Why the ‘Dean of Valuation’ Just Sold His Nvidia Stock

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I'm in the same place with NVIDIA that I was with Tesla in November 2021 when it hit $1.2 trillion. And I said, look, you can tell me whatever story you want about Tesla's greatness. But at this price, I have an amazing company, but I'm paying for an astonishing company. And amazing is not good enough.

Hello and welcome to the Barron Streetwise Podcast. I'm Jack Howe, and the voice you just heard is Aswath Damodaran. He's a finance professor at NYU. His nickname is the Dean of Valuation. In other words, he's an expert on telling what things are worth. And he just sold his personal stake in Nvidia We'll hear why, and we'll get his thoughts on other tech giants and the market as a whole and the Major League Baseball bubble. You heard me. We'll also answer a listener question on boosting income in retirement with help from a financial advisor, Nicole Webb from Wealth Enhancement Group. Listening in is our audio producer, Meta. Hi, Meta.

Hi, Jack.

On Tuesday, Nvidia, the chip company, briefly hit a stock market value of more than $1 trillion. There are only 4 other companies in the US worth that much. They are names that we all know: Apple, Microsoft, Alphabet, Amazon. So this is rare company, and this has everything to do with artificial intelligence, for which NVIDIA is a dominant supplier of chips. Meta, when did we have NVIDIA founder Jensen Huang on the podcast? It was the first year of the pandemic, right?

Yeah, it was in June 2020.

And the stock market value at that time was $250 billion. Now it's a trillion. Is anyone out there calling that the Barron Streetwise podcast effect? Well, you don't, you don't have to laugh. I mean, you know, there could be someone who's calling it that. All right. Maybe it does have more to do with artificial intelligence. We talked in that episode about NVIDIA's start in video game processors, which happened to use the highly parallel processing that is also useful in databases and with artificial intelligence, but how it viewed itself as a supercomputing company all along. So people can go back and listen to that episode if they like. The question is, what should people make of the stock? It's had a really rapid run-up, including this year, more than 100% just year to date. At the same time, all the big tech stocks seem to be running and some people are asking, have they run too far? Has the market gotten too top-heavy? And I knew just the person I wanted to speak with about those questions. He is Aswath Damodaran and he teaches finance at NYU. NYU produces a lot of Wall Street analysts and Aswath is the guy at NYU who teaches those analysts about how to put valuations on companies. And he's written many textbooks on the subject, which he, as a valuation expert, says are obscenely overpriced. Those are his words, not mine. Aswath has a nickname that you might hear if he goes on TV. He's the Dean of Valuation. When NYU's Dean of Valuation speaks, investors listen.

We call him the Dean of Valuation. It's great to have you here. It is hard to tell just how much these big IPOs are really worth. So we thought we'd bring in The Dean of Valuation, Aswath Damodaran.

It's a pretty cool nickname, to be honest.

Why have you never floated a nickname for me? Like, if he's the Dean of Valuation, you could just— what's, what's something that's like a dean? Some other academic position, maybe provost?

The provost of podcasting.

Exactly. See, it's already catching on. Okay, so I had a lot of questions about what stuff is worth, and I reached out to Aswath. And should we just play the call, Mudda?

Let's do it.

You know more about valuation than anyone I know. You're the, you're the guy who knows about these things. And everyone wants to know, is the stock market too expensive? I hear from people, the stock market shouldn't be running up like this, but it is. And, you know, maybe there'll be a recession. And we just came off some bank troubles. And, you know, who knows about the debt ceiling. So why are stocks so expensive? What do you make of the broad stock market right now? Does it look too expensive to you?

