Alok Sama - The Money Trap

28:03It's funny. So we have, obviously, we have driverless cars all around the valley here with Waymo. And so to your point, I always tell people, and here's the weird thing. I think a lot of people get caught up and say like the electric engine versus combustion debate on cars. I think that's a waste of time. To your point, it's the technology of ease and convenience and freedom is what I'd call it. And I mean, in full disclosure, I send my daughters that do not yet drive to the mall in a Waymo because why not? Like I'm a very expensive taxi driver in effect. And to your point, that was something that wasn't possible.

28:40Let me ask you this. So you talk about the idea of blitz scaling. And again, you pepper really good kind of, I'll call it technology strategy ideas or financing ideas throughout your book. in blitzscaling is part of the reason why we never saw blitzscaling on some of these levels is do you think it has anything to do with the cheaper cost of money or in effect you know you're you're only as good as your last ability to raise capital in some cases as we've seen through history do you think that the ability to raise capital is a dominant feature of blitzscaling It absolutely is. But let's be careful about choice of words.

29:18Reid Hoffman, the kind of celebrated venture capitalist behind LinkedIn and many other companies, he's the one who introduced that term into the vernacular. And blitzscaling works wonderfully in the context of platform business models, right? Where you have this, you know, I'm sure most people are familiar with the idea of network effects, which is the more people get on a platform, the more valuable it becomes, right? I mean, you know, your reason early days, your reason to get on Facebook was, well, everyone was getting on Facebook. And as more and more people get on, you've got to be there too.

29:57And that becomes a reason for people to advertise on Facebook and more people get on, et cetera, et cetera. You know, that's the flywheel. Same thing with Amazon or Google or Uber, for that matter. You know, Uber, another great example, which is, you know, kind of more people get on that attracts drivers. If there are more drivers and wait times go down and more people get on and so on and so forth. So I think there is a winner-take-all aspect to these platform business models, and blitzscaling is the only way to go. Now, blitzscaling works less well for capital-intensive business models, right?

30:37So, you know, we, in my book, we talk about the counter example, which is WeWork, which did not work out very well because WeWork is not only is it not a, it certainly isn't a platform business model. It's not even a technology business model because the economics are local, right? They're hyperlocal. I mean, if you're in a place like New York City, the economics of literally, you know, varies by block, even within the block varies by building, right? I mean, there's so many factors that come into play. So blitzscaling is not a good idea. You've got to be really, really efficient about how you deploy capital.

31:19And that's one of the many things you learn along the way when you're in the world of technology. But coming back to the point you made, capital is, you look at what's going on with AI now and how quickly people are scaling. And certainly for someone like an open AI, the need to invest, even over-invest in processing capacity. And again, Virtual Circle, the more you're investing in capacity, the more people on the network, your models get better, etc. Again, same flywheel, right? But in this case, it's really capital intensive. So even in that case, capital is a competitive advantage. It's absolutely crucial.

32:03And that I would argue even more than a lot of the other business models. Sure. I really like what you're saying. And I got a tangent real quick with you because you're on a topic that I just think is super important. So I'm actually working on a piece on exactly what you said. So we've crossed the Rubicon, I would argue. To your point, we've gone from OpEx tech, what I'll call asset light, to CapEx tech. And those are vastly different outcomes, volatility, variables, et cetera. And the markets are still treating it as like an asset light story because the idea is that there will be so much volume that it will become asset light based on volume per se.

32:45But to your point, so what I've tried to look at is ask, is there a paradigm that we can use to compare this? Because to your point, I mean, I think Meta is going to be borrowing money by the end of the year because they're running out of cash on this, to your point, right? There's going to be a lot of off-balance sheet financing. And so the idea I'm working on is if you look at Berkshire Hathaway, which obviously is not a tech company, but Buffett went from being an asset-light investor, right? He wanted businesses that didn't need any capital, which is a very asset-light idea, to he had so much capital.

33:16He had to eventually buy capital-intensive businesses, which were utilities first and then ultimately the railroad business. And if you look at the returns of Berkshire since then, they're serially lower. They cannot be what they were in the past. And I think what the market is doing is treating this as though the returns are going to be as good or better than they were in the past. when just the transition from, to your point, asset-like to capital-intensive guarantees serially lower returns. And so I'm calling it the market's Berkshire-sized problem, which is a weird analogy. Look, I mean, I think you're absolutely spot on.

33:57I think an interesting parallel is what happened with telecom infrastructure, with fiber-op, the build-out of fiber-optic networks in the year 2000. Yeah. Right? I mean, I think you could say that AI is next big industrial revolution. Got to keep investing. It's going to change our lives. And you can still have a major disaster on your hands with respect to excess capacity. Both those statements are completely, totally consistent. And that's exactly what happened in the year 2000, which is all the hype. Every company is an internet company, ubiquitous broadband, people build capacity, massive capacity.

