Talk Your Book: How Public’s Winning the Great Wealth Transfer

0:04Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

0:34Welcome to Animal Spirits with Michael and Ben. On today's show, we are joined by Life Abraham. Sam Life is the co-founder of Public, the serious investing app of the future for millennials and the great wealth transfer. And how many more buzzwords can I fit in here? I would call them, my thinking is they're like the middle ground, right? The more mature investor after you've just started out, then you become more mature. And it's like, okay, I actually have some money. What do I do with it? Is that fair? Yeah. I mean, let's not beat around the bush. The 800-pound gorilla in the digital custody space is Robinhood.

1:12And what public is doing is very different. Very, very different. I've mentioned before that my Bitcoin, unfortunately, is stuck at Robinhood. I can't get it out for whatever New York regulatory reasons. I don't know. But so anyway, so I'm on the app frequently. And it is very easy. It's very smooth, but that's all it is. And for better or for worse. That's what it is. It's an app where you could buy and sell stocks really quickly, and there's no friction. It's very easy. And for what it is, it's phenomenal. Public is different. Public is building more of a traditional but tech-powered custodian, where it feels very similar to, I guess, Life said he views more – his competitor is not really a Robin, but more of a Schwab and Fidelity.

2:00And it does feel like that. when you log onto the platform and you look at it, it feels like what a modern platform should look and feel like. Yes. Yeah, you're right. It feels like it's actually made recently because it was. Because it was, because the incumbents, the rails that they were built on are from, I don't know, the 80s. Yeah. And I don't want to step on too much of this talk, but talking about where they're going and the stuff they can do in the future, the whole idea of customization in the future. It's going to present so many opportunities for investors. It's going to also lead to some landmines because too much customization is going to be overwhelming for certain people.

2:39But the tools for individual investors that we're going to see in the years ahead, they already see. I always say every year, it's the best time ever to be an individual investor. It's only going to get better and better from here. Yeah, they have a lot of exciting things that we only scratch the surface of. So please enjoy our conversation with Life Abraham.

2:58life welcome thank you for joining us thanks for having me all right let's start here i don't think in fact let me not caveat it i know that i have never heard the origin story of public what was the inspiration for launching this company essentially yannick and i came together and what we realized was that that first generation of the you know kind of like new broker apps that were out there it was all very heavily focused on speculation options trading crypto only place cfd trading in europe etc and that so to say that next generation's schwab has not really been built yet and um and so our thought was essentially let's you know go out and build something for people to kind of seriously build their wealth um and give them the tool to do so and that was a little bit like the the initial kernel right and then from there there were different features and ways how we executed that over time.

3:54But generally speaking, that's kind of kernel stuck tooth. Where do you even begin in this process because of all the different rules and regulations when it comes because there's got to be a lot of mountains that need to be moved to actually make this happen in the financial services industry? Yeah, I mean, the very first thing is just you got to be a, you know, an actual broker dealer in the US, right? And so we actually acquired a broker dealer license as part of the founding of the company essentially um and that was like that very first kickoff right we started off with just stocks in the early days um and that's where it started and then the the core kernels also was we were the first to do uh fractional investing in the us and so the ability to really like real time trade fractional stocks and it obviously had these two aspects number one a lower barrier of entry especially because it was a time before stock stock splits became cool again and you know So Amazon and Co were like two grand a share and stuff like that.

4:47And then on the other end, also, just from a mindset perspective, because this generation also grew up on things like crypto, just the mindset of investing has always been much more of what's my allocation on dollar amounts and such, which obviously fractionalization makes possible in the first place. Ben and I were talking two weeks ago about the S-tax report from Schwab. And I had this realization, which is like a look at the investors on their platform and how they're behaving. And I had this realization, there isn't one investor. We talk about what the investor is doing and based on different surveys, based on different platforms, economists, hedge funds, retail, whatever, there isn't one consensus way that people invest.