I think it's increasingly difficult to talk about the market collectively because it's a very top-heavy market, right? If you look at the bulk of the value that's been gained back this year, first, we're coming off a bad year. And historically, you come off a bad year, you're more likely to have a good year than a bad year simply because of the bounce-back effect. You have a 20% drop, you know, the collective return is like 22% last last year, -22%, you are heading into a year where you had a much better chance of an up year than a down year. Because last year people built in expectations that inflation was back. They built in the expectation that this would lead to the Fed doing something about the economy. So a lot of that was baked in. And what we've had is an economy that's been remarkably resilient in spite of all of the talk from experts about how much it's going to slow down and The recession imminently around the corner. And perhaps one thing we learned after the 2020 crisis is if you have to pick between experts telling us what's going to happen and the market telling us what's going to happen, the market seems to be right every single time. I remember in March of 2020, experts told me the end of the world is near. Global economy has been shut down. This is going to be the crisis to end all crises. And March 23rd, 2020, the market disagreed and started moving in the opposite direction. In hindsight, The market was right. By the end of the year, you know, you saw the same phenomenon play out with vaccines. So in a sense, at every step for the last 3 years, given a choice between the wisdom of economic experts and the wisdom of the market, the market, that collective crowd wisdom, seems to have beaten out. Doesn't mean it's going to win every single time, but I think that's part of it is we've lost trust in experts to tell us what's going to happen. We look to the markets more.

That sounds a little bit like don't try to time the stock market. Is that the camp that you're in?

I've always been in that camp. I think it's very dangerous to play macro expert and bring your points of view, is I've always thought that you buy individual companies, and that's basically my perspective investing. So rather than pass judgment in the market, I'm going to pass judgment in individual companies.

I hear from people, okay, the market's running up, it's just a handful of companies that are driving all the gains. It's these tech giants, and therefore, Maybe we should be concerned about too much concentration, or people talk about the lack of breadth in the market.

Who cares, right? I mean, this lack of breadth thing drives me crazy. You know what? Markets have never had breadth. There's the exception rather than the rule. I went back to look at the last 80 years of stocks. Every single year when you look at big bull markets, it's not carried by 55% of stocks doing well. It's carried by the top 10%. Now, we've come off a decade where 6 stocks accounted for 1/6 of the increase in market cap of all 7,400 US stocks. The FAANG stocks, Facebook, Amazon, Netflix, Google, Microsoft, and Apple accounted for 1/6 of all— I think they collectively accounted for like $8 trillion of increase of market cap in the last decade. This is something that I think is more the rule than the exception now. So I think that people who point to the lack of breadth are running out of good reasons to tell you not to invest in stocks.

What about when you look at those particular companies you just named? I mean, they're very impressive companies. You must take a peek now and then at the valuations. I know they're not all the same. What do you think when you look across the valuations for those companies?

I'll make a confession. I own 5 of those 6 companies, everything but Netflix. I bought them at different points in time. I bought 3 of them at their absolute bottoms last year. I just got lucky. Now, I remember when Facebook hit $95 per share and I said, given its cash flows, this is like American Express as Warren Buffett saw it after the salad oil scandal. It's the cash flows from its advertising business over 4 years covers that price. I'm buying it and hoping that they don't screw it up with the metaverse. So to me, 5 of those 6 stocks still stay in my portfolio. There's a 7th stock that was in my portfolio till this morning and I finally I got it out of my portfolio because I couldn't take the rise in it, which was Nvidia. I bought Nvidia in 2017. Last week I looked at the price and you had $300 billion in a week. You know, you're pushing the absolute limits of what sustainable value is.

I wish I was at a printing press right now so I could yell, stop the presses, because this is news. The valuation expert has just sold his Nvidia. It just reached a trillion dollars in market value. But what about, you know, all anyone talks about is artificial intelligence. Every email I get now is about AI, and this is a company at the center of it. You think it's overdone?

Yeah, I think it is because NVIDIA— let's start with the good news. NVIDIA dominates the AI chip business as it exists today. It's about 80% market share, but it's a small business right now. It's about $25 billion. I've looked at projected estimates for how big that market can get, and I think the highest number I saw was about $350 billion in 10 years. Even if I give NVIDIA 100% market share of that business in 10 years, I have a tough time getting to a trillion-dollar market cap. So this is my best-case scenario, and we're stretching past your best-case scenario. You're in a sense asking for trouble from a value perspective. So I think that even if I bring in all the promise of AI into my NVIDIA valuation, I can get close. I can get within 20% of the market price. So it's not horrendously or crazily overpriced. I'm in the same place with Nvidia that I was with Tesla in November 2021 when it hit $1.2 trillion, which is I gave it every single lever. I pushed to full throttle and I couldn't get within $300 billion of that $1.2 trillion. And I said, look, you can tell me whatever story you want about Tesla's greatness,, but at this price, I have an amazing company, but I'm paying for an astonishing company at this price. And amazing is not good enough. So I love NVIDIA as a company, but as an investment, I, $400 plus per share, I just can't get there.