34:39But guess what? They overbuilt. A lot of them went bankrupt. There's Global Crossing, many other examples. The utilities businesses that got into it too, a lot of those went BK. Montana Power and Light, building out broadband, for example. Yeah, well, exactly. It was overdone, right? And you're going to have, it's quite, it's possible, maybe even likely, that you're going to have an element of that. So I'm a huge believer in NVIDIA, for example. I mean, you know, can I talk about a company that's got awesome, you know, kind of competitive modes? Is there an absolute there? Everyone uses NVIDIA.

35:16There is no alternative. But I think that somewhere down there, and I can't predict whether it's next quarter or a quarter, three years down the road, there's going to be a major hiccup because the hyperscalers are going to realize that, okay, we've been in land grab mode, but we might be a little bit ahead of our time. Even in OpenAI, the early verdict on ChatGPT is it's not incrementally relative to GPT-4. I'm talking about ChatGPT-5, sorry. Relative to GPT-4, is the incremental CapEx really worth it? In other words, in a classic case of diminishing returns. And to your point about is it really efficient to keep deploying capital in that fashion, at some point you're going to hit it, right?

36:05And I think there will be a major hiccup and a major reset to valuations, but that's not to suggest that, you know, kind of as a macro trend, as a technology macro trend, as a margin expansion productivity tool, it's revolutionary. Both those statements are completely consistent. Well, I agree. And just to use an example of where I think AI does really superb things. So on that idea I've been working on, obviously, I wanted to think a lot about the railroads of Berkshire. So I went to Grok for, I think it is now, and I said, hey, I want you to give me every reference to railroads from the Berkshire meetings that come from, like, say, CNBC.com has archived a lot of those.

36:49And then I asked for any railroad reference in the shareholder letters. And then I asked for any railroad reference even in any public interview Charlie or him did. And just the voluminous nature of the data I can get back on short order is incredible. But again, I'm asking it a very particular question, which I think to your point, it's a wonderful tool. It's like the best hammer you've ever had. But if you don't know how to use a hammer, it's not going to be any good to you. Absolutely. Absolutely. Let me pivot a little bit. More lighthearted, you mentioned a story about Vijay Singh, okay? And he was talking about the idea of pressure.

37:29You guys were talking about pressure. And he kind of laughed at your idea of pressure. The reason why I wanted to bring this up is because Vijay comes every November here to Phoenix to play at the Schwab Cup in the Champions Tour. And he comes to my home course, so I have a lot of affinity for seeing Vijay every November. What did he explain was as real pressure in his world? Wow. Real pressure. It's a bit of a cliche, but I think most people would have heard this joke. The real pressure. Vijay's background, as you know, was driving range pro out in an island of Fiji in the middle of nowhere. Yeah.

38:00And, you know, I asked him in the context of going up Vijay, that is, going head-to-head against Tiger Woods when Tiger was at his best. And the wonderful thing about Vijay, I mean, if you followed him, you know this, he is the only player who did go head-to-head against Vijay and won, right? I mean, he was the number one ranked player in the world when Tiger was at his best, which is seriously, seriously cool. And I asked him about that, and he said, you know, he just laughed. He said, look, pressure was when I was hustling tourists for$100 a hole with$20 in my pocket, right? That was pressure.

38:35So, yeah, I mean, you know, it's people's. Masa, by the way, his risk tolerance, it's an interesting case study in risk tolerance, right? I mean, a lot of people think Masa is this kind of inveterate, even reckless risk taker. I kind of have a different view because if you live in the future, as Masa-san does, he's kind of reading tomorrow's headlines, right? And if you're reading tomorrow's headlines, it's not that racy to make a leverage bet on pretty much anything, right? So with Masa, it's this crazy, almost crazy conviction about what the future looks like as opposed to gambling. That's what drives it.

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40:01Read and consider it carefully before investing. Smead Funds Distributed by Smead Funds Distributors, LLC, not affiliated. You mentioned some stuff about Joe Sy that I had never heard. I know who Joe Sy is, obviously, but you made a comment that's a very East Coast comment. And as a West Coast kid, I'm born and raised in Seattle. I live in Phoenix now. You said something that most West Coasters might not totally understand. So I want to make sure we're all in the Komodo and we're all in the tent on this one. What is it? When talking about Josiah, you mentioned, you commented that he had a Mayflower descent.

40:38That makes sense to East Coasters, but can you bring a West Coaster up to speed on what that means? Oh, yeah. I mean, you know, I was talking about his educational background, right? I mean, you know, kind of the so-called Boston Brahmins, I mean, you know, kind of the East Coast elite. associate them with Andover and Exeter and Harvard and Yale, right? I mean, it was like everyone did that, right? And it was a little bit like that with Joe Tsai. I mean, he was a Yale man through and through. And he played the ultimate preppy sport, lacrosse. So that's kind of as preppy as it gets. And you don't necessarily associate that with someone who came from Taiwan originally.

