Howard Lindzon – Fintech and Trend Following - [Invest Like the Best, EP.109]

I know firsthand how complex the tech stack is for asset managers, and seemingly every new tool and data source makes the problem even worse, adding more complexity, more headcount, and more risk. Ridgeline offers a better way forward, one unified platform that automates away all that complexity across portfolio accounting, reconciliation, reporting, trading, compliance, and more, all at scale. Ridgeline is revolutionizing investment management, helping ambitious firms scale faster, operate smarter, and stay ahead of the curve. See what Ridgeline can unlock for your firm. Schedule a demo at ridgelineapps.com. Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com. Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast. My guest this week aspires to be the Larry David of investing and we discuss why. Howard Lindzen is hard to categorize. He's primarily an early stage investor right now, but he's participated in all types of investing. He describes himself as a trend follower and always has a unique take on popular topics. In this conversation, we cover his investing history and his take on the fintech investing landscape today. What I'll remember most is the idea that we should focus on what is happening versus what we think will happen or might happen. There is a Peter Lynch-like quality to some of Howard's thinking and a willingness to embrace the weird that I find very appealing. The few times I've met Howard I've smiled or laughed most of the time which is about as nice a thing as I could say about anybody he's a good example of why I like this podcast format his investing style bears literally no resemblance to my own but it got me thinking about a lot of new things I hope you enjoy our conversation so maybe we'll start with why your goal is to be the Larry David

He doesn't care who likes them. And that's the way I am with investing is like, I don't care what other people say. I'm interested in what they say, but I don't care what they think about me. So I think the whole ability of people not caring what they think about me has helped me. A lot of comedy is just really good observation. And I've heard you describe that your investing skill, let's say, is really just that you're a trend follower. So I'd like to talk about that notion of trend following in as many different... kind of ways maybe kind of beat that idea to death because I think it's a really, your career is so interesting and looking back on it and weaving the narrative is even hard because it's kind of all over the place. But talk about this idea of trend following and why that's how you describe your investing style. The simple part of my theory is nature, like a pilot fish and a great white shark. If you look at a picture of a great white shark anywhere on Wikipedia or wherever you're going to look at a picture of a great white shark, it's beautiful, but there's all these fish underneath the great white shark. and they live a pretty damn good life. No one talks about them. They're trend followers. As long as they don't stray too far away from the shark, they can talk smack, they can mess with other fish, and they're always going to get food. The shark doesn't eat everything. So that is a trend follower in my opinion. That's nature. It's like stay close to the great white sharks without getting in front of them. And then the other thing is Tour de France. I'm a cyclist. fascinated by the Tour de France, scared of obviously the peloton because you have to know how to stay with a peloton. And maybe Twitter help and other things, meaning I look at Twitter and social networks as finally a global social peloton. If you know who to follow and you draft behind these smart people, you are a trend follower. You don't have to necessarily set trends. You just have to stay close to the trendsetters and money will be made. So that is how I... at a very highest level how i think of trend following and then two is with the tour de france is

You can go really fast in a Peloton if you know to stay with the Peloton. And there's points where you can break off and go in the lead, but you've got to pace yourself to know that the Peloton is going to be coming for you. And that's like startups. It's like you stay with something and you're using products and you love everything and you love the community, but there's something that's missing and you decide I'm going to go build it and you break off. But you better have enough money, you better have the right team, and you better have the runway, and you better have a business model or the pack's going to catch you. So that's trend following in the startup world. So I just look at it really simply like that. And then I participate. So the thing is, you got to be in the pack and you got to know who the great whites are. Well, let's talk about them. So I think of those sharks as ideas, people, mentors, what have been maybe sequentially or in any order you want to go, the biggest and most important ones for you? I didn't really find out what I really liked until later in life because I was just trying to make a living and I was an entrepreneur. So my first mentor, and it turned out to be... He was much younger than me because he gave me the courage to leave. It was a guy named Mark Scatterday. And Mark, this kid, I cold called. I was a stockbroker after graduating from school in Arizona, Thunderbird. And I had to stay in the United States, so I had to take a job just to get my work visa. It was in 91 after the Gulf War. And so I'm cold calling. I'm a stockbroker in 91. The market had crashed. Phoenix was the center of the universe of the SNL crisis. So like stocks were all at a penny, like bank stocks and whatever. And I was learning how to become a stockbroker just because I needed a job to stay in the United States. And I'm cold calling. And back then, you didn't have the internet. So I'm like looking up. You get the business journal and you call rich people you think are rich people.

But I didn't even know anything about anything. So I called one guy and he was like holding up a product called The Grip. And it looked like he was doing really well. And I called him. He said, come on down. And he ended up pitching me because he needed money. That became my first angel investment right out of college. It was a stress ball, birdseed and balloon. He didn't know it, but he was my mentor. I mean, he was 10 years younger than me. He didn't have an MBA. He was a dropout. And he had this product that blew my mind and gave me the courage to leave a job and just give him. Borrowed money from my mom, 25 grand, and we turned it into one of the greatest. It's in the QVC Hall of Fame, the product. And so Mark Scatterday, who I work with, and we made every. So it didn't matter that I had an MBA, which I did. He had margins. So that was the first time I learned about margins. So he was my mentor in teaching me like, well, anybody could build a business because he's a knucklehead and I'm a knucklehead. But he was so confident as an entrepreneur and such a great product person. aha moment, meaning I was an entrepreneur. I wasn't the kind of guy who was going to create products per se, but I was attracted to other entrepreneurs. And he gave me the confidence to just leave my stupid job, which I was going to be miserable in as a stockbroker. And we conquered the world for that moment. We had like a huge run. It was my first business out of college and the company was profitable from day one. And from there, we made every mistake in the book, of course. But he was that guy who just was fearless. As a young person, we'd travel the world, sell our product, invent business models, try new products. So that's my first mentor. And then second would be Fred Wilson. Yeah. So maybe talk about that so people will be familiar with Fred as one of the better known, certainly in the New York area, one of the better known venture early stage investors. So maybe what about him? is so interesting that makes him such a good investor in your view. He's the give it away guy. You learn more about him as you become friends with him because no one goes back and reads archives anymore. So it's like, it's all there. But what made him interesting is he just takes chances. He has an eye. He's an artiste, I guess. And he combines the MIT brain.