These other members of the trillion dollar club, what do they have that NVIDIA doesn't have? Is it that they're more in software? They have more larger end markets. They have, what do they have? What does NVIDIA need?

It's ultimately a hardware company. It's a chip company, right? It's not— the advantage that businesses like Apple have is they have an ecosystem of users where you can tell stories about how Apple, if it finds a way to take the 2 billion+ people in its ecosystem and finds ways to get more stuff from them, which Apple is constantly trying to do, right? Drag you into the ecosystem, get the apps in the ecosystem, You can tell stories that kind of expand the tail on the distribution, gets much longer because the ecosystem is what's feeding into value. Same thing with Facebook. Now, whatever bad things you can say about Facebook, the reality is you got 2.5 billion+ people in your ecosystem, even though you might be just selling them advertising. Now, there are other stories you can tell. The problem with being a B2B company, which is what Nvidia is, you sell to other businesses, you're selling them chips. Is it comes with natural constraints. The tails of the distribution tend to be much more prudent. So I think the problem with an NVIDIA is the upside is not as large as it could potentially be for a consumer-based company with an ecosystem of billions of users. And that kind of crimps how much you're willing to bet on that optionality.

Have you gotten back into Tesla stock?

I came very close when I valued it this in February of this year, I valued $130. It was a month and a half after it hit $96. I wish I'd done the valuation a few weeks earlier because I'd probably have bought it. But by the time I did it, it kind of got out of hand again. It, you know, I'll wait and you wait long enough, it's going to come back.

And obviously the, I guess the, it goes without saying that the price today looks too high to you. Is it, is it, is it way too high or is it just a little bit off?

No, it's not like it was in, you know, November 2021, it was unreachable. At $200 per share, it's reachable. You need a bigger story than the one I'm willing to give it. So you'd need somebody who's much more of an optimist of not just Tesla in the electric car market, because that alone is not going to do it for them, but as a software company, as an energy company, those other businesses. And I'm not even bringing in automated driving, which is the big, you know, ARK argument for Tesla, is there are people there with bigger stories than mine for Tesla. And I'm entirely Okay with those stories driving an investment in Tesla at $200, but it's not hopelessly overvalued as it was just a couple of years ago.

What kinds of other businesses have you been looking at? Did you look at the prices of regional banks?

I bought Citi 2 weeks ago.

You bought Citi?

Mm-hmm.

What did you see when you looked at Citi?

It's just a bad bank priced as an abysmal bank. Investing is about a game of expectations. I valued Citi in the context of looking at US banks collectively. And you look at the 25 largest banks, Citi trades at half of book value. It's actually, I think, the third lowest price-to-book ratio. It's got a return on equity of like 7.5%, which is the eighth lowest return on equity. So it's a bank that has had trouble making its cost of equity. It's a bank that's not well regarded. It's a boring, stolid bank.

[Speaker:WILLIAM GREEN] It's the one that people don't mention when they talk about big banks. They mention JPM and they mention B of A. I already mentioned Citi.

Aswath Damodaran: JPM, I think, is the best. To be honest, if you're comparing quality banks, JPM beats Citi on every single dimension. It's growing faster, better, but it's priced as a superstar bank at 1.5 times book value. So bank to bank, the JPM beats out Citi, but as an investment, Citi beats, in my view, beats out JPM over time because all that Citi has to do is have management that can chew gum and walk at the same time. And they had trouble finding those managers for the last decade. But if they can find that, then I'm on my pathway to getting to 75% of book value. I don't need something miraculous to happen. I just need Citi to become a less bad bank over time to make my money back.

Tell me a little bit about your work teaching valuation. You are kind of one of the main places where new analysts are born. How has that process changed over the years? When you first started teaching it, what were the kinds of things you were hearing from students? What are you hearing now? I mean, is there— has there been any arc there? How have things changed?

One of the things that initially used to give me frustration but no longer does is you teach people how to value businesses, but then they go into jobs that require them to price these businesses. The contrast I draw between value and pricing is value is about understanding businesses, what drives cash flows and growth and risk, and coming up with an assessment of value. What drives pricing is you want to look at what other people are willing to pay for similar businesses and you say, this is what I'll pay. So it's very similar to buying a house or an apartment. You look at transactions and you look at what other people are paying. 95% of what passes for valuation out there, equity research, banking, is really pricing. And I always ask my friends, why do you waste your time on an intrinsic valuation? Because your job is a pricing job. It's to tell me how much to pay for a company as a multiple of earnings or EBITDA or book value based on what other people are paying for similar.

