Howard Lindzon is an angel investor, market maven and a serial entrepreneur. We sit down with the founder of Stocktwits, who launched investment newsletter Peloton this past August, to discuss markets, bitcoin and the millennial generation.
1. You recently declared that you remain irrationally exuberant on the market; why?
After the early February correction, there still remains a lot of money sloshing around, and while rates are slowly kicking up, I continue to like the way the markets are behaving, as well as a lot of great companies, such as Nike (NKE), Disney (DIS) and Netflix (NFLX), so there are a lot of great companies to choose from. We have a weakening U.S. dollar, which is good for the multi-national U.S. companies, and I’m really bullish on this next generation of millennials saving and investing.
2. How important are the corporate tax cuts for the stock market?
The market was rallying on anticipation of tax cuts, now that we’ve got them, we’ll see. When the market crashed in 1987, we had rising rates and the Reagan tax cut. Corporations will start doing the right thing a little bit more, relative to the way they’ve been behaving, once they have a little more money.
3. Is your bullish outlook near term, intermediate term or long term? What are your favorite investment themes?
I change my mind all the time. That was more of a statement of my own portfolio. I’ve had a good couple of years, so the irrational exuberance is more about what I see and not what other people should be doing. You’re seeing the effects of people not doing their work and just buying random things and chasing stocks. I’m a trend follower. I’m always focused on brands enjoyed by “8-to-80;” those are brands that eight-year-olds and 80-year-olds use, such as Nike, Apple (AAPL), Netflix, Google (GOOG) and even Johnson. These are brands that we use every day and throughout our lifetime. I like keeping an eye on those and buying them when they’re down [in price].
4. What is your position on cryptocurrencies as a sustainable investment theme going forward?
Well, I own some. [But], if you follow my blog, I was selling [bitcoin] starting at $7,000 all the way up to $19,000. I haven’t been buying this crash. I don’t even know if it’s a crash. We’re back to November prices.
I just think it’s a fascinating product. The fact that we have a distributed network where I can pay or send money to any corner of the world, to anybody with a digital wallet, is fascinating. Is it worth $1,000, $500 or $100,000? It’s not for me to say. I don’t think it’s zero and I don’t think it’s $100,000, but anything that can build a global brand without employees and actually has utility in the sense that you can use bitcoin, that is something that’s a digital asset. I’m also a big fan of ethereum, which is more of a product that people are using to build apps on top of bitcoin. I look at it as I would iTunes or an application store. I’m bullish on a couple of the exchange ideas and I’m bullish on securitized bitcoin like Zcash. But, I have no idea on the price point. So, instead of 20% dips you may want to buy 40% or 50% dips. It’s not something for the faint-hearted, but I feel that in 100 years we’ll still be looking at these digital and crypto assets. Facebook (FB) is a digital asset, but just has a lot of employees and it sells ads on top of its platform. Bitcoin is fascinating in that it has no employees and it is a distributed system using computers all over the world. It’s very much similar to Facebook except it is just a lean digital platform.
5. But the fundamentals you just identified had very little to do with the price appreciation to $20,000? Bitcoin has dropped by more than 50%. At what price will you be a buyer of bitcoin again?
As we saw, CNBC and everybody started hyping it when it was above $15,000. We were getting to the silly point. But that doesn’t mean I’m not bullish on bitcoin. It just means that [it shouldn’t be] more than 2% to 3% of your assets. Some people have 50% of their assets in them. I [still] own some. I would start buying again in the $5,000 to $6,000 [range]. But again, that’s knowing that it can still drop back down to $1,000 or $500. So again, it would be at a maximum of 3% of my portfolio.
6. You were an early angel investor in Robinhood, which recently announced commission-free crypto trading, that added one million names to their waiting list. Union Square Co-founder Fred Wilson implied that embedding fees into the bid-ask spread was less transparent and less optimal for investors than the Coinbase commission model. Your thoughts?
It’s all relative. If customers feel they’re getting ripped off, then they’re getting ripped off. The more platforms that allow people to buy these assets, the better. I like the Robinhood model – where I can trade out of Apple into crypto and back out of crypto into stocks — better than Coinbase, which is limited to a few cryptocurrencies and you cannot do anything with them except send them somewhere. So, fees or no fees, Robinhood has a more interesting value proposition for users than Coinbase. And in the end, it is still going to come down to security. So, whoever has the best security is going to be the most interesting.