combined with the art side of the business and has managed to stay in his weight class all these years. He doesn't get too big and he just loves what he does. So I have two kids and we want them to love what they do. We don't want them to do stuff just for the money. And so that's the inspiration there. I called Fred. I used to go to his blog because I didn't know anything about the internet. I was a hedge fund manager, so we don't know anything. And we just punch buttons and yell at the TV. That was my job. And it super hated my job and super hated CNBC and my life of talking to the television at the time in 2005, 2006. And I was in Phoenix and a company walked into my office to pitch me. And I was like, it's the greatest idea I've ever heard. I knew nothing about VC or anything. And I Googled venture capital. I Googled term sheet and Fred Wilson's name came up. And I clicked over and read his blog. And he had a blog role at the time, which people did. And it had all these VCs on the right hand of his blog. And started clicking through one at a time, all the legends. And I clicked through Brad Fells. And it had a term sheet. And I copy and pasted it and did a term sheet. And I was like, I can't believe these idiots are giving this stuff away for free. And that's the way I used to comment on Fred's blog. I go, you're a dummy. Like, why is this free? And I took their term sheet. cut and pasted it, sent it to this golf company. That golf company was Golf Now, which was the open table of golf. They started in Phoenix, so I didn't know anything about the business. I just loved this business model and invested in that company. It eventually, two years later, got bought by Comcast, and all of a sudden, I'm an angel investor again. From there, I just read Fred's blog and networked in my way before Twitter and social networks. It was just Fred's blog was the center of him. He was the monkey, the alpha monkey that was the center of the universe. And I used to just send him. He had this weird community back in the day of people commenting, and that's where I met Phil Perlman on Fred's blog and all these smart people. And the idea was to give back. Fred had no tolerance.

for knucklehead. He had tolerance for goofing off. If you were really funny, you could stay, but he was just there giving stuff away for free. So you had to like sip from the fire hose and appreciate, respect the mentorship. And I was that guy who used to wanted to meet him. I just said like, Fred, I got to meet you. I have all these ideas for you. And he must get that all the time. And this is back in 2006. So, you know, I lived in Phoenix and I saw he was coming to Phoenix. I said, I'll take you to a son's game. Back then, the Suns were great. Steve Nash days. Steve Nash days, Amari. They were just amazing. And Fred's a basketball fan. And the story now is, as Joanne, who I'm friends with, was scared that he was going to meet me. Like, oh, these psychos on the internet. That's how far we've come. Like, that's Fred's worry, right? Or it's his wife's worry. And it's a normal worry. But we hit it off. And I didn't need anything from him. I was just a fan. And then when YouTube came out, I just cold comment. I said, I'm going to put CNBC on YouTube. And he wrote a check, not through his fund personally, and then handed out phone numbers to Brad Feld and Roger Ehrenberg. Those are all my friends now and investors in our funds. And he just handed it out. And I started cold calling these people that I didn't know and pitching them my idea for Wallstrip. And I thought VCs were dummy because I was 10 for 11 off his phone list. And I called Brad Feld. I go, Brad, Fred gave me your number. I got an idea. I'm going to create CNBC on YouTube. And he goes, okay, I'm in for 50 grand. I go, well, you're an idiot. I thought you guys do due diligence. So I cobbled together 600 grand off Fred's phone list in 2006 for a show that did not exist. Wall strip. Had no cast, wall strip. And seven months later, we sold to CBS. So you tell me how that, I mean, that's just, you're a legend. If you can pick guys like me who have no experience. And we sell to CBS. Now, everything happened correct. And we made a great show. And it was really fun. And I was Larry David. The whole point was I'm going to be Larry David. I mean, we're going to make fun of me in every episode. I think you might be Kramer. Your whole life's a fantasy camp. Yeah. So, yeah, my whole life's a fantasy camp. Well, they look at me as that. They truly think I'm an idiot. And I'm okay with that because they like investing in weird things. And that's their skill.

