Is Tech In an AI Bubble? & Why English Teachers are the Best Investing Mentors

0:03When did making plans get this complicated? It's time to streamline with WhatsApp, the secure messaging app that brings the whole group together. Use polls to settle dinner plans. Send event invites and pin messages so no one forgets mom's 60th. And never miss a meme or milestone. All protected with end-to-end encryption. It's time for WhatsApp. Message privately with everyone. Learn more at whatsapp.com. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, a special holiday episode for Labor Day. Brew Market's host Ann Barry dropped by, and you're definitely going to want to hear her take on Jim Kramer.

0:41It's Monday, September 1st. Let's ride.

0:50Good morning and happy Labor Day. I hope you are all enjoying the day off and honoring the American labor movement by relaxing on your couch. We have Anne Berry in the studio today, a name that might be familiar to some of you as she stepped in to co-host the MBD podcast over the last few months. Anne's LinkedIn is longer than the Irishman. She's been a CEO, founder, broadcaster on TV channels like Bloomberg, invested billions of dollars as a private equity dealmaker, and now hosts two shows for Morning Brew, including Brew Markets, which you should definitely go and check out. We sat down with Anne last Wednesday to see if AI is a bubble, chat about her new show, and hear why your English teacher could be your most valuable investing mentor.

1:29But first, an ad for our sponsor, Roku. Neil, what do Americans love more than anything else? Ooh, hot dogs and all-day breakfast. Close, but I was thinking TV and Black Friday shopping. Now it's easier than ever for brands to get on the streaming platform Americans spend the most hours streaming on, Roku, with Roku Ads Manager, just in time for the holiday season. Roku Ads Manager combines the simplicity of digital ads with the impact of TV. Advertisers can use it to manage, optimize, and measure CTV campaigns in a few easy steps. It's as easy as running an ad on social media. Set your budget, select your audience, and you're ready to go live.

2:04Plus, you can connect your Roku Ads Manager with Shopify to develop interactive ads, create and track campaigns driving to a specific goal, and monitor spend and performance in Shopify. Right now, our listeners can get a$500 match on their first$500 spent with code BREW500 at ads.roku.com. That's code B-R-E-W 500 at ads.roku.com. Terms apply. And now for our interview with Anne. Anne, you've filled in as a host on Morning Brew Daily. You now host your own show, but our listeners may not know who you are, what you're about, besides that you're British and more articulate than me and Toby. So tell us a little bit about your career path.

2:45It has not been a straight line. It hasn't been a straight line and gosh, where do you want me to start? Should I start backwards or should I start at the end to go backwards or should I start at the beginning and go forwards? Christopher Nolan style backwards, yeah. Okay, so here I am today. I do have a podcast. It's called Brew Markets and it drops every afternoon in about 4.20 and just to set the stage for what it is and what we try to do and then I can explain why my career has led me to sort of position it with the team the way that we have done. So 4.20 every day rolls around. We start filming at about 3.50.

3:16So we are literally filming as though live right as the bell rings at the market close. So we're capturing the day's news. We're honing in on some of the biggest reasons that the market moved. And we're really focusing on the why. Why did this story matter? And we try and focus on what are we able to say because of our backgrounds that other people aren't talking about? So, for example, and this is something you and I talked about, Neil, when we were covering, I was covering for Toby, who was gallivanting around on vacation. We were talking about target CEO leaving. And one of the things I've done in my career is I've served on boards.

3:53I've been on public company boards. I've been on private company boards. And I have lived through the process of exiting a CEO. and I've lived through the process as a board member of trying to hire a CEO and figuring out what kind of leadership is appropriate for a company at a particular point in time. And so in that conversation, you and I talked about, was this the right decision? What was the board thinking? Is this really going to drive any change? My opinion was probably not. And my background is the reason I think probably not. It's not sort of coming out of nowhere. That's what BrewMarkets is trying to do.

4:23We're trying to bring the facts. We're rigorous about research. We fact check very rigorously. We do our own primary research. During the day, we're calling people, we're reading the underlying filings. I'm a nerd. I go into the numbers and we're very rigorous about that. And then we say, now let's put some real life experience around that. So what got you interested in investing in markets to begin with? Yeah, that's a great question. Well, if you go all the way back in time, I didn't think I was going to be interested in investing in the markets. I absolutely did not grow up. When I was a little girl, no part of me was going, one day I want to grow up and be an investor.