Institution. So in other words, when you hear, well, this company trades at 13 times earnings, but that one over there is 17 times earnings, therefore this one must be cheap, you're saying that's the wrong way to go about it.

Never use the word valuation, use pricing. There's nothing wrong with it. It's a basis for trading. And much of what you see out there is trading, right? We don't have too many investors in the market. We have lots of traders. And how do you make money trading? You buy at a low price, you sell at a higher price. It's a pricing game. Given that it's a pricing game, I entirely understand the use of multiples and comparables as your way of trading. But I do have conniptions when these same people talk about, I care about value. This is all about valuation. No, it's not. It's a pricing game. You play it really well, claim credit for it when you do. But let's not talk about value in the context of pricing because it's a very different game.

Thank you, Aswath. How about we take a quick break and we'll come back to the rest of the conversation? By the way, this is, this is regular Jack. I'm no longer speaking to Aswath. I'm saying to you, dear listener, how about we take a quick break and we'll come back to the rest of the conversation with Aswath. Otherwise it would have been pretty weird for me to talk.

This is quite a galaxy brain moment, Jack.

And galaxy brain is something on the internet that I haven't heard of, but go ahead.

Something like that.

You're saying I have a big head?

I actually don't know if I'm using it right either, because I'm not cool. So I feel like this is like something I'm probably getting wrong.

I am. And you've used it perfectly. Congratulations. I'll see you in a minute after this quick break.

Data is everywhere when orchestrated properly.

It sings.

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Welcome back. We're gonna get to the rest of the conversation with Aswath Damodaran at NYU. But Meta, could you repeat for listeners the, the question that you asked me during the break?

I was just wondering what do you think the perks are if you're a member of the trillion dollar club?

Now, perks, I think of like you get free Netflix or early boarding on flights. But this is— these are big companies. We're talking about a whole different category. Are you saying that we should start special privileges that you get when once your company reaches $1 trillion in market value? Like, what should you be allowed to do? Off the top of my head, I'm going to say you're allowed to pick one other company and just reverse the spelling of their name. EBay, you're now Yabe.

This is business bullying.

Well, look, membership has to have its privileges, right? Any ideas?

At a minimum, your own Ben Jerry's flavor.

That sounds fair. Let's jump back into my conversation with Asimov. Has there been any evolution or change in your thinking about cryptocurrency? We had a crypto crash. And now it seems like there's a crypto revival. When people ask you, how do you tell what Bitcoin's worth? What do you say to them? And what do you think about crypto today?

I give them the same answer when they ask me what a dollar is worth. I can't value currency, I can price it. That's what an exchange rate is. To me, the price of Bitcoin is an exchange rate between Bitcoin and US dollars. And what drives exchange rates is the quality of a currency. And if I go back to what makes a currency a good currency, it's a medium of exchange. It's a good medium of exchange. I can use it to buy and sell stuff. Stuff out there, and it's a store of value. The problem with cryptocurrencies, they've been horrifically bad in the first dimension. 15 years after Bitcoin was born, if you think about how many transactions actually happened that are denominated in Bitcoin, how many people buy houses, buy apartments, buy coffee, buy lunch with Bitcoin, the answer is astonishingly few. So as a medium of exchange, It's failing for the same reason that people love it as a trading instrument. It's extraordinarily volatile. You can make a lot of money in short periods. So I tell people, if you want Bitcoin to succeed, you gotta get it out of the hands of the traders because as long as they're setting the rules, they're never going to let it become a good currency because it's in their best interest to keep it as a volatile instrument that they can speculate on. The problem for crypto is its biggest advocates make all the wrong arguments for why you should Put your money in it. I mean, you ask people who are in Bitcoin, why should I put my money in Bitcoin? You know what their answer is? Because look at how much money you could have made on Bitcoin over the last decade. That's the wrong answer if you're selling it as a currency. I want you to tell me how many more restaurants I can use Bitcoin in, how many more transactions I can do with Bitcoin. And that argument seems to be stillborn because it's not the argument that those people want to make.