41:21and obviously he's gone on to now own the Brooklyn Nets. And by the way, rewind, some of your listeners may not know this, but Joe Tsai is the chairman of Alibaba and along with Jack Ma was the co-founder of Alibaba. Yeah, so when you said that, I had flashbacks to playing at some nice East Coast golf club and asking, well, how does someone become a member here? And their response is, well, did you come over on the Mayflower? Yeah, exactly. That was the easiest way to do it. But let me pivot on. This is a really personal part of your story, and I think it's an incredible part of the story. I think it's a very endearing part of it.

41:58But you talk about your mom. Teach our listeners what was her background, what was her education, what did she do for a living? And then she ultimately gave that up for you. And talk about that for our listeners. Yeah, I mean I wouldn't say she gave it up for me per se, but both my parents were doctors. And you're right in as much as my mother after she was a student when she had me. She got married very young. She was only 22 at the time. And she was in medical school. My father was a professor and they got married. And she had me very early, literally nine months exactly. I mean, you could not make this up.

42:38They got married February 28th. I was born November 30th, literally to the day. And then very quickly, she had my brother, and she had to actually drop out of medical school to spend time with us, to bring us up. We couldn't afford help, not quality help anyway. And so, yeah, she made a sacrifice. She eventually did go back to medical school and complete her MBA, and she had quite a distinguished career as a doctor herself. So both my parents made sacrifices. You know, my father was an academic and, you know, we made nothing. We lived in government housing, did not have air conditioning, did not own a car.

43:22And my father went on to become a very prosperous physician. But my early memories and the sacrifices they made was, you know, that sticks in your mind. and you kind of determine that even though I had a very happy childhood, you kind of become very determined that I'm never going to put myself in a position where I feel that my kids are kind of not getting their dose of protein in a day, right? A lot of things that you just completely take for granted. Yeah. Well, I always tell my kids the definition of love is giving something to someone that they don't deserve. That's the definition of love.

44:00And to your point, that's a good picture of what your mom did for you and your brother. And it's a great story you tell of her. Okay, so personal question, because again, I don't know if I totally got this out of the book, and I don't know if you maybe have the right answer to it. Okay, so do you consider yourself an American or an Indian or a foreigner or a person of Indian origin or an overseas citizen of India? I'll make it even more confusing for you, actually. The only passport I carry is actually a British passport. That's hysterical. Yeah, and I don't ask it flippantly. I was like, okay, if I'm getting his story and really understanding him, it's somewhere in the stratosphere in between all these things that, you know, because your experiences.

44:45And I think somewhat about this. You know, I was born and raised in Seattle. I now live in Phoenix, Arizona, and I really identify with Phoenix a lot. It's not the different country, but it's a very different culture and different people group, I would argue. And so as you were going through a lot of your background and your experiences, I was like, man, I mean, he has been every which way. And, you know, you're kind of a chameleon is how I looked at you. No, I think that you touch on something very, very interesting. And it's actually a theme that I want to explore in my next book. I think this issue of immigrant identity, particularly immigrant identity in the United States is fascinating.

45:21And these are interesting times. I wrote a piece that got a lot of traction globally, actually, in the Sunday Times, and that was driven by the backlash against the appointment of a friend of mine who was Indian as Trump's AI czar. And, you know, a lot of people raise the issue, why do we need someone like that in an important role like that? And, you know, I think these are very interesting questions, you know, kind of to what degree do you have to assimilate? Some of my friends have assimilated. They've become completely Americans, others less so. And I think the way you characterize me, chameleon, is appropriate.

46:07I mean, I've kind of first 21 years of my life, I lived in New Delhi. And then I came to the United States, to Philadelphia, to go to business school. Then I lived in New York for a long time, and then I moved to Asia, to Hong Kong, and then I moved to London and carry a British passport. I had to give up my Indian passport, which was quite traumatic. I describe that in my book. But even though I am an overseas citizen of India, I go back to India, and it's like resetting the clock, like in my case, literally 30 years. I mean, it's like I never left. So it gets complicated. I mean, I was on a podcast in Delhi, and I kind of felt almost humiliated that I, even though Hindi is my mother krung because I don't speak in Hindi that often, kind of struggled speaking in Hindi in the context of a conversation like this.

47:07And that's a bit of an uncomfortable feeling. So you've got to change, but you kind of wonder how much you've changed. It's a constant struggle. I don't have – very few people have clear, crisp answers. And if they do, they're usually not being completely honest to kind of this where are you from question. Sure. Or they're not contemplating it deeply enough, to your point. Yeah. Yeah, and I say that because, you know, I mean, I work in the investment business on the West Coast, which means you get up early. you go to bed early and to your point it's i'm as likely to get together with a friend halfway across the country or you know if they happen to be somewhere else in the world at the time as i am anywhere else so i think a lot about that is like you know we all have unique experiences and and yours reminded me a lot of an experience that it's just very hard to capture and stereotype or put in a bucket or anything like that um let's see you were skeptical of the variable uh the VIE structure, the variable interest entity structure of Alibaba.