4:58Absolutely not. I wanted to be a writer or a journalist. and just a side note for anyone who's listening or watching who's an English literature major or an arts major when I actually ended up in investment banking and I'll go back to answer your questions to how that happened a couple of years in I wrote a letter to my English literature high school teacher so I just want you to know the best training I ever had for being an investor was English literature because when someone puts in front of you a poem or a play or a piece of prose you've never seen before and you need to figure out what is it saying and what is it saying to me specifically and argue the facts around why you have that perspective nothing comes closer to the investment decision process in that right looking at a company from a cold start getting through the facts and coming up with an opinion it's exactly the same process um so look I ended up being one of those kids who I enjoyed math and I also enjoyed the arts and I wanted to find a way to bring those two skill sets together and so I ended up doing economics I was always fascinated by public affairs.

5:57I'm a complete politics junkie. I wanted to know what was going on in the world, wanted to know what was moving things globally. Did economics, sort of, you know, Goldman Sachs turned up at college and said, you know, we have a great analyst program. One other thing I would say, I came from a family with absolutely no money. I was the first in my family to go to college and financial security was really important to me. And I'm the eldest child. And, you know, banking turned up with a path to a potentially lucrative career. And I was like, I need to do that, not just for myself, my whole family I want to look out for.

6:27Is there a moment that you look back on now in your career as it's unfolded where it was an inflection point where you said, I'm really hitting my stride now, or I know what I want to do now? Yeah. You know, the inflection point was a moment where I started to hit my stride, but at the time it definitely didn't feel like that. And so to get to that point, I, after college, I went to Goldman Sachs, had a great time there. I also went to business school, which I can also talk about. and I was in investing in private equity and buying companies control positions for a long time and I left Goldman to start a private equity fund and I was a partner at a firm and I ended up becoming CEO of the biggest company we owned it's a long story around how but this happened in late 2019 and what this business does actually it's thriving today is provide services for hotels and restaurants and spas.

7:21Well, no one told me that four months into the gig, COVID was going to happen and shut down literally 99 % of the business. So I'm a first time CEO, pretty early in my career. And talk about an inflection point, this was just drinking from a fire hose. And I had the most unbelievable board, to go back to the conversation Neil and I were having, of extremely seasoned CEOs. One gentleman called Larry Bossidy, who I was devastated, passed away recently. He was a very famous CEO. Another woman called Gail Mandel, who'd been very senior at Wyndham. And I returned to them and said, being a CEO is an incredibly lonely job.

8:01And being a CEO through a crisis, when you have got to keep moving, you've got to make decisions, really hard ones, every single day at scale that are going to impact people. the homes that they go home to, the energy that they bring to their families, the income levels that they have, or in that case, do not have because of the pandemic. It was an extraordinary inflection point. And to answer your question, Toby, did I hit my stride? In terms of realising I had the capacity to do something really challenging and to throw my energy into it and be drinking from the fire hose and learning something new every day, then I hit my stride.

8:36It was the fastest, most incredible learning I've ever had to do in my life. How big was this company? We had 6 ,000 people until the moment we did it, which was quite soon after March 2020. Yeah. Wow. That is truly a drink from the fire hose moment. I do want to pivot now to another company and CEO that has kind of become the de facto CEO of the market in recent times. That is NVIDIA. We were recording this just a few hours before NVIDIA reports earnings, which has become one of the most important events in the financial markets these days. Some analysts have been warning of an AI bubble and tech stocks have been a little bit wobbly for the last few weeks or so.

9:14So there is a ton at stake. What is your read on the AI trade right now? Oh, gosh, the crystal ball. So I'm going to be really honest. And when you host a markets daily show like I do brew markets, this is like not only honesty, it's real vulnerability. In the last couple of months, there have been many, many days where I've woken up, looked at my personal portfolio. We don't give investment advice, but I do sometimes talk about things I've invested in that have gone really well, like Netflix, for example, and things where I'm like, oh gosh, we've really got to figure out what to do. Over the last couple of months, there have been more days than not where I've woken up going, I think I should just sell everything.