And so I thought, well, I can do this too because it's just writing checks like drunken sailors maybe. But I had done this with The Grip, my first company that was a home run. And the reason I got into being a hedge fund is we were making so much money, by the way, at that first company that I was managing Marks and my money. And it was in the 90s and stocks went up every day. All the medical stocks would go up. So I was like, I should start a hedge fund for us. So that's, sadly, that's what got me down the hedge fund path. Like thinking that a bull market was. So sadly, you know, I've paid my dues people. Like it's not like an overnight success. I've just done stupid things for years and years. But the long-term lesson is I have these incredible mentors that I'm attracted to. Obviously, there's some people in the network that come along, but we protect the network. These guys are magicians at what they do, and you pay it forward, and you keep building the network, and these products keep allowing you to do it. But we sold to CBS, and it wasn't just that Fred gave me money. He took my call every time there was a problem. I just thought that was normal. That is not how VC works or angel investing. He is a true... artiste at this stuff. And so is Roger Ehrenberg and Brad Fellen. I'm friends with them to this day. These are the best in the business. And they will, if you know how to talk to them and if you respect them and if you have talent, they will find you or you will find them. That's how the internet works. One of the intriguing things about you is that every single person I mentioned your name to like either knows you or says something nice or you've used the word weird like three or four times today. And I'd love to dig into that a little bit as it pertains to investing. And maybe now we can talk a little bit more about some of the actual investments that you've made and how you found them and how you came to the decision to invest in them. So what about this word weird is so important? Well, I think... If you go into a gallery in Chelsea or if you're walking around Broadway or looking for art, I've always been fascinated maybe because of the idea that I was so shy as a kid that I was weird. And the fact that I was watching Johnny Carson when I'm eight.

That's pretty weird, right? You don't think you're weird. You're just like, the fact that I'm fantasizing, maybe not about girls, but fantasizing about being on Johnny Carson is damn weird. But I think being weird and not knowing you're weird is an edge for a while. And now being weird and being told you're weird is like a badge of honor. So I don't know. But I think you have to back weird people. You've got to be crazy to start a company. Because in my generation, all my friends in Toronto were lawyers, doctors, CPAs. So it was not a badge of honor to be an entrepreneur. You stayed in Toronto and the community was great. And you know every year one degree of separation or two degrees or six degrees, let's call it. Now we're one degree. And so I think it's harder to be weird because of Instagram and everybody's trying to live this life. And I don't care about what people. I don't care who's reading me. I think that allows me to be reared. I don't get excited if someone famous is following me. I don't change who I am. My kids read me. My wife reads my blog. I'm just writing. And I think that keeps it weird. I like weird people, obviously. And they're not loved by everybody, whether it's Letterman or Carson. But the people who like them generally are smart people. in my opinion. So that's the luck of it, I guess. Johnny Carson was loved by smart people. He was a silly guy. David Letterman was the silliest mofo of all time. You didn't have to be high. You just had to appreciate his silliness. And so silliness wins. And I think the best investors embrace silliness. Now, Sequoia is not investing in silly. So there's two sides of this. There's the math side and the true understanding of tech. But then there's the art side. And I stick to what I'm good at, which is like, I can't compete with Sequoia. I can't compete with Kleiner. I can't compete with massive amounts of capital, but I can definitely angle of attack this thing in many different ways. From an investment standpoint, I think weird is like unique and on average, slightly off-putting, not like wildly off-putting, but slightly, which in the investing context. could often lead to a mispricing. And that's how I think about all investing. It's just that something's mispriced or underpriced. So maybe we could talk about a few portfolio companies. Rally Road is one that I'm really intrigued by, and it's new. And most people probably won't know what that is. We'll talk about Robinhood as well. But let's talk about Rally Road and what intrigued you about that. Well, Rally Road is a culmination of things. So let's do it, but understand them.

You're not going to get a great explanation because it's a culmination of things happening. Because if Rally Road was pitched to me 10 years ago, first of all, it wouldn't happen. So it's a culmination of mobile phone, Robin Hood, combination of what's... I think is bad. And I'm not even into cars, but rally road was a referral. People know what I'm looking for. I put the vibe out. So the first thing is you got to put the vibe out. I'm not scared of this industry. This is my opinion. I do it yourself investors. I got two kids. They're going to have a hundred wallets all over the place. They don't care about money in the same way we care about money. And it's all about UI and hiding complexity. And these are things I actually know, but like. I can't teach everybody all that. That's 10, 15 years of reading and investing and making mistakes. But Rally Row came to me, insane team. Like just when I met him, I'm like, it didn't matter what they were going to be doing. Gladly they were doing something that I was interested in. And that not being cars, I could care less about cars. But the team just, I sat down with him like, oh God, I hope. hope they're not criminals or hope they don't do something weird or weirder. And they've showed me the product and that was it. I saw the product. I'm like, wait a minute. Can you describe it? Cause people will know what it is. The idea is to fractional is important to me. Like the idea that a car right now there's Barrett Jackson. Luckily I'm. phoenix and barrett jackson's big auto show and i wasn't interested same week as super bowl and barrett jackson's like millions of people come into phoenix and to watch people bid on classic cars and i thought this is the dumbest group of rednecks in the world that do this because the people that they're gathering around are rich don't care about them so it's everybody's gathering around to watch the same two people buy cars Talk about dumb. So it never went to Barrett-Jackson. But they were flipping the model. They were saying, well, all the millions of people that would like to have that car can't have that car. But imagine democratizing that. And I didn't know there was a Hinckley Index about cars. They were explaining to me the industry in 10 minutes. And I'm like, so they knew the industry. Number one, domain experience. You could invest your whole life, but the key is team. Then I don't care about market size because I'm small.