You must from time to time take your valuation skills away from the stock market and look at other walks of life, things that people perceive as being very expensive. It may be it's housing, maybe it's healthcare, maybe it's college, all these different—

How about sports franchises? Fascinates me when somebody pays $7 billion for the Washington Redskins.

Are sports franchises across the board too expensive right now?

They're priced. They're not valued. 50 years ago, sports franchises were valued as businesses. Think of Art Rooney buying the Pittsburgh Steelers. He needed to make cash flows on his investment to cover that investment as a business. This is not a world that's— the sports franchise world is not a world for Art Rooney anymore, right? It's really a world for billionaires to play. It's a Steve Ballmer game where you buy the Clippers, and I actually valued the Clippers at the time that he bought it. And I said, he's paying $900 million for a toy, a very expensive toy, but he's buying a toy. And I think unfortunately sports franchises collectively are being priced, not valued, because that's where the pricing is going.

But the prices have gone up a lot and there are so—

The problem is you make money on corrections. I don't see the correcting process in sports franchises.

You're not saying there's going to be a crash? No.

As I said, as the number of billionaires exceeds the number of sports franchises, there is no crash coming. You see it at the Premier League, you see it at the IPL in India, you see it with all of the professional sports franchises in the US. The trend is always upward. There might be small pricing adjustments, but you're never going— I mean, I'll give you an example. Collectively, all of Major League Baseball made an EBITDA of $600 $600 million last year.

Earnings before interest, tax, depreciation, and amortization.

If you think about how much you would value a business with $600 million in EBITDA, and remember, this is a low-growth business. The number of people coming into baseball stadiums is dropping off. Ratings have leveled off. You'd pay about $10 billion. If you'd look at the capitalization of all of the baseball teams put together, it's something like $70 billion. There's no way you can justify the $70 billion by pointing to how much money baseball teams can make. But you look at who owns the baseball teams, you see increasingly the teams are passing hands.

Yeah. I always thought that they were just going up because the TV rights were going up.

But in terms of the EBITDA, as you mentioned, even if you build in all of the media contracts, it's really not enough money to justify it as a business.

I find it striking that you buy individual stocks and it's interesting. I guess it shouldn't be that striking because if you're a valuation guy, what point is there in being one unless you're going to buy individual stocks in the belief that you can beat the market, right? Otherwise, why bother?

If you ask me why I don't buy an index fund, it's because I enjoy investing. And I tell people, look, I enjoy investing. I invest in individual stocks, not because I expect to beat the market.

Well, that's what I want to ask you is, what about somebody who says to you, you know, you've studied all the research on this. Is it possible for me to beat the stock market? Should I buy individual stocks or should I buy index funds? You must get that question. What do you tell people?

I'll say start with the presumption that unless you enjoy investing, you're always better off in index funds. Now, if you enjoy the process of investing, then follow the Hippocratic oath, which is do no harm. Invest in a way where you don't do damage to yourself. Don't do stupid things, no matter what the old-time value investors tell you of putting all your money in 3 great stocks and letting them ride. Those days are done. If you can avoid making the mistakes that can really ruin your portfolio, you really don't do much harm to yourself with active investing. If you keep your activity to a minimum. And we know, we know every study of investing says the more active you are as an investor, the lower the odds are that you actually beat the market. So be less active, be selective, and enjoy the process. Otherwise, you know, go back to the rest of your life, put your money in index funds and enjoy your life as it is.

If you just sold your Nvidia, it sounds like you're doing pretty darn well.

So congratulations.

I got lucky on that one. Congratulations on that one and best of luck.

But you know what? If it goes to 600, I'm sure there'll be a lot of people emailing me saying, are you sorry now? And I've never felt sorry about leaving money on the table because I've got to stay consistent with what brought me to the table in the first place.

Thanks again, Aswath. Meta, we have a listener question, don't we?

Yeah, we do. It's from Carl and he's from Kentucky.

