteen, I could see the behavior on stock to years. I could see the behavior on Twitter and Reddit where people were posting losses on Reddit. I never

That's not interesting to me, but that is interesting behavior change where there was like loss porn happening. And then the whole crypto thing came on with the with the stupid eyes and the laser eyes. And I like, it was repulsive, right? The whole GameStop thing. I was repulsed by all that. That was the degen, the the beginning of the degenes. I call it bad. There's it's like good naked and bad naked from the Seinfeld episode. there's good degeneracy and bad degeneracy, of course. There's no there is a difference.

Right. I'm more for the the the

Martin Tobias (25:22) Good type.

howard (25:23) proper degeneracy, speculation. but it's become merged, it's a blur now because of predictions and and perps, and so I didn't I couldn't predict it all, but I could see the behavior from the Reddit people who were sharing lost porns and the laser eyes that this was just an economy. And as a parent, and you see prices be out of control and housing and stuff, you can see the kids.

are acting a little more degenerate because they go, well, I got nothing. I might as well take an option shot because I'm never going to be able to buy my parents' house. And

Martin Tobias (25:54) Right.

howard (25:54) I want to take a nice trip. I don't really need a car. So it's just this whole it's a culture shift toward and I think we have to educate. You're not going to get rid of the degeneracy, vaping, all these things that are that are part of it. But we're going to have to educate people. And they're never going to be guardrail.

I mean you can go into a Walmart and buy bullets. Like, so you're what you're gonna tell people they can't trade options. the only thing that was holding back options was native language, like like Claude and OpenAI, then being able to type a natural language idea into Claude and getting an express back in a financial instrument. Like that's the hard part. Now that hard part is over. You can go to Claude and say, listen, I have this idea, I want to be long.

You know, AI hardware and short software. That's what Leopold did, right? Like he just and he didn't know what he was doing, obviously, and that's why he blew up. So I'm not you

Martin Tobias (26:44) Yeah, yeah, yeah.

howard (26:45) can just because you can put it in claw doesn't mean you should manage 45 billion. That's you know badercy. So we're at this era where like what's in your head can be expressed without you knowing how to code. Right now, what you've got to learn is risk management. So this next phase that we're gonna go through that we're just about to enter is

I need to properly understand risk management and position sizing. This is exciting because now everybody has access to the pipes around the world. Just like poker, 700-pound kid in Indonesia or a seven a hundred-pound kid in Africa, whatever the size or gender or what makeup is, has access to real-time information, they have access to the pipes that are incredible, they have access to information on stocks with Reddit. What they gotta learn.

And they can express any trader they want twenty-four-seven. What they have to learn is risk management and build like a network around. So yeah.

Martin Tobias (27:34) Yeah. Capital allocation and pot sizing,

bet sizing, things like that. So that's the opportunity, you know, a around D Gen. What you saw is that people were getting into these

howard (27:46) Yes, so that's where I'm that's where I'm focused now. It's like, okay, I don't the world doesn't need another Robin Hood. The world doesn't need another alpaca, although many will try. What the world needs now is language and networks and abilities to like communicate and understand risk management. prime broke you know, it's a very exciting time. It's just different.

Martin Tobias (28:06) Yeah. Yeah. Okay. yeah, I'm I that i i it it it i it is a really interesting time. And I I was just having at the coffee table this morning a discussion with my daughter who's fifteen. She she didn't understand the balance between the the difference between a balance sheet and an income statement. And you know, when you're fifteen you don't know where money comes from. And there's a I think a a big up continuing opportunity to to

do some basic financial education, but maybe in a new interesting way.

howard (28:33) It has

be in it this way, because income state like balance sheets and income statements we live in a world of cash management. I think kids just need to know budgeting. Like what are they spending? Like they I

Martin Tobias (28:43) Right.

howard (28:43) think they make this stuff too complicated. Look, how much are you making? How much are you spending? Right. And you know, listen, we live in an era where like the ri you know, I have to my kids are not gonna be able to earn enough if they want to live in

Scary, like they just the math, they they're not stupid, these kids. Your daughter may not know what a balance sheet and income statement is, but she knows she can't afford shit because they