but domain experience. Like, you don't want to teach people to learn on the job. You want them to have scars from understanding the industry. So that was really important because I know nothing about cars. They blew my mind with how they explained cars to me in one second where I was like, okay, if you could build that, that actually would work. Even though I don't like cars, I would never consider myself a car guy. And so they reversed the whole model. I mean, imagine we bought the car because we know cars and then parceled it up and allowed people to buy pieces of cars. Okay, forgetting all the leaps of faith, that was the idea. And I'm like, because of Robinhood and StockTwits, you know, my vision of what people want to own and trade. And because Bitcoin exists, people are trading the same thing, but like digital error. It just made sense to me. And the index class has done better than the S&P anyways. That's not even important. And the fact is, it's working. Like people just want to move $10, $50, $100. And what they did was so genius, they did the hard work. The moat that they have is they went and spent nine months getting a broker-dealer. And all the things that no one, you know, Silicon Valley, you know, we'll just take on the taxes and worry about lawsuits later. In the financial industry, they understood that you've got to go do a broker-dealer. So they did all the complex stuff. And when you looked at the product, you couldn't see the complexity. You just could buy a piece of a car. And so that was seed stage investment. And they were looking for some money. And they wanted me as an investor. They already had some money. And I knew I wasn't going to be the expert in that deal. So that's good too, because if I don't know the industry, I don't like to be the weak link in the chain. So everything fit and we wrote a check and the company is really doing well. There's a lot of money being... transacted on the platform. Cars are being sold in minutes, not six months, like at the beginning. So they'll IPO a car, basically. And like three minutes later, it's gone. And they store it somewhere. Yeah, so their business model should be determined. But there is a business model. Obviously, complexities in insurance, they can scale. The complexities in storage, they can scale. They can create events around the cars. No one drives these cars anyway. Unless you're Jerry Seinfeld, the car drops every time you drive. If you're like a sheik and driving the car, it's dropping in value. It's not like the Seinfeld episode where you had the car, the green.

car with the pencil in it and he thought it was John Boyd's car. It's no John Boyd's car. It's not a LeBaron. But they did sell a clunker for $14,000, a Ford green Mustang. And that proved that was when I was like, move the chips in. It was like they went from selling a $200,000 car to a $14,000 cool green clunker Ford Mustang and it sold out just as fast. Meaning the experts are out there, don't tell them what to do. The other thing is like the experts are out there. They may be in their basement. They may be 600 pounds. They may be a genius. It doesn't matter what race they are. They know their category. And they saw it as a deal. And then asset got gobbled up. I wonder what balance there will be between, because rich people want to own these rare cars because of scarcity. And if a firm like this gets big enough. such that a broad swath of people now can like fractionally own one i wonder if that'll impact the value in any weird perverse way like a system betraying itself yeah if i worried about dusting my wife's a bankruptcy attorney i would never write a check so that is you know i try not to think about that or outside truly wouldn't be larry david i think you have to have a leap of faith this is not for everybody what i do it's really I wouldn't call it dangerous I think it's more like you have to want to do this because you can just go buy Apple I would say and I'm pretty bullish on Apple and I'm like you can take that risk and have liquidity so this is all about leap of faith being part of a team getting some joy out of winning but knowing you're going to lose a lot And that's just a drug that I love. You mentioned some really interesting concepts around really slick UI in front of a lot of complexity, Robinhood. And you know the fintech world probably as well as anybody just having been around it forever, built businesses in it, et cetera. I'd love an assessment just in general of fintech. What you think is valuable, where you think the big missteps have been, and maybe where the pockets of opportunity remain. Yeah, great question. It's exciting to talk about because these are just opinions, but strong opinions loosely held, but stronger than most in the sense that I use products. And I'm only going to be as good in this industry or writing checks. I'm only interested in stuff I use now. So in the beginning, you're writing checks and you're like, spray and pray, whatever they're going to call it. You have instinct, but then it becomes like your profession and you have to take more time, spend more time with the founders, et cetera, et cetera, et cetera.

But FinTech to me is just something I just wasn't in the club. I didn't have a Bloomberg Journal. I didn't read the Wall Street Journal. I didn't know how to use the internet. Kramer changed my life. He was like democratizing, or at least to me. We can make fun of him now or then. But he was the Fred Wilson before there was a Fred Wilson for people in our industry who didn't have access to Bloomberg and Wall Street Journal. So I learned. And I felt like do-it-yourself was the way to go. And then I grew up with E-Trade and Schwab and Daytech and all these products. And I'm like, It was unbelievable. I could own the stocks, and I could sock a list. The guy who was running E-Trade, he was like a legend. Those were our peeps. And then nothing happened in fintech. You had Yahoo Finance, and it became a cesspool, and you had no innovation. And you had everybody who was building silos. Everybody was just buying companies to lock in their customer. That was the business model. And it worked. Schwab will buy Cybertrar. You blow yourself up, blow yourself up with Schwab. God forbid a Schwab customer meets an E-Trade customer. That was the whole goal of Schwab or E-Trade. Keep them in the silo. And that was the business. And we know what's happened since. Twitter, Facebook, LinkedIn, whatever. The peasants started communicating with each other outside the silo. You know what I mean? Like, I didn't have a Bloomberg term. I didn't have a – they are a social network. Bloomberg is the ultimate social network. Talk to rich people for $2,000 a month. Sign me the fuck up for that. That's why Mike Bloomberg is in distress. What a business. So Fire was the first social network, then smoking maybe, and then Bloomberg. And so because Bloomberg would chat and the fact that he charged $2,000 for data. That's all people were addicted to is the information displayed in a different way. And so Twitter comes along, obviously, or YouTube first, which inspired me to do Wallstrip, then Twitter. And it's like, that's fintech, right? We finally have a wedge. Finally, when the peasants can talk to each other outside the platforms and Schwab can mingle with E-Trade and Bloomberg guys on Twitter and Fred Wilson's on Twitter and Marc Andreessen and they're sharing information, that's the new Bloomberg terminal. So to me, I was just an epiphany. YouTube, Twitter were like, okay, wait a minute. And I'm using the products and I'm talking to Fred Wilson and we're talking about stocks and on our BlackBerrys at the time. I'm like, this is going to be the biggest thing ever.