9:51I think I should just take profits. You know, I look at my NVIDIA holding, I do own NVIDIA. I look at my Microsoft, I look at my Alphabet, I look at Imet and go, ah, this could go away. Right. And I am nervous that we are in not just an AI bubble, but an AI driven bubble for the entire market. And here's the specific reason why. When you look now at the expected returns on U.S. equities, when you look at the concentration in the MAG-7 or just sort of tech generally, the equity risk premium, I'm going to explain what that is, is tiny. It's practically zero. And so just to bust through the jargon for a second, you've got different kinds of assets.

10:31You've got less risky assets. And the closest thing to being riskless, in theory, is the US Treasury. And then you take a look at equities, at stocks and shares, and they typically trade in a way that the return you get is at a premium. It's more than you would get from treasuries. That difference is your reward for taking the risk of owning equities. And typically that difference, that reward for risk has been meaningful. It's almost nothing right now. And it just cannot be in my mind that owning a share in Palantir, which I do, by the way, or owning a share in Workday, which I do, is the same level of risk as a United States government bond.

11:08That does not make sense. That's a very long way of saying, yes, I do think that we are in bubblicious territory. Well, if you've sold any tech stocks over the past 30 to 40 years, you have probably regretted that. Yeah, absolutely. And that's why I'm tortured by it. It's why we're all tortured by it, right? It's why I wake up in the morning, go, should I sell today? And the answer is I haven't. I haven't for exactly that reason. So after NVIDIA reports, that basically wraps up earnings season. And you've listened to a lot of calls and heard a lot of CEOs say a lot of things. What are your major takeaways from what you've heard over the past few weeks and what companies are saying about the economic environment and how their businesses are doing?

11:44So I would say that the strength of the U.S. consumer in the aggregate has surprised me to the upside. So the places that I go to to try and figure that out, and there are so many of them, for the following reason, there is no such thing as the US consumer or a US consumer. We've got so many different demographic groups with different income levels, with different employment horizons, with different needs about providing for a family, with different regions, right? The diversity that we've got in the US is extraordinary. And so the diversity of businesses that we need to serve all the different populations of consumer is huge, which makes earning season where you're in my seat a complete nightmare because every day we're just flooded with data.

12:24And we try to sort through that on brew markets. When you look at things like credit card information, it looks as though most consumers are doing all right. People aren't defaulting on their credit card debt as much as was feared because interest rates have stayed up for as long as they have. when you take a look at some of the retailers not just the walmarts of the world but you know coal's just released earnings before recording today and it's done pretty well a couple of the home furnishings businesses have done pretty well so that that has surprised me the other place i've been impressed is for companies and businesses that have taken seriously the tariff threat and i know that both of you are really concerned about that and you turn out to be exactly right both of you were really consistent towards the end of last year when i listened to you talking about your concern about tariffs that were likely to come.

13:09The ones who took it seriously, the ones who moved quickly, the ones who diversified their supply chain and had a plan and focused on executing have done really well and they've been rewarded. And you see that. I do just want to zoom in on one of those particular consumer cohorts that you were mentioning. And that are people who eat, you know,$18 sad desk lunches. We like to call it bowl slop. Those companies have not done very well. I'm thinking of Chipotle, Cava, Sweetgreen. They kind of got wrecked during this last earnings cycle. What do you see on the horizon for those bull slop companies?

13:42I think it's going to get really difficult. And just because the contrast, who's done really well? Chili's has done really well. Yesterday, I had a conversation with the CEO of Potbelly. And back to my point on execution, Potbelly, which is a small market cap business, has been very attentively going out to customers and saying, but which products do you want? how should we price it how can we give you bang for your buck how do we give you a prime rib steak sandwich which I ate yesterday in preparation for my conversation and pack it full of calories so you feel you're getting a good outcome I think I think the sad salad group are going to have a tough ride for the following reason um are you going to save your money for dinner with your friends or for something when you can have a sandwich at your desk I think it's gonna be difficult the second thing I would say is and I loved sweet green a lot of it tastes the same right I don't care what the salad's called but at the end of the day it kind of tastes the same no matter whether it's chicken with with you know sweet potato or whether it's something else carver and I say this and please carver if you're listening please don't pull sponsorship we love you um it's just not as flavorful I thought as it used to be and I was I love Mediterranean food and it's heavy it's dense and it just doesn't it just doesn't excite me in the way that it used to it's tough they've got to do something new Toby's a big potbelly guy I love potbelly well I love them all.

