Howard Lindzon, the founder of Social Leverage and StockTwits chats with Matt Z about his decision-making process when it comes to investing, risk management and market trends.
Episode TranscriptRead Episode Transcript
Welcome to the Optimus Futures Podcast. A place to learn from an industry insider with over 20 years of experience in commodity futures and options. Gain insight to the newest technology, platforms risk management, trading philosophy and advice about the current state of the futures and options markets. For futures trading platforms, deep discount trading commissions, overnight margins and instructional videos. Feel free to visit our website at Optimusfutures.com.
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Now here’s your host. Founder and CEO of Optimus Futures, Matt Zimberg.
Matt Zimberg: [00:01:11]
Hi guys. It’s Matt Z from Optimus Futures from the Optimus Studio. I have a very special guest today, it’s Howard Lindzon. Before I tell you about him I just want to tell you that he is not a futures trader, but what I like about Howard is that he’s a phenomenal decision maker and the reason that I say that is because I read his emails religiously and I love reading his emails and you should subscribe to them. You can go to howardlindzon.com and get it. We’ll have all the Web sites in video below and we’ll put all the descriptions. I love the way he does business. I love the way that he turns business into friendships. He has friends all around the world wherever he goes he can sleep whether it’s France, Italy, Israel, Canada and its phenomenal way to not just be cold hearted about business but just be do business with things that turn into friend’s business that turn into friends as well. Many years ago, I bought his book The Wall Street Bridge, phenomenal book. We got to talk about it in a second. And I wanted to tell you that Howard also is the founder of Stock Twits. I’m going to address that in my questions, but this is a guy who took a derivative of Twitter and made it better than Twitter knew exactly what customers to put on it, knew exactly how to capitalize on it, and it’s just mind-blowing to take a derivative of something and make it better. He’s also the founder of Social Leverage, correct?
Howard Lindzon: [00:02:52]
Matt Zimberg: [00:02:53]
Where they invest in companies and people. He’s going to talk about this as well. But so, the reason that I brought him is because I think good traders are also good decision makers. So, I wanted to pick his brains today about his decision making through the questions that I wrote down here. But first we’re going to talk about his book that I read over here. This is the first time that you kind of drilled into my head the formula of ATR – Average True Range. You actually saw it so that you actually have a formula that is a mathematical formula not just coldhearted decide OK on the gut feeling to get out you want to talk a little bit about this book and how you went about?
Howard Lindzon: [00:03:40]
The balance back when actually I think that probably my best work because it was like first of all the predictions all came true. But I think the funny story about that book is CBS had just bought my company. I was kind of a victim of the real estate bubble is not so much greed I just everybody in Phoenix got killed at that time. Even if we weren’t in real estate business and it was I started this Web video show long story short CBS bought it. Back in 2007. Although people start saying write a book write a book and I said fine and they pay me a lot of money I spent it on furniture before I even wrote the book. Now I had to write the book even though I had spent the money and that’s how things work you know. And I hated writing the book because I didn’t know how to write a book and I was locked myself in a hotel. Writing the book. And then when it was finished they said Yeah, I said you know what we should call this book the Twitter Track. And you know it’s 2007, 2008 and they were like What the fuck.? We’re not calling this book, we’ve paid 80 grands. We’re not calling this book. We paid for Wall strip and the book would have been a best seller if you announced that book. Today it was called the Twitter trend in 2007 instead of was called the Wall Strip Edge which was named the company CBS bought. We sold 11 copies in the Ukraine maybe. And it proves the point that like the title you know even if you have something good underneath the covers the title the packaging matters and it’s a good lesson in that. So, I’m really proud of that book and no one’s ever read it, but it is a good book.
Howard Lindzon: [00:05:33]
So, it was just a dream actually. There’re guys that worked for me and really understood what you know at a young age they were teaching me how to take emotion out of trend following and the really smart guys and I really believed in it mathematically having a formula in managed futures and in individual stocks. And I felt like average true range was a really great thing to do. Look backs based on how each stock trades. I don’t really use it anymore. I’m such a long-term trend follower and I just trade. I just don’t trade with machines anymore, so I don’t trade other people’s money so I’ve just kind of trade more. I don’t really trade. I’m more invest. Ok my dogs about to go nuts. Hang on one sec.