48:08Investors weren't necessarily then, but you kind of brought up some obvious possible issues with it. How do you look at that now? It seems like in the China-US debate, that became a little more of a formative discussion. How do you think that's all weighing out? Well, look, I mean, I own Alibaba stock, by the way, so I don't want to overplay my concerns about that. But one of the things you've become aware of when you've lived through 2008, for example, is this extraordinarily powerful notion of tail risk. And if you're in the investment business, you know exactly what I'm talking about. And to me, something as untested as a VIE, that's tail risk for you.

48:51I mean, it's a Six Sigma event, but there is a scenario where the Chinese decide and they came pretty darn close to turning their backs on capitalism a few years ago, right? I mean, you look at Didi. I mean, I bought Didi stock at$12 and it went all the way to$2. And again, it was a function of the management team kind of being a little bit too outspoken. I think that happened with Jack Ma at Alibaba. And you look at, he disappeared. It's still a mystery. Where did he go? Right. I mean, yeah, you could those things happen in China. My days at Morgan Stanley, we were asked to create a competitor to China Telecom.

49:32China Telecom being the equivalent at the time. It was a monopoly because AT &T, Verizon rolled up into one. And and it was a literary case of, OK, we'll give you this license. We'll give you that license. We'll take managers out of there. And you kind of realize that, you know, kind of if you're creating a business, if it's that easy, I got all mandated. There are no entrepreneurs at work. You know, there's no conflicts. And if it's that easy to put together, it's equally easy for that to be dismantled. And so you become sensitized to that. So I kind of made that comment in the context of tail risk, right?

50:05So if you're a public company like SoftBank, basic principles of diversification, you know, kind of if you're a$100 billion company and, you know, kind of 70, 80 percent of your market cap, your NAV, net asset value, there's leverage in there too, is one single stock and there's tail risk associated with that. It's something you got to think about. That's the context in which I brought that up. Yeah. So you also talk about the Boyce-Shiller hit on Nikesh. Obviously, that came as a shock to you and Nikesh and anybody else. But I guess as you look at that whole story, what's your post-mortem on that?

50:46Who do you, was that just planted in effect to getting to cash out a soft bank? And that's kind of the summation of that story? Well, they targeted me. And in many respects, the manner in which they targeted me was even worse. I mean, the book starts off with, and if you read it, you know this, obviously, that the book starts off with me meeting Claridge's Hotel in Mayfair, right? And, you know, kind of as blue chip, as marquee as it gets, sort of the equivalent of the plaza in Manhattan, if those of you might be familiar with. and a meeting with two Mossad agents in the lobby. And they kind of, you know, tried that they didn't want a million dollar success fee to tell me who's behind this.

51:24So I think the point of telling that story was twofold. One is it's experiential. It was very scary for me. And it's impossible to write a memo, an honest memo, without kind of going through what that feels like. And I think what people ought to take away from that is if you're going to be in this world, power, money, you better toughen up. right? People do stuff like that. Scary stuff happens. So corporate espionage, honey traps, as ridiculous as that sound, attempted sexual blackmail, that's the stuff that goes down in this world. And it seems conical, and I can look back and kind of laugh at it now, but man, having lived through that, it was scary.

52:08It's funny, when you tell the honey trap story, I actually thought of the setting in Lost in Translation that Bill Murray's like having his Suntory whiskey drink at the bar. And that was what I visioned in my mind as you're telling that story. And to your point, I mean, there's been other stories that have gone out there like that. But when you're reading this from a corporate perspective, I mean, there's a reason why someone's coming after you. It is for corporate reasons, which is, again, to your point, it's a very messy and confusing world. It is. It can be. It certainly can be. Yeah. Let's see.

52:42The other story you tell that I just I thought was brilliant. This is like one of those Masa touches that I thought was incredible. You know, there's a lot of there's been a lot of Musk fans and kind of like Tesla is like more than just a company. It's kind of like an identity to some people. Can you can you tell people how Masa created the identity of Hawk Bonds? Because I thought this was very interesting from an investor, but also a business perspective. Oh, yeah. I mean, that was actually an absolutely brilliant idea. And I'm so glad you brought this up. So Subbank Hawks was, Japan has a World Series.

53:17And the Subbank Hawks were world champions, if I'm not mistaken, three years in a row, right? Won the Japanese World Series. And the Fukuoka Hawks, Fukuoka is Masa's hometown. And, you know, again, cult following, you know, a little bit like, you know, pick your favorite team, you know, kind of the New York Yankees, whatever. It doesn't matter. But you know what I'm talking about. So the idea was he called domestic corporate bonds, SoftBank, by the way, globally, still is rated below investment grade. I think in Japan, the local yen rating is investment grade. But no matter, they called their bonds, SoftBank that is, they called their bonds Hawks bonds.

54:00And because they were called Hawks bonds, people locked them up and were willing to accept an interest rate that was based on companies of comparable credit quality. you would consider that to be substantially below market. And on the back of that, SoftBank became, I'm not sure if it still is, the biggest issuer of corporate bonds in the Japanese market, which I think is a really interesting story. Because not only is Masa a great technologist, he's a financial engineer and a remarkable financial... Vision Fund is remarkably astute too in terms of the engineering that went behind it. But the Hawks bonds is a great example of that.