So I want to put as much money into this. And so that led to checks in, even though it wasn't financial companies, TweetDeck, Bitly, Betaworks, BuddyMe, anything that tied people together. And it's just right place, right time. And I only thought about these social networks from a financial because that was what I needed it for. So I think that was my edge is I wasn't looking at taking over the world. I was just looking at going as deep as I can with these tools, with the selfish financial, I'm going to do this for me. And that's what social networks allows. And still today, no one's doing it right, because that's the opportunity, obviously. And so the other thing is, like Fred talks about, is constellation versus, because now we've got to talk about China and Europe and the United States. Like, fintech is different all over the place. So in China, it's very much planetary. There's Alibaba, there's Baidu, there's Tencent. They don't have Visa massacre. They went over them. In the United States, everybody's still paying the two railroads. You've got to own Visa Massacre because everybody's paying a toll. So FinTech is way different in the United States than it is in China. I don't understand China. I've been there, but I don't want to go back personally. And I like Chinese foods. I don't take it as an affront people. But you've been there, done that, and I like investing in the States. And I want to stay small enough that if I can't find deals in the U.S., I'm not doing my job. But fintech in the US is much different. As Fred would say, it's like constellation approach because it may be the app store and there's no one platform to rule them all. And it's even going further. Kids will use 30 financial apps. They got Venmo. They got Square Cash. They got StockTwits. They got Twitter. They got Slack, Discord, Telegram. They got Schwab. They got Robinhood. And so you're not going to convince someone to hoard their money under one roof. Like my money is at Schwab because Robinhood and other companies still aren't there yet. I hate. Schwab, God bless them. But I mean, I log in there and I go, what are they doing? What do they do in the opposite of what I want? Like I can't get what I want out of Schwab and they have all my money. They just want to do other things. Show me my goddamn account that takes less than 30 seconds. So that was the opportunity. I'm unhappy with the products and how my money is being held and looked at. So it wasn't even about fees to me, you know, and then along comes.

Twitter. And I'm like, okay, I meant the cash tag with the team dollar sign. And we're giving back to the community. And then I started StockTwits. I'm like, Twitter's not figuring this out. And I called Fred Wilson. I said, dude, why is Twitter for finance? There should be Yahoo Finance, twitter.finance.com. And he said, you're right, you should start that. And so I blame Fred for all that. Fred sucked me into doing StockTwits. And when I started StockTwits, I'm like, okay. We'll do it, and Twitter will buy it, or someone's going to, or Yahoo will buy it, or E-Trade will buy it. Ten years later, StockTwits is an independent company, and it's kind of like a Larry David company, right? We did everything to wreck it, or I did, because I don't know what I'm doing, but great investors, great community, great everything, and it's just getting stronger every day. So now I would hate the idea of selling it, because it's growing on its own and healthy. So along with StockTwits came all these things that Twitter should have done, or I wanted a new E-Trade. So when Robinhood... came to me with their ui i'm like this i'm too much of a wimp to have built a broker dealer because broker dealers 20 years ago and your dad don't know he's sitting here is that like you do not want to be a broker dealer things go wrong when you're a broker dealer like people's too much compliance and complexity and too much risk and i had a broker dealer it was a disaster because i didn't know what i was doing it's just a lot of things can go wrong but robin hood did the hard work they came to me and they said imagine broker-dealer in a box driven by software and allowing people to trade for free. And that was their pitch and showed me the product. And obviously, I own StockTwits. So StockTwits is like, needed this. Imagine a world where you're on StockTwits and can swipe right and trade. This is what I was telling E-Trade to do in 2006 in meetings. So they finally showed me the product. And I'm like, OK, if you really can build this. It was just a design. And this is a home run. And I wrote a check. And it was like at the seed stage. worked my ass off for them like for free obviously just pimping the company and the idea and we got laughed at the whole thing was laughed at for still is but people just don't want to play with it and if you play with the product you realize finally someone's teach this is how you learn the language of finance so the whole philosophy is

You got to first learn the language. And the faster we teach kids to speak money and finance and trading and investing and losses and risk, the better. It's a universal language. You know, the last 30 years was go speak Spanish, go speak Chinese. I'm like, why shouldn't people like to have 300 bucks and parents teach them how to trade? Now they can on Robinhood. Meaning my daughter can buy one share of Schwab or one share of Facebook and change her mind the next minute and not be down $16. That is 10 times better than what we was, hence a venture capital company. Would it be fair to sum all this up as like your view on vintech and maybe investing more broadly speaking is investing in what people actually do do or like to do versus what they should do? So I'm thinking about robo-advisors, for example, which in my view, who knows how it'll turn out, right? But probably not the most successful outcome. Certainly Robinhood is many multiples of the most successful robo that wasn't captive at like Vanguard or Schwab. And I think there's no question, like if everyone just did what a robo does for you, which is like a balanced, diversified asset allocation for a low cost, that's probably a good thing to do. Very level-headed. I think 90% of people should do it. Nobody wants to do it. And people want to buy fractional ownership in cars instead and trade on Robinhood. And denying human nature is a dumb mistake. Dumb. Fintech seems to want to push people away from human nature. Because of the silo. Bloomberg, it's keep people in the funnel. Because the cost of customer acquisition for these people with TV commercials and et cetera, and the infrastructure they built was conducive to like $400 to acquire a customer. You better not let that customer get outside the box. And you can't contain it. It's like Jurassic Park. When you're watching Jurassic Park, okay, forgetting the movie. The fucking first thing you go, who's that thing going to break? That's going to break through some point. This is going to go wrong. And the Tyrannosaurus Rex is going to eat somebody. And you're deciding who it's going to eat when it finally breaks through the wall. And Twitter and Facebook and all these companies were like, where's Jurassic Park? Once people are outside the fence, chaos ensues. And you can't predict what's going to happen. So you might as well participate and hide behind the right people and draft behind the right people. So that's the world we live in. You can try and build that wall as high as you want. And we're in the last stages of people that think the wall is wall.