Martin Tobias (29:01) Yeah.

howard (29:01) talk against themselves, they see prices, they can go on, they they see this stuff, they see what a thing cost. My son noticed that oil prices were up. I was like, I wasn't proud of that, but of course they figure it out, they see prices, they're not they're not monkeys, and so yes, this we're living, we're gonna come into this whole new era where they're gonna go.

learn this stuff and parents need to like simplify this and say, listen, it's not your fault that things are out of control. My generation screwed everybody and now hard assets are like 20 times more than they were, you know, 20 years ago. So you're gonna have to be very creative in how you set up your career. And we're here to help because we got to take the anxiety away from you because you're gonna do stupid things if you realize you can't afford it no matter how right they're gonna do degenerate things that the parents don't step in and say, listen, we live in a different fucking economy.

Martin Tobias (29:50) Yeah. Yeah.

howard (29:51) And

if we have money, we can't we're gonna have to help because there's no way to live the way we live.

Martin Tobias (29:58) Yeah, it's def definitely gonna be different. So as I I appreciate your stories. As we close here, what would you say to someone that's your son or my daughter's fifteen? You know, how do you you're gonna be faced with a lot of low information decisions? what are one or two repeatable frameworks or how people should think about risk and and and and how to deploy capital with with low information, you know, today?

howard (30:25) Well, the best way is to open an account, you know, whether it's a Robinhood account or Stock Twitch,

Martin Tobias (30:28) Hope try it.

howard (30:30) you have to play. You know, that's a gamer,

Martin Tobias (30:32) Yeah, you have to play the game.

howard (30:34) and now it's a game, so you have to play red, green. So you have to teach kids that the earliest thing, whether it's $100 or $1,000 treat you now with fractional shares, you can build a real portfolio with $10. You can own $10 $1 positions in stocks. So the earlier you can get them, you set up a custodial account at a lot of these.

Earlier the kids learn how they inter how they feel. So they have we we need kids all have ri you know, kids right now have different sleep scores and they have this score and they have scores for they're they're wearing a whoop and they're wearing the ring and they're what none of them understand their risk profile. And the only way to

Martin Tobias (31:08) Risk.

howard (31:09) understand your risk profile is to fucking lose money or make a lot of money. Because then you realize what kind of person you are, right? It's how you were raised, things that happened to you.

So everybody has a different, what I call risk score. And this is another big area that I'm working on. It's like it's like DNA almost. It's kind of like at a certain age, it just gets etched into your soul that you're a certain score. And you can't you should own you should own up to that score. You shouldn't try and change that score. You should

Martin Tobias (31:35) So discover your score.

howard (31:36) discover your score. The sooner you discover a score, and then you can mingle with other scores, of course. But generally your score is your score, and you should you should set up your financial life

accordingly.

Right with different percentages. But the faster a kid learns how they react to making or losing money, the better. They shouldn't be ashamed that they lose 30%. The question is, how do they get when they're down 30%? Do they do they try and make it back quickly, or do they just slow down? And that's how they learn. And the key thing for young people is to realize you're gonna make mistakes, but don't double, don't it's what you do after you make your first big mistake that really matters.

Because it's it's making four big mistakes in a row that really get you in trouble. Everybody's gonna make a big mistake. You may blow up your first hundred dollar account or ten thousand dollar account. The question is, what do you do next? And so you've got to find with that.

Martin Tobias (32:25) Yeah. Did you learn from that? Yeah. Did you learn from that? Yeah.

howard (32:30) Yeah, of course they learn. The question is, do they have a a mentorship group around to say, listen, this is a normal reaction? How did you feel? How did it make you feel? So again, this is the new.

I'm very excited about this era because we ha you and I, people like us have a lot to hand down here, right? Both to our kids and stuff. We have the tools to hand them and they have to start using these tools and we have to let them make these mistakes. And then we have to teach them, once you've made the mistake, now let's go to work. Right? Like this is not it's not just a game. This is like a lifetime thing.