54:42Yeah. You talk about Arm. It was bought on the idea of the IoT or Internet of Things. That was like the old buzzword, if you will. Now people are bullish on it because of what AI can do to some of our discussion earlier. from your banking experience. And this is kind of like the idea that I want to get at is how important are stories? Numbers don't sell stocks, as the old saying, stories do. Is that what most of these buzzwords really carry is a storyline that people can attach to? Yeah. Narratives versus numbers, right? I mean, I think narratives rule in a market bubble and And they certainly ruled, you know, kind of at the height of the internet when people, you could give me, I mean, you and I give us any story and we can come up with a set of numbers to fit the story, right?

55:32We know how to do that, right? So narratives rule in bull markets. And I think that's happening with AI right now. Fortunately, you know, with the internet bubble, it was happening in the public markets. A lot of people got very badly hurt, including, ironically, Masayoshi Son, who went from being the richest man in the world to Guinness Book of World Records, the man who lost the most money ever. Or now where the narrative is kind of run amok is when it comes to AI, but it's more in the private space. I mean, where it's a case of, you know, kind of in the application layer, in particular companies trying to, you know, kind of, okay, they charge a dollar for a particular service and end up paying two or three dollars in terms of compute capacity to generate that output.

56:21Negative gross margins, never a good story. You know, things are going to end badly. So, yeah, I mean, I think in the world of technology, when it comes to transformational technologies like AI, like the internet narratives rules, and that's a lot of what's going on right now. But you never want to lose sight of that Warren Buffett-style discipline because you know that it's like gravity. Everything falls. The only thing you can hang your head on, the only thing that can sustain you is cash flow. The expression – I still remember this. I was 21 at the time when I went to the Wharton School, and it was Professor Knudsen who taught me this first – my first finance class.

57:07and the expression he would use is, dollars you can buy beer with, right? I mean, this is like, this is it. You have to come back to cash flows. Dollars you can buy beer with. That's the only thing that matters. It's so funny you mentioned dollars you can buy beer with. My chief operating officer and colleague, Conor O 'Callaghan went to Penn for his undergrad and he was just talking about Smokes, the bar there that students would often go to. Smokey Joe's, Smokey Joe's. Yeah, Smokey Joe's, yeah. Yeah, so he was just talking about Smokey Joe's. He said they also used to go to the Blarney Stone back in the day, but he said he just found out Blarney Stone went out of business.

57:40And so I think he might be putting together a bid at some point to bring the Blarney Stone back because to your point, kids do need cash because they do want to buy beer. Yeah, exactly. Yeah. Let's see. So, you know, when you bought Arm, I thought, I think the other thing that's very informative about your story in the Arm acquisition is, you know, Arm was its own animal. It was really a national champion, which made it a very interesting transaction. You talk about hiring Simon Roby. And can you kind of comment on the structure of UK banking and deal making like this? Because Simon, in some respects, was your banker.

58:20But in many respects, he was your social concierge, if that makes sense. Yeah, I think social concierge may be exaggerating it. He was an M &A advisor. He was also kind of defector. I think you might say he was our lobbyist. I think that might be a more accurate way of describing it.

58:42In many respects, what we went through is probably not that dissimilar to what people have to go through in the United States. I think it's a little bit less complicated in the UK. I think it's a lot more transparent. And we were fortunate in as much as the armed deal was done right at the time of Brexit. And we were able to package the story to the powers that be, to the government, all the way to the prime minister. That, look, I mean, I think politically, yes, it's a national champion. But you could position this as a vote of confidence in an iconic British company. We have a$34 billion investment into this company, UK company.

59:29And what they did, I thought was quite clever. You know, we would, there weren't any, I think that deal would be, that deal actually would be impossible to get done today because there's so much of a sensitivity around AI from a national security perspective. But at the time, they expected very sensibly concessions out of us, concessions that, you think is the right set of issues for a government to focus on, which is employment, for example. You know, we committed that we would double headcount within five years. We, that is SoftBank, and SoftBank exceeded that commitment, by the way. And that was a commitment that, you know, Grant Thornton auditing firm would come and audit to make sure that we stuck with it.

1:00:13So we got to deal with them. And, you know, kind of in very similar fashion to what's going on in the United States right now, which is, you know, you kind of go, you got to kind of go in there and negotiate and see what works for the, for the powers that be. Hey, I want to give a big shout out to everyone who's been working so hard on this show. You know, we recently hit the top 10 in investing podcasts on Apple podcasts, and even number one in the business category in several countries. As you may know, this show is brought to you by Smead Capital Management. Smead Capital management understands how frustrating and illogical the stock market can be.