work because they don't because people just go over them or around them or through them. and they don't even need space. But so we're in that world where we're like, yeah, you didn't even, you know, Bitcoin makes sense somewhere else. But in the United States, it doesn't even matter because the walls are coming down around just moving money around. Back to this idea of trend following and really that it's more just about observation, right? You're just watching stuff and using stuff and kind of investing accordingly. What about today's landscape in fintech? So what is most exciting to you as categories or ideas, not necessarily stuff you're invested in, but just broadly speaking, what do you think? the major trends are that have your attention are. Yeah, we're in fund three, investing out of fund three. We're more of the same, meaning why aren't there more Robin Hoods? And not that I want Robin Hood to be. not a public company and worth $100 billion. But it's like there's so much more room for more Robin Hoods, maybe not as big as Robin Hood, meaning everybody's still trying to build robo-advisors. The VCs are zigging while I'm zagging, meaning I'm watching my kids. Maybe I'm lucky, but I own and operate two millennials. And by owning and operating them, I'm disgruntled many times, but they're really rather interesting people. And they do talk to me, but they talk to me on their terms. I can't just boss them around. They're not bossing me around, though, either. They're lovely. And they're very easy to maintain. But the point is, they have their way of looking at the world. And so what are you going to tell them? When my son has Netflix, Uber, Google Maps, the only way you can harm this generation is take those probably three products away. Like when we took my son's phone away. Chaos ensued, not because we thought he would miss Snapchat, because he didn't know how to fucking do a right turn or a left turn without Google Maps. He stayed at home for a week, embarrassed to say, didn't know how to get to his friend's house. So there's chaos underneath, which is why I'm long Google. It's like Google Maps is priceless, but Google may be overvalued, but how do you price Google Maps? Because it's priceless. So we're in this weird environment of fintech where I think there's more of the same. If Robinhood's only $6 billion and my money's still at Schwab,

i would say there's plenty of room for disruption and so while everybody's looking for the next shiny thing i'm really laser focused on more robin hoods and you just got a cap table at right you got to find the right teams and do it so that's where rally road fits in stock x when i met i didn't invest but obviously i wish i had met him sooner josh luber these people that want to like make a stock market for everything and it's not that much different than ebay but just With a mechanism for instead of inventory, the inventory is just price and bids and offers and liquidity. And it's just so much stuff to be rebuilt in a fun, light way. And why move on? I think we're just beginning. And that's the hard part of the Larry David part where we joke around and I'm like, I can't believe I'm making money. What? This is so dumb that I'm making money. I'm nervous about that. But at the same time. I've got to stick with the trend while it lasts. And that trend is clear as day to me. And so the next phase is pre-wealth. It hasn't been done well. We were talking about that earlier. I want to go earlier in the stack. I want to, instead of worry about where Goldman and everybody's worried about, they have to pay the bills and they have to rip off their high net worth customers. And God bless their high net worth. They want to get screwed, let them get screwed. But I'm focused on even earlier in the food chain. It's like, how do we onboard them? Robinhood did that. They're not the only ones. How do we onboard them and keep them happy? And there's all kinds of products around that from customer support because we invest in enterprise too. There's the flippening, which is happening, meaning fintech was so small that fintech had their own weird customer support products. Schwab would spin up phone centers to manage 5,[redacted address] different demands. They're not going to go spin up a call center. They got to do it with software. So we're finally at this phase where fintech and actual... enterprise software matter so i can actually invest in enterprise customer support software let's just focus on fintech so there's just so much opportunity in fintech and everybody thinks about fintech they think about payments they think about banking it doesn't interest me those two that's crowded with people that because the

The market size is so big. The scale is so enormous. Well, and the market size is so big. I don't care about market size. Great companies figure out stuff. Yeah, it's a luxury. If my entrepreneurs or if the entrepreneurs in our portfolio are calling me asking me about the news, I'm like, wait a minute, what does that have to do with your next 10 customers? So I like that part of the food chain. And I would say fintech is like day one because smart people still go into blockchain and I hardly invest in that. So I mean, smart people are moving to fintech and smart people are moving to crypto. So you follow the smart people and I would say it's really early. You mentioned earlier this idea of domain expertise. Obviously, that's key. Anything else that you've observed across all of these different things, all these different companies about the teams that stand out as really important that you look for? Yeah. I mean, the mistakes I made is if you're not an engineer at this point, starting a company is really dangerous. I can't look under the hood. I don't know what code looks like. I don't know. So if you're not the engineer, you're the sucker. And because the engineers are the car mechanic. Sorry, engineers. Sorry, engineers. That's to their benefit. Yeah, it's to their benefit. And I used to say punch a banker, hug a developer. I would say now it's punch a banker, hug a designer. So now UI matters almost as much as engineering and design. So we're really moving, iterating fast. But I think you have to have a key. partner that's an engineer and really can take your ideas and take the complexity out and so that's what fascinates me is like forgetting voice for a minute because i'm not participating in the voice world the ui of phones and the ability to just look at all your money off from your phone and a couple using your face as your recognition it's like freaking freaks me out but people are doing it so i gotta participate in it so i think besides domain experience you really have to have some a partner has chops around building things, which goes back to Mark Scatter and my first partner. He could build shit. He was an engineer not of that form of technology. He was an engineer of product. I think the people who can build product are key. I've learned that I'm not a product person. I'm an idea person, so I'm better suited to investing than operating. What about other dimensions of fractionalization? What else interests you? My friend Ted Seides just had an awesome podcast with this guy who's doing this in minor league baseball. Minor league baseball players are basically selling part of their future stream of earnings.