14:59I literally love Kava and I love Sweetgreen as well, but Hot Belly was slept on for so long, so I'm glad they're kind of getting flowers right now. It's one of the few fast casual chains that actually reported same-store sales growth this past quarter. Another theme of the business world this summer has been marketing fails. I've seen a number of recent marketing campaigns receive a lot of pushback. Thinking American Eagle's Sydney Sweeney, Jeans ad, Cracker Barrels now nixed, logo change. As an executive, how do you know when to pivot because of criticism or when to block it out and just charge ahead with your strategy?

15:32That is a really great question. And I think, well, I'm sort of stumbling over my words, not because I don't have an opinion. I'm trying to make sure that the answer that I would give to that is different depending on what the mistake relates to. Okay. So if it's a marketing error, I think you own that as quickly as human, how humanly possible. I think Cracker Barrel, to its credit said, we got this wrong, we're going to turn this around. And they made that decision very quickly. It is very hard for people to say, I got it wrong. It's hard for them from an ego perspective. And it's hard for them because they feel as though it's a sign of weakness, and that they can be held up as a weak leader.

16:09So when I think they do it, it's a sign of strength. When I think about the Sydney Sweeney situation, I think that is different. I don't think that was a decision that the company was trying to make around, did they make a mistake or not? I think it's a decision around whether they wanted to make a statement that certain motivations for criticism was going to change their behavior or not. And that brings me to a broader theme, which is around what do you do when your shareholders start having a more emotional reaction to what you're doing than thinking about you as an investment in a business?

16:43And that brings me to the issue of meme stocks, because I don't think that Cracker Barrel has become a meme stock. I do think it's become a highly emotional stock. But I think we're starting to see more and more whether it's Krispy Kreme. We saw it with GameStop. We've seen it, I think, with Opendoor. What happens when you've got retailers wanting you to do things as a business person you just don't think is the right move? And do you want that job? I would not want to be the CEO of a meme stock. I think it's a miserable job. You've interviewed a lot of CEOs and they will say in interviews that they don't pay attention to the stock price.

17:18Yeah. But do they? Of course they do. Absolutely they do. And here's why. Lots of CEOs like Toby, we're talking about what it's like to be an athlete. They're really competitive people, right? The barometer of their success is the financial performance, the revenue and the revenue and earnings. And usually, again, take meme stocks out of it. The correlation between your share price performance and your financial performance historically has been pretty close. If you're competitive, you want to be a winner, you want to see your share price going up, right? That's number one. Number two, your employees want to see your share price going up.

17:49You want to get the best talent, you want to get winners, they want to be part of something that's rising as well. The third thing I would say is money, right? The cash, the dough, the ends in their pockets, the motivator in American capitalism. Public company CEOs are explicitly compensated using stock. Stocks, shares, options, they are highly motivated for that share price to go up because their net worth is on the line. So you bet. If anyone says, I don't pay attention from one day to the next, yes, I believe them. If they say, I wish I didn't have to pay attention from one quarter to the next, 100 % agree.

18:22But I never look, calling BS. I love that. Let's put yourself in the shoes of another CEO that's been put in a tough position recently. The US government just took a 10 % stake in Intel and Signalton wants to do that with a few more companies in the future. What do you make of this administration's interventions into private companies? This one's tricky. This one's tricky for lots of different reasons. And I'm going to share, again, being very honest, what my reaction was intellectually, so read business response, and then viscerally for a couple of these examples, because there's actually been more than one.

18:59Before Intel, we had MP materials, right? The Pentagon becoming now the biggest shareholder in the rare earth miner. Rare earths, for those who are listening, really important component in military items, in phones, in mobile devices. It's critically important. And the US has historically been extremely dependent on China to get a hold of them. And the negotiations for trade with China are happening now. We know it's happening now. It's not getting a ton of coverage. People are traveling to go meet each other right now. And this is on the table as a massive issue. When I saw that the Department of Defense was becoming a major shareholder in this particular company.