1:00:50If you're searching for funds with a proven track record, give the Smead funds a look. Or better yet, reach out at SmeadCap.com. And don't forget to mention your fan of the podcast. Past performance is not indicative of future results. Investing involves risks, including loss of principal. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges, and expenses. Read and consider it carefully before investing. Smead Funds Distributed by Smead Funds Distributors, LLC, not affiliated. You talked a lot about the Vision Fund. And I think the Vision Fund really, it typified the idea of crazy.

1:01:32You talked about obviously the backers that were involved, like MBS was, you know, was highly involved in the Vision Fund from a capital perspective. You told great story around other VCs just being really frustrated with the Vision Fund because ultimately they didn't have obscene amounts of capital like this and therefore too much capital can ruin the stew, if you will. Was this just something that people had never seen before and that was the real problem with it? Yeah. I mean, let me just throw out, I think one statistic kind of tells all, the total volume of all venture investing in the United States in the year prior to the launch of the Vision Fund was $76 billion, right?

1:02:14So the notion of a single fund coming along with$100 billion of firepower, granted it was a global fund, it wasn't exclusively the United States, but it's a tech fund, it was very clear the vast majority was going to go into the United States. I mean, that kind of puts it in perspective, right? I mean, yeah, this is huge. Nobody in the Valley had funds greater than a billion dollars. You know, kind of the marquee names, Andreessen Horowitz, It's Sequoia, Kleiner Perkins. The idea of a billion-dollar fund, let alone a multi-billion-dollar fund, was unheard of. So in that sense, Masayoshi Son, what he did was a game-changer.

1:02:52I told the story of how we met with the CEO of Sequoia, who came in skeptically. But the next move, the next big move, was to go out and raise an$8 billion fund. And the last fund, by the way, was$2 billion. So that was the SoftBank effect. And it was very real. And I think a little bit of what you see going on in the Valley, which is companies holding on, whether it's Stripe, OpenAI now, Anthropic, huge companies, but private companies holding on for much longer. This would have been unheard of 10, 15, 20 years ago, the idea of private companies being valued at$100 billion, SpaceX, many others.

1:03:33Yeah, I agree. Um, uh, the other thing too is, and I, you know, obviously this is a very telling story, but Masa would meet these founders and he'd say, Hey, we're going to give you$500 million. And it's not like the founder was asking or needed that much money. And you, you had a lot of cultural references. The other reason why I love the book, you, you like you reference animal house in the book, for example, you like kind of a John Belushi moment is what you commented on, but you also mentioned the Godfather and it's like a Godfather situation. If Masa's son comes to you and says, I'm giving you$500 million, well, it's an offer that you can't refuse.

1:04:08Like, there's no way you're going to be like, oh, I'm sorry, Masa, we don't need the money. You always will take that money because what's the downside? Well, so it's actually not to get too kind of geeky, but since you're a finance guy, and I assume that a lot of your listeners are, let's kind of dive into that. Because, you know, founders don't, you know, if you come to a founder and say, I'll give you a billion dollars, well, you know, you do get diluted, right? And, you know, when a VC comes, it's always strings attached and you want both seats and you want negative controls or even worse.

1:04:38Right. But the beauty of Masa-san's offering, I mean, I give the example of this company called Oil Rooms. And I talk about, you know, this guy was not looking for capital and Masa-san wanted to write a massive check. And he said, OK, minimal to no due diligence. I'm actually going to assign my voting rights to you. And by the way, since you're going to get diluted down, I'm going to give you warrants to protect you. So these offers, from a founder's perspective, they truly were going back to somewhat cliche, but that whole godfather kind of making an offer you can't refuse thing. So, yeah, I mean, you know, his style of investing was very different from VCs who keep you on a really tight leash, rip feed capital, sit on your boats, watch every move you make.

1:05:33With Masa's own, it was like, I believe in the space. I believe in the technology. And most importantly, I believe in you and I'm behind you and I'm backing you. So go out and do what you need to do. I'm behind you all the way. To your point, the VCs tend to have more of an activist approach. To your point, they're like an activist operator in so many respects with these founders, which is very different, like you said, than what Masa's done. Yeah, they're managing fiduciary money. They're managing other people's money. So they have to be. The other line that you had that I just, I think a lot about right now, just so you know, so I really appreciate it.

1:06:10And I came across your book randomly. My colleague, Will Keene and his dad, he was, you guys might have ran into each other at Morgan Stanley, but this, your book came up randomly. And I thought, this seems like a fun read. And then so many things, your book just, I mean, watching Moss's net worth go up 11 billion this year. It's like, wow, what a timely reason to read this book. But you have Chuck Prince's famous quote, which is a classic quote. Speaking back to the mid-2000s, he said, quote, as long as the music is playing, you got to get up and dance. Absolutely. It's FOMO, right? I mean, every teenager will relate to that.

1:06:48It's FOMO. Correct. And Chuck said that. Chuck, obviously, is no longer running a major bank because that didn't sustain for too long. A quick side note. I was out doing TV. I was there at a studio in New York. And there was a, I'll call it a really named person in our industry who was doing a TV spot. And we chatted briefly. And they're very much pitching the AI story. And they got on TV and they said, listen, here's a deal. You know, it's 10 o 'clock at night. And the parties go until four in the morning is what they said, okay? Which is funny. But I'm sitting there as the person I am. And I'm like, but wait a second.