5:29It is so different so that you can craft any narrative based on any available data out there. All right. So with that said, how would you describe the... And I know, again, I just said There's not one investor, but how would you describe maybe the average public investor on your platform? The average public investor is like a buy and hold investor who basically keeps compounding their portfolio also just through the paychecks they're getting on a buy-reliquial monthly basis. And so they just keep adding to their portfolio. They have certain specifically names that they believe in. Very heavy also just single stock pickers, not just ETFs and such.

6:08and they kind of combo that portfolio over time. That's like the most general behavior we're seeing. And if you look at the space and you kind of look between the active trading platforms and what we would call like investing platforms, and they're all kind of merged in some regard, right? We also have some options on the platform, things like that. But just from a core perspective, on one side of the spectrum, we are more on the speculative side of options trading, futures and so on. Even from a customer profile perspective, like you have lifetimes of customers of two years or less, right? So you have to kind of reacquire people all the time because people burn out all their accounts, they churn, you know, and so on.

6:46And that is even just from a user behavior, but then also from like a business model perspective, what those kinds of platforms are kind of like sticking in, right? And on the other end, you have basically the portfolio builder investing platforms. And in that world, you have lifetimes of 30 years plus, right? And so, you know, for us, you know, we're still a younger platform. Our lifetimes are like, you know, call it 25 years and so on right now. But, and so the behavior is very different because people don't burn to their accounts because, you know, participating in less speculative behavior, right?

7:20And so those two sides are a little bit different. And obviously as these platforms grow over time, you will start to play in those sides a little bit. You see that with Schwab as well, right? Like, you know, literally bought TD and stuff like that, which is, you know, obviously way heavy active trading. And so, you know, over time, you obviously play in multiple camps. But I think from the DNA of the company you are in the early days in our industry, I think you have to pick a side a little bit. And we were much more born out of the investing portfolio building side than we were born out of the active trading side.

7:52So how much competition do you feel among all the different firms? Because there are obviously different types of clients that are attracted to different types of firms. I would imagine that your user base skews younger. Yeah, depends on what you define younger. Our average age is like 38, roughly, I think. See, I would define that as middle age. Michael still thinks that's pretty young. 38 is young. Come on. Like I would call it very young, very young, of course. I would call it like our base is really millennials. Like if you look at our age breakdown, like the biggest, the highest millennials.

8:25We were talking about the Vanguard study, how America saves, yesterday, in animal spirits. And the big takeaway for us that is absolutely music to our ears is the auto enrollment and the amount that people are contributing and increasing on a yearly basis. You mentioned that your users, your investors are concerned about building wealth sustainably over long periods of time. You mentioned the paycheck aspect of it. So tell us more, like how it sounds like their paychecks are connected to the platform. Like how are they using it? How is the setup? Like talk about that. What we're seeing is a little bit, two types of behaviors there.

9:08One is truly automated recurring investing. And we have a tool called investment plans on the app where you can just set it up. You define a certain strategy and just like continuously at a certain interval that you define, invest into those strategies. That's one. The other is really people putting money into basically like depositing their cash that they're getting through the paychecks and so on into the platform, leaving it more like high yield scenarios, high yield cash, bond account, things like that that we have. And then basically circle that out of that into mostly equities in most cases when they kind of see opportunities appear.

9:49And I'm sure you've heard about this just like retail investing culture of the dip buying. And I think that's very specific also to like that kind of millennial and younger generation. Because, you know, these people basically in most cases entered the markets after 08. And, you know, after the financial crisis, it took I think five and a half years or so for the S &P to recover. That was like the longest kind of dip that was there. But if you entered after 08, you essentially were in this like crazy, super long bull market cycle. And most dips that these people have experienced were pretty V-shaped, right?

10:24Like they recovered fairly quickly. And so through that experience, they've kind of adapted this kind of culture of dip buying. And so we see a lot of people kind of move things into cash and then circle that out whenever they see like a dip buying or similar opportunity in certain names that they're looking for and stuff like that. So what type of tools are investors expecting these days when they come to you? Like, what do they want to see that makes their lives easier? First of all, just multi-asset. Like, generally speaking, people want to, you know, it's not just stocks anymore. Even though, again, that generation kind of grew up on that a little bit.