Martin Tobias (33:04) Okay. So get get started or they figure out your risk decision. And then what about the other thing? You you had mentioned when you made some of those decisions that you had more information than the people that you know were skeptical of Robin Hood and Alpaca at the beginning. Would you recommend that people use tools like ChatGPT or StockTwits or these other things to bridge if they're looking at a low information decision to bridge the information gap, is the only way to make checks

write checks yourself or are there other ways to improve your information? Is that a key framework to think about?

howard (33:37) Yeah, I think people get people get stuck. The biggest mistake is this social like your friend did it, so you're gonna do it. Right.

Martin Tobias (33:43) Your friend Dennis Ayuda if yo loing behind somebody, this is not a good risk strategy.

howard (33:48) So people have to learn. Like this is like the world is a is can't just copycat your way to life. I mean you can, and that's a strategy. It's just very hard, right? So I I've

I look at nature, right? I look at the Peloton. I we've talked about we look at the Peloton, I look at a great white shark. I liked I'm not the guy who's gonna win the Tour de France. I am not the great white shark. But there is a hell of a good chunk of money and time saved to be right behind the leader, right? You know, to

Martin Tobias (34:15) Right.

howard (34:16) be fine underneath the great white shark. So fine, like you either are a great white shark, odds are you're not. So if you're not a great white shark, own that and get as close to great white sharks as you can without getting eaten by.

Right. So it's like manage your ego, get as close to these great white sharks, find mentorship, you know, be humble, be nice, and the money will just come to you after 10, 15 years because they'll drip, like they leave so much alpha. Like people like me, I don't get it right all the time. I leave so much alpha. I'm not saying I'm

Martin Tobias (34:44) Already, yeah.

howard (34:45) because I'm following people that I've studied for 10 years, right?

Martin Tobias (34:49) Yeah, yeah.

Yeah.

howard (34:50) And and by the way, you could pass me, I I'm okay, but you be careful of being in front of the great white sharks. This is what gets Yeah. You know.

Martin Tobias (34:56) Yeah, yeah. Definitely.

howard (34:58) So so so my number one thesis is, you know, build some domain experience and be careful who you're following. Be very careful who you're following.

Martin Tobias (35:06) Okay.

howard (35:06) But

there's so much free mentorship. You don't even have to pay that much. There's so much free mentorship out there.

Martin Tobias (35:11) Yeah, right

now they can do that. I mean Bill Gurley was talking about that. It's the best time to be alive because anything you want to learn, you can learn from YouTube, Chat GPT very quickly. Anything you go down the rabbit hole on, you can arbitrage the information gap very quickly to learn just about anything, which is a key skill I think a lot of people need

to to to get better at.

howard (35:30) Yeah, so while we

well, it took us twenty years to find mentors when you and I were coming of age. It could take kids two months to find a great mentor. So

Martin Tobias (35:37) Exactly.

howard (35:38) as so as much as prices are higher and the world is r stacked against them, the arbitrage of information, the the the starting point for knowledge is so much higher. But that doesn't mean you should now your kids gotta decide if they're gonna be a generalist or a domain experience. I don't want to get into that argument, but I I believe strongly in finding people with domain experience. You know, as an investor

I'm not looking for generalist founders. I'm looking for investors. 'Cause it takes ten

Martin Tobias (36:01) Specialist, yeah.

howard (36:03) years. I'm looking for someone who is gonna be like stock twits with me. They're gonna be s trying to solve this problem for the rest of their life.

Martin Tobias (36:10) Yeah, obsessed about one thing.

I agree.

howard (36:12) Yeah. Yeah.

Martin Tobias (36:13) Okay. Well thank you for your time. I think this has been really insightful, different perspective from other people I've talked to. And so how can people find you that follow you on Twitter and stock twits?

howard (36:25) just my name, Howard Lindzen, L I D Z O N dot com. I have a newsletter, my Twitter, Stock Twits.

Martin Tobias (36:32) Great.

howard (36:33) mostly financially I'm mostly on Stock Twits, so if people want ideas, it's a great product. But my newsletter I still write or I'm on Twitter. Twitter mostly part

Martin Tobias (36:41) Okay.

howard (36:41) one.

Martin Tobias (36:42) All right. Well, thank you for your time and I'll talk to you again.

howard (36:46) Thanks, Martin.