19:36The economist in me, the classically trained economist in me, the Wall Street trained banker in me, the private equity investor in me, the public company shareholder in me thought this was the beginning of a new chapter that I have concerns about. Because this kind of interventionism is not something that you think of when you think about the US economic model at all. And I think newness can be very disconcerting for the market. But the policy wonk in me, the kid that grew up wanting to know what makes the world go around, and we looked at that and went, we need to do something about securing supply to these critically important components.

20:18And my visceral reaction to it wasn't as negative as my intellectual one was. I do understand a play for this. But here's also just to go back to Intel, because you brought up Intel, I want to answer your question. Intel was a struggling company. Intel got it wrong. What I worry about, different from MP materials, is that this becomes propping up companies that, frankly, should be forced to be held accountable for poor performance. So if you were an investor looking at this deal, should you be chasing these interventions or you should be staying away from them? OK, so this is a controversial piece and this is where there's a difference between trading and investing.

20:52okay I think somebody who's day trading all day I thought about it I mean I really thought about it I saw Howard Lutnick come out and say oh we may want to start picking up positions in defense stocks and I sat with my producer John for brew markets I just watch they're going to rip defense stocks are going up should I buy just to trade that's the trading part of my brain I didn't do it because I'm an investor back to Neil's point I want to hold these stocks for as long as possible and my fear is that we see a short-term pop because we see that's what happened with Intel We see that's what happened with MP materials.

21:22But at some point, we have an election, right, and policies reversed. Or at some point, the market says, oh, wait a second, we don't feel quite so confident anymore that market forces are going to dictate the outcomes of this business as a poor performance is going to be changed or forced to change. are we going to go into a world where government contracts can now prop up the stocks of these companies because the government's now a shareholder? We don't know the answer to that. And if those things happen, I think these stock gains remove. So the trader in me wants to nip in and start looking out for posts on Truth Social.

21:56The investor in me is like, no, I actually want to know what the playing field is going to look like. We'll be back with more Anne right after this. This message is a paid partnership with Apple Card. I'm a person who really appreciates simplicity. And when it comes to credit card rewards, the simpler, the better. That's one of the many reasons I have an Apple card. The rewards are super straightforward. I earn up to 3 % daily cash back on my everyday purchases. There are no points to calculate, no limits or deadlines. Plus, it's super easy to access my card and make payments from the wallet app of my iPhone.

22:29If that sounds like the kind of simplicity you want in a credit card, apply for Apple card in the wallet app on your iPhone. Subject to credit approval, Apple card issued by Goldman and Saks Bank USA Salt Lake City brands. Terms and more at applecard.com. If you've done any online shopping before, odds are you bought from a business powered by Shopify. Wondering how you can tell? Close your eyes and picture that purple ShopPay button you see at checkout. It's the one that makes buying so incredibly easy. And it's also the telltale sign that you're buying from a Shopify business. If it's not ringing a bell now, you're bound to start noticing this purple button everywhere.

23:07And for good reason. Shopify makes it incredibly easy to start and run your business, so it's no wonder so many businesses sell with them. Get your very own purple button by signing up for your$1 per month trial and start selling today at shopify.com slash morningbrew. That's shopify.com slash morningbrew. Let's talk about private equity. You've been a longtime investor into private markets, which regular folks like us typically haven't been able to access. But we should talk about that, yeah. But that is changing dramatically. Rightly, 401ks are now adding private assets like crypto, real estate, pre-IPO companies to their holdings, in addition to classic stocks and bonds.

23:45Is this democratization of investing or a risky path to go down? It's both at the same time. And I want to start with the democratization piece of it, because if you go back to before the pandemic, if we go back to prior to 2020, 2021, and this extraordinary run that we have seen in the U.S. stock market, initially driven, initially, and I say before all the AI news popped and captured our attention the way it has done, low interest rates was a huge, huge driver of what pushed up the stock markets. If you go back further in history, private equity funds, the good ones, not all of them, the good ones, have outperformed the stock market.

24:29And for the following reason, I believe, and I'm going to own the fact that I feel some bias on this point, because when you've seen it done well, you know that the following happens. When a private equity firm owns a business, they lean in. And I'm going to say what that means. They hold the CEO accountable. They drive change. We can debate good change, bad change. The change is made. Public companies struggle to make change. They struggle to change their management teams. They take years to exit this, years to exit their CEOs, even if they're not performing, or they turn around and bring them back, right?