10:59But I think that has changed a lot, especially also with crypto and so on. So multi-asset is a big one. And I think the second part is that because it's so much more mobile now as well, and like we were born mobile that was the first platform they were launched on obviously your investing app like your brokerage is not just a place where you execute trades it's a place where you follow the markets and you know obviously we've done a lot of work with ai and different data sources and you know charts and the app and fundamentals on companies and all where we essentially give people these sort of real-time insights around certain names, around the markets and macro in general, and so on.

11:47And so they don't just open the app to check their portfolio and how it's doing. They don't just open it to make a trade, but they're also opening it because it's their window into the markets. And so I think that bar of your brokerage not just being the execution venue, but it's also the place where you follow what's happening in the markets. I think that is, I think, a more drastic kind of change, especially for this generation. The platform gives you a lot more than some of the other digital apps where you're just swiping like Tinder to buy or sell a stock. How are you thinking about what is appropriate?

12:23What do investors want? What's too much? How do you think about striking the right balance? That is essentially the hardest part of the day-to-day. We always talk internally about of this thing of balancing sophistication and simplicity. And there is an aspect where when you go too simple, it gets dumped down, which also means there are certain customers that will not really think it's for them anymore. And on the other hand, you always have to make sure that it doesn't become too complicated. And so striking that balance is always the kind of hardest piece. And honestly, this goes into the nitty gritty of just the product design of it and literally like information hierarchy and stuff like that.

13:04And, you know, how do you access certain features in the app and so on? So it gets very kind of like design nerdy in that moment. But yeah, like if you ask our product design team, I think that it's the toughest challenge to always strike that balance because our user is generally speaking a little bit more sophisticated than maybe some new brokers in the space. And so, you know, our core demographic is really called it like the top 20, 25 % of, you know, millennials, Gen Z, Gen XS. And so people that have money left over at the end of the month to put into the markets, people that have some savings, people that might inherit a decent amount of money and so on.

13:40And what comes with that audience also is that they are fairly financially literate. They are fairly literate on the markets. And so their expectations are a little different. And they care about things like, can I trade my tax slots and stuff like that? because they're sophisticated enough to care about how to manage your taxes around it, how to read a company's balance sheet, et cetera, et cetera. So you mentioned the AI piece. Where are we going in terms of the tools that you can think are coming in the years ahead with this? Yeah, I mean, we are big believers that AI is going to play a massive role in portfolio construction and management.

14:17And we recently launched this thing called GeneratedAssets.com, which currently lives as a known site, but we can essentially turn any idea that you have in form of a prompt into an investable index. And so you can be like, you know, we have a podcast, and I can be like, oh, give me an index of companies where the executives run the podcast, you know, and then it's true. And then it basically looks for that and turns that into an index and gives you those companies tells you why these companies were added, which is a little reasoning of like, you know, the information that it found about these companies of why they were added based off your prompt, It gives us a sort of weighting on that.

14:50It comes up with a name, a description for it, and so on. And then soon, those are going to be investable in public. And I think what that really does, for example, it's the first step to, number one, really disrupt, essentially, ETFs. Because they become super customizable and essentially infinite in creation. So although you can add as many rules as you want to something like this, say, hey, I want it to be tactical. So every month, if these stocks are in a downtrend, if these are in an uptrend, go long these or short these or sell these or whatever, you can add all these types of rules. I'll do two layers to it, right?

15:19The first layer is just the first creation of the index, which is like, what is your definition of why a company should be part of the strategy? And then the second layer, and that comes a little later, is exactly what you're saying, is being able to set up like trading rules and stuff, right? Like the one that I'm always talking about, because it got kind of viral on Twitter, how much it outperforms is the, what was it? Buy the close, sell the open. Oh, right. Just do that every day. And apparently that performs really well, historically speaking. And so there are things like that that you can set up at some point as well.