as like a stock basically. Been tried, but I love that idea. I just wouldn't invest in it. And I was listening on the way in here today to a podcast with a guy named Kevin Kwok, who's a really interesting, I think he works for Greylocker, one of the big VC firms. And he was talking about this idea of if he could choose a couple of mentors and give them sort of like one or two or 3% of his future earnings, if it meant he got to talk to them every week, like maybe that's a trade that we make. Great question. This goes into greed and... Serenity Now, which is another thing from Seinfeld, confessed to this. It's like, Jesus Christ, what made Seinfeld the best show in the world is they were just talking like we would wish we could talk. Seinfeld with Serenity Now is like, everybody's worried too much about greed and like, how much do I have? And then on the other side, it's speed and there's mistakes with speed. But really... The point is with Fred, when I saw him, I bought his mentorship, meaning I didn't care. What did he deserve? I probably gave him way too much ownership of my company, but that bought me the right mentorship. right? And I don't worry about that. So the cap table is really important. You got to own, you got to really understand the pie, which is math and which is what you can live with and how you start. The cap table is really important. So you were saying what matters, cap table matters too, and the structure of the company and making sure you can look forward 10 years and not be upset with what piece of the pie you're going to be left. Otherwise, why start it? Those are the mistakes entrepreneurs make and VCs make as well. But fractionalization just blows my mind. The fact is everything will be fractionalized. Why shouldn't it be? Vanguard figured this out. They just haven't put it on the consumer level. They're hoarding it to themselves. So fractionalization exists. They don't want the public to have it. Otherwise, Vanguard should be offering the Vanguard 495 fund, meaning I'm pissed at Wells Fargo. Why is the next day Vanguard not offering a Vanguard 499? Because we can't punish fucking Wells Fargo because the next day they're in the S&P 500. The next day everybody's like, oh, fuck Wells Fargo. I hate them.

And the next day they put money in their 401k and Wells Fargo gets bought. So the industry, my world, fractionalization gives me the hope that we can punish the villains. I have people that I hate. The entities, Goldman, Wells Fargo, Shitty Bank, Skank of America, whatever we're going to call them. They just continue to live because there's no fractionalization. The S&P 500, I hate Vanguard. Not because I hate, it's a beautiful idea. But the fact that they're not offering me what I want, even though they have the technology, is... Makes them evil to me. And that may be because they just haven't thought of it. I doubt that. That may be because their technology and UI suck, for sure. And that may be because they're greedy or lazy. And that's what's coming. I want to read the news and change. I want to discard things, not add them. Why is 500 stocks the right number? Why is 80 stocks the right number? Why can't it be Howie's 40 list? Which is companies that don't upset me to the point where I'm screaming on podcasts. So I think until we get there. Fractionalization is so inspiring. And luckily, Bitcoin came along that taught people fractionalization. Reasons wrong reasons. The fact is people are thinking in fractions, not in pennies and dollars, just fractions. Bitcoin's done a bad job in the community of making it English. Shame on them. But my job is to teach English, make finance sound like English, or whatever your native language is. Since I've got the consummate trend follower, any other major interesting trends? Doesn't need to be fintech, doesn't even need to be investing. Anything else that you think is... changing in the world and worth our attention yeah i think it's hard for i can't imagine anybody investing anything outside software the stack is so like the fact that things can scale if you build software right whether it's etsy you know once you get twilio and all these companies that people refuse to understand elastics new ipo forgetting valuation something's happening it's been happening since the internet started so Other than software, I'm not really that interested. And so that trend continues. Mark entry, what is it called? Software eating the world. You got to understand software a little bit. But if you're buying oil companies.

I don't know. God bless you. I hope you make a lot of money, but like why? I understand. Price. Price. Yeah. But for me, fashion too. Like fashion meeting technology fascinates me, right? I call it fashionology. The idiots on Wall Street call it athleisure. And so they've complicated it even further. It's just fashion meets technology. There's three companies, maybe four Adidas, but there's three companies. There's Apple. It's fashion and technology and luxury. There's Nike, fashion and technology. And there's, I think, Lululemon, which I've been talking about for a few years, well, eight years, but like really strong recently, is these companies are both, I would buy Apple products in a Lulu store. I would buy Lulu products in an Apple store. You know what I mean? And I won't, when Oakley kind of started this, like Oakley had the Bluetooth, and I was like, I love Oakley. And I'll buy a Motorola Oakley's, I won't buy Motorola sunglasses. But I will buy Oakley sunglasses powered by Apple or Motorola. And I think it was a great product, great company, sold way too early. Even though he got paid a lot by Luxottica, that was the first melding of fashion and technology outside of Apple. And so that was bought by Luxottica. And I've been fascinated by Oakley and the next Oakley since then. I think Lulu and Nike are those companies and there's going to be hundreds more. So I think fashion meets software meets technology is the only interesting thing for me. Obviously catching the, you know, I walk around Soho all the time. I think Soho is still the center of Tipping Point. I just read Tipping Point. I was like, Tipping Point, why isn't he talking about stocks? Like you're talking about hush puppies, talking about how it could have made money off that. And that's the way I look at the world is Tipping Point combined with price, combined with breakouts, combined with stuff that people don't see. I look at the all-time high list. And then if it's a company that resonates with me, I'm intrigued. And that's how it starts in the public markets. And the private market's really simple. And I tell this to everybody. It's like, if Fred Wilson or Chris Dixon or these VCs aren't talking about it, what the hell do I got to worry about it? Penny stock to me. Not worth talking about. Fred Wilson didn't talk about Bitcoin until it was, I think, 1,000. Can you imagine how hard it is as a trend follower? As a trend follower, it was easy. But can you imagine how hard it is for someone?