Let's hear it. I'm close to retirement and I'm interested in income. I was wondering if you could cover the risks and benefits of BDCs and covered call funds in an upcoming episode. Thank you. Thank you, Carl. You have asked about BDCs, or business development companies, and covered call funds. And this creates a challenge for me to explain quickly what these things are. But basically, you're looking at two things that you can use to generate some extra income in retirement. I'm not going to do too deep of a dive on BDCs, but basically these are like closed-end funds and they invest in small to mid-sized businesses. Sometimes they're businesses that don't have the best credit ratings or they're not quite investment grade or wouldn't be if they went the traditional route to issue bonds. They might have to issue junk bonds, but instead they can secure financing, either debt financing or equity financing, from a BDC. And the BDC will, will sometimes tinker in the management of these businesses. They'll say, we're going to take an equity position, we're going to loan you this money, but we're also going to help you or mentor you in running this business.

It sounds like it's like a Private equity light.

Yeah, that's a good way to put it. And so the deal with a BDC is there's more risk than you might get in other types of investing, but there's also potential for higher returns. And they're known for having high dividend yields. So you might look to a BDC if you were trying to draw more income off of a portfolio. But I've never been a big fan of doing that in general. If you have a portfolio of a certain size and you're getting 3% income off of it and that's not covering your needs and you need 5%, rather than going to riskier stuff, I'm just more of a fan of trying to reduce the amount of money you need or selling some things to make up the difference, but staying with things that are more risk appropriate for you and trying to find some other way to bridge the gap. Covered calls, that's an option strategy and it would take a lot of time for me to to fully explain options, which I'm not going to do now. But let's just say that options come in two basic flavors. There are calls, which are bets on stock prices going up, and there are puts, which are bets on stock prices going down. And we talk about options as being risky. In other words, you put up a certain amount of money and either the bet pays off and you make a lot of money, or the bet cannot pay off and you can lose whatever money you've spent. But that's not quite the whole of it. What makes options more complicated is you can not only just buy these contracts, you can also write them. In other words, you can initiate new contracts that you sell to other people who are looking to buy the bets. And if you do that the right way, it can actually be a fairly conservative thing that you do where you're just looking to generate extra income. I'll give you an example. If you own an underlying stock and you write calls for the same amount of the shares that you own, you're selling a bet to someone else on the stock price going up. Now, the risk is the stock goes way up and that person gets your shares and they get to capture the upside and you miss out on some of the upside. But you have collected the price of the bet that you've sold to this person. On the other hand, if the stock doesn't go up, then you just collect the price of the bet and there's no downside for you, just the fees. I have gone over this way too quickly. Believe me when I tell you that there are other ways to write options contracts that are profoundly risky. I'm talking about one specific thing here, which is writing covered calls. And I'm not a big fan of call writing on a stock portfolio. It's a little fancy for my taste. It's a little too— requires a little too much hands-on. It feels to me like betting different directions on the same stock at the same time. On the one hand, you want all your stocks to go up. On the other hand, you don't want them to go up too much to get called away from you. That to me feels weird. I'd rather just own stocks and hope they go up over the long term. Also, with options, the twist is always it's not enough to be right. You have to be right quickly before the expiration date. But there are plenty of sophisticated investors out there that like to write calls on their stocks. I'm looking at a recent note from Goldman Sachs where they highlight the top 50 opportunities that they see for covered call writing., and they base them on what you get for the bets when you sell them. You get more money for selling these bets when the volatility of a stock is higher generally. So these are ones where you get sufficient income from selling these calls, but also the price targets from their analysts suggest that these stocks aren't going to go up enough for these shares to be called away from the owners. And the 4 top, what they call overriding ideas that they highlight are Snap and Key and AMD, the chipmaker, and another chipmaker, Marvell Technology. That's MRVL. Now, those are my quick thoughts, but let's get another perspective on this. I spoke recently with Nicole Webb. She's a financial advisor at Wealth Enhancement Group. I'm going to ask you a, a very specific question, but you can answer in a broad way if you like. This came to us from a listener of our podcast, and he asked specifically about these business development companies that provide financing to these sort of mid-sized companies and they get an earn a return on that. And he was wondering about buying those for yield. And he was wondering about a covered call writing fund, a fund where they generate extra yield by writing calls against the stocks. But I gathered that his broader point was that he's looking for a way to generate extra income from his portfolio in retirement. Do you hear that question from people and how do you answer it in terms of, you know, you can always take on more risk or do different things to try to squeeze some extra yield. Is it a good idea? Are there other things that people should be thinking of? How do you handle that question when you get something like that?