7. A couple of years ago, you referred to the illusive nature of the millennials, who hadn’t really arrived as investors yet. Have you seen a change?
Yes. There are more products now. They have telegram. They have WhatsApp, Twitter, Stocktwits. There is definitely a lot of interest around tokens. I have nephews in their late teens and early 20s starting to discover cryptos; not so much stocks. Let’s see how this correction affects them. One great thing about these products, whether they make 500% or lose 80%, they’re not using margin, they’re using cash. There hasn’t been a new structural problem for these American millennials. And there are so many resources for them to learn from, that I’m super bullish. I was early making the bet that these kids would start to save and invest two years ago when Robinhood was just really getting going. It hadn’t been proven yet. But now Coinbase has 13 million accounts and Robinhood has more than three million accounts, and eToro is in 140 countries and has more than 11 million accounts. This phenomenon has on-boarded this next generation quite healthily. And I think you’re going to see some of the best investors in the world come out of this millennial class. They’re patient and they build their own networks of who to trust.
8. Millennials seemed to have embraced Snapchat, and now bitcoin. Both are trading more than 50% off of their highs. How will those negative experiences affect millennial investing going forward? Do they know what they are doing?
Relative to the people that blew themselves up in 2008, with leverage? Yeah. They are doing the work that’s necessary, and playing with these products that the older people aren’t. Am I going to trust JP Morgan about bitcoin? Or am I going to trust my social network of people that are playing and building these products? I’ll stick with the millennials if that’s my choice. But a lot of these millennials were buying bitcoin at $300 [and] $400, so they’re still up 20x their money on today’s prices. [While it has been pretty easy to say they lost money on these investments], you can also say the majority of the CNBC crowd were buying Ripple at $2.50 and bitcoin at about $15,000. Maybe, the millennials were selling to the older people for the last six months? But I’m not going to judge the millennials on Snapchat. I don’t think millennials cared about that stock. I think the media cared about that stock. Millennial investors are much more sophisticated than the media are giving them credit for. They are on-boarding (trading accounts) at a faster rate than even back in the eTrade/TD Ameritrade days, and that wasn’t too long ago. The conventional assumption was that they would never buy houses and that they’ll never invest. I challenge that and take the other side of that trade.
9. Do you think they’ve embraced the concept of fundamental research in investing yet?
I challenge any person that jokes about that to explain Goldman Sachs’ balance sheet or book value. So the problem with the fundamental analysis is that it has been tortured and abused by the generation ahead of them. And so fundamentals have been thrown out of the window by the previous generation and everybody has been told to just put their money in Vanguard, and in BlackRock we trust. I [disagree with the] generation that’s making fun of the millennials. I don’t think people need to own 500 stocks in the S&P 500.
10. Do you prefer individual stock selection over index-based investing? Is active investing having a resurgence?
Yeah, I always have. Indexing is great for people who want to keep costs down, and want to rebalance. Owning 500 stocks is kind of lazy. It has worked, so it’s better than just leaving your money under the mattress. But I think there’s just too much trust in this idea of market weighted or indexed Vanguard where everybody is investing in the same pool. I’m skeptical of it. It’s a better step than doing nothing. But I also think you have to have a plan and understand what you own. There are ways to build portfolios that have kind of the same upside. With the same kind of risk-reward, with 15 stocks not 500 stocks. Active management already has had a resurgence. Look at some of these funds, like Pantera. They’re the best performing funds of all time and no one has heard of them. So I think while we were talking about the death of hedge funds, there are funds that in the last two or three years that have had thousands of those 10% [internal rates of return] that they’re competing with. And so it’s just that people are being lazy; they’ve been programmed to believe that Vanguard and BlackRock are the only solutions. And at the same time, some of the best funds of all time, some of the best years of all-time, have happened in foreign stocks. Some of the best performances of all time [have occurred] off the beaten path. It’s always a great time for active investing. It just depends how good you are at doing it. If people are going to invest, they should be active and try and beat the market; that’s my thesis.