to see Bitcoin, to hear about it at 12 cents and see like one of the best VCs in the world get interesting at 1,000. But that was the buy point to me. That is like two, Warren Buffett hates it, Fred Wilson, Chris Dixon, those people like it. That's a pretty meaty market. So I try not to get, that's the great white shark pilot fish again. It's like when the great white sharks are circling around technology. I'll look at public companies that hedge funds may have to buy because of that. And generally price action, you'll be surprised how easy that system is. And then I try and stay away from things that are just too toyish because I'm not that good at what I do. I'd like to see some use case where I can at least touch and feel the product. You didn't mention it yet, but I'm just really curious to get your take on it, which is the media landscape. What do you think about media today and maybe where it's going? I think we're early days of media. I think social is in trouble because it's crowded and loud and mean. And Trump won, right? Like Trump won Twitter. So once someone wins the game, when we played pinball as a kid, there was that kid who could massage it and make it do things and make it tilt or not tilt and get the high score. Once he had the high score, it was like, fuck, bring another pinball in here or this thing's been broken. And he broke Twitter. So unless Twitter shrinks and buys another company, my thesis is once the price... trend ended here, it's done. That was the last hurrah. He beat the machine. The only thing left is nuclear war, and I don't know if he'll do that. Hopefully he's not crazy. But the point is, he's threatened it. So the only thing that can make Twitter more interesting is if he pulled the button. And that's not exciting. So he broke it. Meaning Twitter has to reinvent itself because you can't beat Trump threatening nuclear war in 140 characters. So social is in trouble. You see it with Facebook. You see it. It's just a hypothesis that I have. So media is going to be interesting again, obviously. You just have to attack it from the right angles. I was an investor in Blodgett at Ali Insider, and I've been lucky with Wallstrip. I love media. I don't think it's easy investing in it because the scale isn't there. You make a piece of content. That's the dumbest thing ever because it's not scalable.

It lives, but it dies really quickly. So I don't love it as like a VC thing. I just love it as a thing. As a human thing. Yeah, as a human thing. I just am fascinated by media and I'll invest in it with my own money. Just don't want to put my LP's money in it because that's just not smart. Because I have to make returns. Well, this has been awesome. I mean, a lot of really unique takes on many different things. The closing question that I ask all my guests is for the kindest thing that anyone's ever done for you. I would say it would have to be my wife. She just puts up with everyday kindness of being distant or whatever in the entrepreneur life and the nomad lifestyle that I have. So I think just every day that she just kind of forgives me. There's always a fight because I'm just doing something dumb. So that would be the daily kindness thing. My daughter will send me these nice texts. She's just lucky. Again, she'll just make me share her texts with people, you know, screen capture. I go, who thinks like this as a 21-year-old? So thoughtful. And so they continue to be the kindest people to me. My son is mean to me. So that makes up for it. He just can't help himself. Right. And I'm over that. Like there was a point where every dad with their son must go through this. I was warned about it being the daughter, but it turned out to be my son. You know, I'm best friends with my son. Play golf together. He thinks my friends are cool. He thought I was cool. And then something went off in his head and he was like, I hope you die. You know, and he didn't probably think that, but he looked at me like that. I was the antichrist. And my daughter, who I was told was going to think that, never went through that phase with me. She just thinks I'm weird and likes me. My son thinks I'm weird and leave him alone. And so that was hard. So you get, you know, the kindness is my daughter and my wife. And obviously my friends just are always nice to me. But kindness has changed. I mean, it used to be like, pick me up at the airport. That was what I associated with my dad would say. Pick me up. I go, fuck, take a cab. Like, you know what I mean? So Uber, thank God for Uber that killed the airport pickup.

So that's the kindest thing, too. Uber is one of the kindest things. It's saving lives. We can talk about how mean they are and blah, blah, blah. But let's stop this. Because you know what? There is risk with everything. That's the kindest, weirdest company because it's created so much joy and weirdness from its serendipity. Awesome. Well, serendipity has been the theme of the conversation. I thank you for your time. All right. Thanks. Hey, everyone. Patrick here again. To find more episodes of Invest Like the Best, go to InvestorFieldGuide.com forward slash podcast. If you're a book lover, you can also sign up for my book club at InvestorFieldGuide.com forward slash book club. After you sign up, you'll receive a full investor curriculum right away and then three to four suggestions of new books every month. You can also follow me on Twitter at Patrick underscore Oshag, O-S-H-A-G. If you enjoy the show, please leave a quick review for us on iTunes, which will help more people discover Invest Like the Best. Thanks so much for listening.