15:52But now we're looking more as set up basically your own type of ETF, so to say, have Texas harvesting built in, have some customization built in, and so on. And that essentially runs on like an own direct indexing engine that we have built internally, which runs on that fractional layer that we have, which makes it possible. The technology makes it easy. So there's not a ton of operational heavy lifting for you if you have all these thousands of different strategies operating at the same time. It is all on the tech layer. And that is exactly what's kind of the beauty of it, where, you know, if you want to spin up, you know, 100 ,000 ETFs tomorrow, it's going to cost you a lot of money.

16:30It's going to be a massive team to manage that. It's going to be huge legal work, et cetera, et cetera. And, you know, there's certain regulation around it of like how much, you know, quality rebalancing, et cetera, et cetera. If that is all managed on the tech layer, you can go fully custom. And so you could even be things like, I want the top 50 of the NASDAQ 100. And by the way, because I want only tech companies, take out Costco. And that becomes your version of QQQ, so to say, that you have added it to your liking and to your strategy that you can then run. And then you have the developers like Tesla's harvesting built in and things like that.

17:13So you said this is a separate website? So this is right now living as an own site because it's just like a preview a little bit of like the index building. And then, you know, within the next, you know, few months, that's going to launch in the public app. And then it's all investable and whatnot. How? Okay. So I love that idea. Obviously, customization is a huge trend in the industry. How difficult or easy is it going to be for somebody like me that has absolutely no experience on the technical side of things? Super easy. It's literally, it's a free form field. you can type in, give me companies with low RPU, but large user bases, for example.

17:52So it's literally just a prompt that you can type in. It's literally just a prompt. And it would show you the list of companies and then you'd basically say, yes, that looks right. Correct. Correct. And you can change weighting. You can see why these companies were picked. You can add things. If you'd be like, oh, I think you're missing this one company, you can just like tell it and it might add it to it, you know? Oh, I love that idea. And so you can completely customize it and whatnot. And obviously the other piece where we're like seeing AI really play a massive role is that I do believe it's also going to disrupt financial advisors to some extent.

18:22We've been talking about this a lot. I want to hear your take. Yeah, I think there is an aspect of two things, right? If I can go on a little rant for a second. So first off, what's going to happen with the great wealth transfer is not just a transfer of wealth. It's also a transfer of relationships. and the average age of financial advisor in the country is going up every year. Younger people are not becoming advisors anymore. That industry is kind of consolidating. And so you have less advisors handling more clients and their advisors getting older. Now, there's going to be moments where their clients are suddenly going to become drastically younger because that wealth will trickle down and basically get inherited by those children of their original clients, so to say.

19:10And those, you know, younger people are going to have opinions on what to do with that money. These are people that grew up self-directed first. They grew up with investing accounts earlier in their lives. They grew up with social media content on, you know, on podcasts, on finance. They're way more financially literate earlier in their lives. And so they are way more confident in their abilities to manage their own portfolios. And so they're going to look at their financial advisor and be like, yo, Chad, I really like what you did for my family here. but let me take a third of this or half of it and manage it myself.

19:42And I would really love your take on the future of GLP One Drugs. And the guy will be like, GLP what? And that's where it's going to start. And so it's not just a transfer of wealth, a transfer of relationships. And so I think a lot of these relationships are going to deteriorate. And then a lot of those funds are going to move into platforms like public. Obviously, that's our thesis, of course, speaking of my book here. And so, you know, I think that is really number one. I think the second is that the more literate you are, the more you will also be skeptical on advice that someone is giving you.

20:22Because it's easier for you to poke holes in the stuff, you know, and to see certain things. And, you know, and that means also that, you know, AI doesn't necessarily have an own book. And so what that means is that AI, you can maybe trust a little bit more. Obviously, I can be fed with bias by a human when it gets set up. But generally speaking, if an advisor gives you some advice, does the advisor need a new boat or is this really the best thing for you to invest in? And so there is some of that skepticism that I think comes specifically with the younger generation that is more financially literate, potentially, that will open up more opportunity for AI alternatives in financial advice and also just guidance.