1:07:28You know, Buffett said, when the clock strikes 12, it all goes back to pumpkins and mice. Right? And I was thinking about like that and Chuck Prince. And do you, I get the sense from you that you feel like the music's playing. And it's, you know, obviously, as long as it plays, like Prince said, it's fine. But the music always does stop at some point. And then we kind of have to sort out who was foolish and who was smart. Is that a fair way of looking at today's setup? I mean, there's another, since we're talking about famous lines, probably my favorite Warren Buffett line is you never know who's swimming naked until the tide goes out.

1:08:05Yeah. So, yeah, I mean, I think there's an element of that. The problem with bubbles is if you've been around as long as I had, you can generally spot bubbles. And I know we're in one. I know it's not as outrageous as the year 2000. But the damn thing is you could never, nobody can call how long, how big it's going to get and when it's going to bust. I agree. And I tell this story in my book. And in some respects, it's a poignant story that you can't feel sorry for the guy because I still think he died a billionaire. And talk about Julian Robertson, right? So Julian Robertson correctly predicted that technology stocks, internet stocks were in a bubble, but he did that in 1998.

1:08:53And he went out of business in his Tiger Fund, right? Went out of business in March 2000, the March of the year 2000. And the bubble birthed in May 2000, right? Now, if he could have held on, he would have been a hero. But not only did he sit out, he actually went short for markets. And so a point being, you can't call the size or when a bubble burst. It's just a complete bug skin. It's tough. I agree. And to your point, I think that the real principle I take away from the Julian Robertson story, and by the way, within three weeks, it was like Oakmark pushed out their PM, Robert Sanborn to bring in their now PM Bill Nygren.

1:09:41They were a value shop that was looking like an idiot. Robertson quit, threw up his hands in disgust. And then George Van Der Heiden was thrown out at Fidelity all within like a two or three month stretch. So to your point, kind of one of those symptomatic things that happens in this era. To your point about Robertson, avoiding a bubble is vastly different than shorting a bubble, right? In other words, like you can just say, you know what? There's games that I can play and games I can't. I'm just not going to play that game. And I'm going to do something else with my capital because I don't think it's smart.

1:10:14But then again, to your point, it's impossible to predict shorting things because your time has to be pretty precinct. And that's very tough to do, as you're pointing out. So I think a lot about just avoiding bubble activities versus like trying to predict the timing of them. I think that's a way to lose a lot more money than being right about a bubble. Oh, yeah. I mean, I'll just, not to digress too much, but micro strategy, I mean, that's one I'd love to short. That to me is peak insanity, right? Oh, man. Listening to Jim Chano's comment on that on X all the time. And by the way, to your point, I mean, here's the other, you know, if I want to get geeky on the numbers for a second, the other thing I think a lot about is I'll use Chano's.

1:10:58He's been talking a lot about balance sheet assumptions, and it's back to your kind of like the capital intensive idea. If you go out to a lot of these hyperscalers, they're saying that their NVIDIA chips are going to last four to five years. But then you talk to people in the industry and the use of these chips and the growth of the use, et cetera, they might be done in two. And the difference between two and four years in investment, it means you'd have to double your investment over the period. And I mean, we're looking at some of these numbers that are, to your point earlier, they're off the charts in CapEx.

1:11:31And therefore, it's kind of like, do we just run out of cash? Yeah. Well, yeah, the only good thing is the biggest checks are being written by people who can afford to write them. I mean, you know, it's equity. It's equity, to your point. It's equity money right now. Yeah, yeah, yeah. I mean, you know, it's Microsoft, it's Google, it's Meta, you know, massive, massive cash flow engines, right, which are, you know, you might argue that Google's got, you know, kind of could be the Google search engine separate conversation. But still, the cash-generated power of these businesses is monumental. Their credit arguably is at least as good as the United States.

1:12:14So they can afford it. It's not like Global Crossing. They're not relying on the junk bond market to finance these build-outs. That's the good news. I agree. And I always liken it to it makes me think a lot about the fracking boom of the 2010s. Those were low-return businesses, which are oil companies. and they had to borrow money and they're not as credit worthy. So now it didn't end well there either. But the point is that, you know, I always tell people, listen, you know, you're competing against yourself. So if you produce low returns, cash returns in the end, it's not good for your investors.

1:12:46And if you ever have to borrow money, it can add a lot of cyclicality to a business too. Let's see. The other thing I think I want to touch on before we finish, to go back to my notes here. Let's see. See if I had anything else. Oh, really quick. You went to you went to Colorado to go see the Malone team and talk to Charter as a potential candidate to get involved with Sprint. What was your interaction with their team? Was that were they were they just doing that to pay lip service or did you walk away with just a, you know, because Masa really respected Malone, which I thought was interesting because most people don't put Masa and Malone in the same camp.