Man, there is, there's a lot to unpack in 37 questions. Yes. Yeah. But the sentiment is felt across the board. I think how one goes about solving for that need is going to be incredibly specific to the individual. And that's not to kick the can. So I actually do want to give you some real answers here. But I think that how you go about solving how one prescribes investment strategies or mandates that their money do what they need it to do has a lot to do in the context of your net worth statement, your total income picture, what these needs for liquidity might be or might not be. In terms of making your money work for you, you know, and we saw this the last time we went into a period of kind of global disrupt or the great financial crisis, which is this curiosity of, well, would private markets serve me better or should I be allocated between public markets and private markets? And I think that that's the case for both debt and equity. And so your first part of your question, which is these business development companies, which is really just taking private access to cash and providing liquidity to businesses. And we saw that really begin to be packaged in a retail investor way during the banking crisis, during the Great Recession, because there was a need. We had loan supply drop off. There was still demand present, but access to cash was difficult. And I think what you're seeing right now is kind of that playing out in, in a slightly different way in that there's still ample liquidity available. Both supply and demand at the large banks, you know, are down. We don't have as much clear survey data out of small and regional banks, but there's still a lot of loan demand across the country. And so how does one participate in perhaps those higher rates of interest assessed on that debt financing? And so hence income business development companies or the access to them. And I think that there's a fit as long as the investor understands and as long as really what's there is this expectation that there isn't the same kind of liquidity available in private markets or in these types of products that you get in public markets. So there's always going to be that trade-off. I can't say that I know those products broadly enough to say, does it really compete on an after-tax basis with where we're seeing Treasuries at this moment in time as an example. And I think for any investor, the thing one should explore is in terms of kind of ultra short-term expectations and, and mid-range expectations, it is without doubt that either something has to break or we are in a higher for longer scenario where interest rates remain higher. And the expectation should be that we go into a slower growth environment. And so making sure that your investment strategies are efficient for you in that scenario is one that I think should be called into question. And that brings in lots of optionality in how you accomplish that.

Yeah, you mentioned just, you know, Treasuries, comparing just Treasuries, something simple like that. I feel kind of skeptical of the fancy when I hear— when I hear about fancy things, I feel about in what way is this going to make things better than a stock or a bond or a fund of either one of those for me? I mean, are there things out there beyond the stock and bond universe that you see where you say this is really something that most investors should get involved with? Or do you think that there is a tendency among many investors to, to get fancier than they need to be?

So two things. Number one, to know me is to know that I believe the best ideas are on the far side of complexity. So No, most people in my opinion should use what is readily available to them because the people packaging product are generally very smart and it is not always a fit for many. And you use the word many or all or most. And I actually have found in practice in my 20 years doing this that markets are incredibly efficient. People are highly inefficient. And so, you know, if one can truly create an investment strategy, a mandate that works in alignment with the most likely scenario for their life, that tends to work. These constant pivots of, you know, I've been getting questions about gold or private markets. All of that can make sense if your situation is unfolding, if you are someone who is coming into new cash, and perhaps expanding or bringing in new ideas makes sense for you. But if your situation hasn't changed dramatically, then likely in the face of short-term obstacles, one shouldn't be buying new products to fit a new need because those life cycles are generally pretty long. And so, you know, I just think there has to be this marriage of what made sense 365 days ago likely still makes sense today, It's just, is there any kind of overweighting or underweighting or some, you know, shifts in perspective or trends that are changing, but not this hopping from one product to another?

Thank you, Nicole, and thank you, Oswald and Carl, for sending in your question. And everyone, please keep the questions coming. You can tape them on your phone. Just use the voice memo app and send it to jack.hough. That's H-O-U-G-H. @barons.com. Meta Lutzoff is our producer. Meta, I had a question from someone on Twitter. Why do you pronounce your name How when it's spelled H-O-U-G-H? Because that's how we spell our name and we pronounce it Huff. And the answer is, I don't know. I don't rule out the possibility that somewhere along my family history, we just began to spontaneously mispronounce our own name. Who do you think is right here? Where do you come down in the Huff versus How how, uh, it's time to take a side, Meta. I'm Switzerland. Subscribe to the podcast on Apple Podcasts, Spotify, or wherever you listen to podcasts. If you listen on Apple, write us a review, even Mr. Hoff.

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