21:09It doesn't have to be advice always. Love it. So are Ben and I in trouble? My take is that I just think this totally strengthens the DIY case because there are, listen, there's a lot of people who follow our content, who are DIY people who really love consuming our content and they are totally in the spreadsheets and they love doing this themselves. And I think for those people, the tools are going to be massive. And I think especially the people who have been overlooked by advisors before, I think that is a huge growth opportunity of people who just have never, who've always wanted to try something and reach out, but have never, well, I don't have the assets or I don't have the know-how, or I don't know who to reach out to.

21:46If they have the applications of AI to ask questions and not feel like an idiot, I agree that is going to help. I think it's going to help way more people on like the middle lower end even than the higher end in terms of numbers. And on the super nerdy other end, it's like we just launched last week, like a full API access to your account. And so now in public, you can get access through API to your account, you can trade through API, you can, you know, use it to, you know, extract your data and put into some spreadsheet that you like, basically like full API access to your account. and that is not just for like hardcore algorithmic traders and so on that is also because this whole idea of like vibe coding you know where you basically use ai tools to you know actually program a little bit yourself that is becoming much more of a thing and it's becoming much easier and so this the sense of that like the the like hardcoreness of knowing how to program in order to run certain strategies that you like or extract data from your account to get more insights on it and so on.

22:51That is democratizing more and more now as well with AI. And so suddenly things like, well, I want some access to my API keys becomes a way more broadly normal thing in the future. Speaking about what the future generation is going to want, or maybe the current generation, but the one that is going to get a lot of wealth in the future. There was an article in Bloomberg last week about alternative investments, everything from collectibles to private stuff and everything in between. You brand yourself as a platform for the serious investor. Does the serious investor actually want all of these different buckets of investing?

23:35I think the general answer is yes. I think the issue is that the instruments that most alternative investments are offered to are still a little tricky for broad based for like for like the like more general public and number one is liquidity just the notion of you know if you invest into an SPV of SpaceX or into a private credit fund or whatever it's just harder sometimes to get out and so you have to be a little bit wealthy enough to you know have enough funds as part of your portfolio that you can like literally stash away for a few years you know for these things to mature and whatnot forever for you to get some money back and so i think that from an instrument's perspective it's just still tricky to get it to a point where it has like really broad adoption um but generally speaking i would say yes a lot of people have to what we have learned like we used to have more alternative assets on the platform and we had that through this regulatory framework reg a plus which essentially like you turn any alternative of assets into a sort of mini publicly traded company and therefore turn it into like actual you know tradable securities so you could take a piece of art or you can take you know we took music royalties of a movie and stuff like that and turned that into these investable assets now the issue with that is though that that's one of the reasons also why we stopped doing this by the way is um that um these assets have a very fixed AUM essentially and so let's say you are buying into, you know, the Shrek royalties that we had, for example.

25:10And the Shrek royalties was an asset that was called$5 million, you know. Now, that is just$5 million. And so now, people would get a piece of this. And the issue is now that the float in this is so low, that if you make it essentially a, you know, borderline, like regular trading liquidity on that, that because the float is so low, you're artificially ending up pumping prices. And then you get to this scenario where people are sitting on, because they might not be informed enough, because they might, you know, we just thought it was cool or whatever. And suddenly they're sitting on a super inflated price of an asset.

25:51And at some point, liquidity will dry out because you can't find someone who will actually want to buy, you know, at anywhere close to this highly inflated price and so you have this issue of these inflated pricing that goes up because the float is just so low you know um and i think that's also a little bit what you're seeing now with that tokenization um you know you obviously saw you know our dear friends at robin hood launching this like tokenized you know spacex and and uh open ai stocks and stuff and that's essentially the same thing right it's like behind the scenes it's in some spv with some shares that they bought secondary or whatever from that company.

26:28And then that token will, I would assume will be freely tradable, but because the float on that token will likely be very low, there's a high risk of these things to just inflate very much. And so suddenly the valuation of OpenAI, for example, in form of this token is 3 trillion. Exactly. It will be like multi times of what the actual valuation of the company is. And so like these things are tricky, right? And there are obviously like, you know, there's things like, you know, I know Goldman, for example, runs like, you know, placements of private shares and pre IPO companies and stuff like that.