1:13:27But they they were real visionaries in what they did. Yeah, so this is actually interesting. So Masa respected Malone. This gets back to something I said earlier. Masa is a financial engineer. And John Malone is a visionary, clearly, in terms of what he's done with cable. But he is also a brilliant, even masterful financial engineer, right? I mean, everything he does has a clever tax angle. He uses tracking stocks, for example, a lot of financial, I won't call it trickery, but certainly very clever engineering. And that's a lot of what he does. He uses the high yield market, charter, liberty, all aggressive users of the high yield market.

1:14:17So that's part of the reason Masa really respected him. I don't believe that John Malone was playing us or that Liberty was playing us. What they did was extract a brilliant deal for themselves, which you'd expect a dealmaker of the Gelliber of John Malone to do, which is, you know, they own 30 % of chartered communications. And they said, OK, you want us to play with you? You need to give us downside protection, but not downside protection at today's level. a stock was trading in the 300s, they said, we want downside protection at$800 five years in the future, right? So they wanted SunSan, they wanted SoftBank to guarantee a minimum share price of 800 five years down the road in return for, okay, we'll roll over our stock and we'll support your bid.

1:15:13So they extracted their pound of flesh. I mean, in the end, this is all theoretical and And we can talk about this quite openly. Well, the company certainly did. It was reported on CNBC. Deal never happened because company, the management team, the charter management team had a view that they really didn't want this merger. They had enough on their hands dealing with their merger with Time Warner Cable, which they'd done a year before. Yeah. You mentioned David Faber, who has a very unique relationship with the Malone entities over the years from a media perspective. Let's see. There's a lot we didn't talk about.

1:15:43Some things that I didn't ask you what your favorite golf tracks were. We didn't talk more about you eating at various Michael Mina restaurants, which I may or may have not attended in the past. You also got Clark Gable's mustache into the book, which all those things. I'm just like, gosh, this guy is so interesting. He's so enjoyable to read. But I want to just throw it out to you. Like, what else do you think should be mentioned in the discussion? Or what would our listeners, you know, what's a story that maybe wasn't in your book that you think is interesting? Well, I think the stuff that it's an honest book and it's a complete book.

1:16:19So I think most of what's interesting is in there. The one thing we perhaps haven't talked about, and I think it's very interesting to unpack, I think particularly for the 20 or 30 somethings in the audience is, you know, what do I mean by the money trap? Like, what does that mean? And, you know, one of the reviews I've got, many interesting reviews, but one of the more interesting ones was from The Economist. And I say that not because it was a rave review or anything like that, but The Economist made a very perceptive comment, which is the book is a Rorschach test for readers. In other words, what you take away says a lot about you, the reader.

1:17:04So you could read this book and you could come away saying, wow, this world of flying private, glamorous, doing deals, multi-billion dollar deals, meeting with John Malone, heads of state. This is cool. I want to be like this. But equally, you could read this book and say, man, this is really shallow. I think the word the economists used is this kind of vacuous pursuit of money. And there's enough ammunition for both in the book. And I think the idea of a money trap is an important one because, you know, it would be horribly hypocritical for me to sit here and tell you, you know, as I mean, kind of being an investment banker and being by most standards wealthy.

1:17:57at this point in my life to say that money doesn't matter. I mean, that's like in a classic, only rich people say that. That's a stupid thing to say. Of course money matters. But I think part of what I'm trying to say is at some point it can become a trap, right? And there probably will be openings, periods of change, periods of upheaval. It could be the equivalent of 2008. eight. It could be something that happens in your personal life. In my case, it was losing both my parents, losing my dog within a compressed period of time. And when things like that happened, look back and treat that as an opportunity to re-examine your life.

1:18:40Do you want to keep playing? How much is that extra million going to mean? So that's a little bit of what I was trying to say through that book. I don't believe in messages. I let readers take away their own, which is why the economist comment is so interesting. But I think it's sort of important for completeness sake to talk a little bit about that too. Well, and that's a very UK way of looking at things, is what the economist is saying. I've seen that a lot in their culture there. I'm going to give you my crack at it in my closing here, Alok. Your book, The Money Trap, reminds me that life has seasons to it where your opportunities and work can vary greatly.

1:19:21They can carry their own sweet fragrance that you can never catch a whiff of again, but they are trapped in your experiences. Yours as a banker, an intellectual, a dealmaker, a husband, and a song rings really clear in my ears. Our listeners should go out and buy a copy of The Money Trap today. If you enjoy this podcast, go to Apple, Spotify, YouTube, or wherever you listen to a book with legs. Give us a review. Tell others about the books and the great authors like Alok that we have the opportunity to understand and study the world with and through. For our tribe, if you have a great book that you'd like to recommend, email podcast at smeedcap.com.

1:20:02That's podcast at smeedcap.com. You can also send your suggestions to us on X. Our handle is at smeedcap. Thank you for joining us for a book with legs podcast. We look forward to the next episode.