Matt Zimberg: [00:06:56]
Now let’s get to the let’s get to the questions and those are questions that I’m very curious about. I think that really going to help our customers as well. As far as decision making as I mentioned before, so you’re in the venture capital business you’re investing with companies you invest in good people and I’m sure a lot of people knock on your door. So, I assume you can have expertise in everything right. But nevertheless, so far from the portfolio that I’ve seen you invested in very successful companies. So how do you make decisions you know how to invest in things when you’re missing certain variables? How do you live with the fact that there’s just certain things you don’t know, or you just capitalize on the things you know the most and make the decisions without?
Howard Lindzon [00:07:44]
Well I think at the beginning you know that I’m not so much a venture capitalist. I mean I’d like I’m not against venture cap. I’m more of a seed stage investor. So, I’m betting before there really is a business. And before there’s a model. So, I’m not. I mean that because I’m very close with the founder and you know we’re looking each other in the eye and we’re trying to game to see if they really have the wherewithal to get hit in the head for 10 years before good things happen. And so, it’s more of an art. I’m more in the art side of it than the science side of it but I mean you know as you get better at it you know I’ve been doing it for a long time and now we’re I would say we’re professional and the checks get bigger. It becomes a little bit more of a science because you have to say no, and you have to kind of as a professional you have to stick to more rules becomes less art. You can’t you know people expect us to do what we tell them we’re going to do we’re going to invest in financial service companies and enterprise companies and you know we’re going to be a little bit eclectic but if we are eclectic These are the rules that we follow you know that have to be people that like we’ve known for a while. So, I think in anything the decision making comes down to rules. But I think why I love what I do is versus the market stock market is I think to be successful in the stock market you really have to be more disciplined than you do in the early stage market because the optionality of betting on people vs. you know corporations and groups is that the optionality works in your favorite view invest in smart people and you invest in software. There’s no time decay time works in your favor. And so, I like I think that actually is just why I chose you know in the end investing in startups over investing in futures in the market. I don’t like leverage and I prefer the leverage that I can get with time and betting on smart people using software.
Matt Zimberg: [00:10:02]
I love this philosophy because at the end of the day it starts with people. Yeah you know now I know why you also have.
Howard Lindzon: [00:10:09]
Every time we’ve been wrong we picks the wrong people. You know so many things can go wrong. But in the end, it’s the people right an about jockey can get can wreck good horse and a good jockey can get the best out of a horse. Very simple sports stuff. And but at the same time you know you you need a good market always. And luckily, we’ve had that and then we have you know software networks working in our favor as well. And once you see how those work the leverage is really fantastic.
Matt Zimberg: [00:10:47]
I see. I see. Let’s go back to what you were talking about when you make bad decisions. Let’s talk about risk management so let’s say you go into an investment or a stock or anything and now you’re starting to hesitate. And you say you know what and you don’t want to be emotional about your decision. So what factors we use for example to dump a venture or dump a position without being emotional? What is really how do you get to that decision if things don’t go well? How do you determine if it’s the market or it’s the people or it’s the product is just not the right time?
Howard Lindzon: [00:11:23]
Yeah well, it’s always a lot in startups. We have rules right. So, it’s part of our LP agreement and part of what makes the best investors great in the venture business is they don’t put good money after bad. So, stocks are a lot different than early stage companies you know there are unicorns that become zero of course but at the same time we as a firm if we invest once in a company and the company cannot raise money from new investors we can’t go and reinvest in that company. So that prevents just that unless we break the rules and then you could end up getting you know wrecking your brand and getting sued. But like the rules of our business like if you structure the right you know keep you from putting good money after bad. Now the stock market’s much difference because you know using stops you know; how tight should the stops be? And is this the one time like in December of this year right. Like I was inches away from getting stopped out of many long-term trends. Google, Shopify, Etsy, you know a couple more bad days than I really would have had to decide at with stocks that I owned for a very long time. We’re starting to break really long-term trends. And as luck would have it I’ve made probably broke the rule a few times and here we are four months later, and all those stocks have gone up 50 to a hundred percent. So, you know I’d like I’d like to say rules are meant to be broken I think what keeps me most honest is writing a journal. That’s why I recommend Stock Twits, or you know a blog or whatever it is or a yellow pad. I always have one around me meaning you know I’m writing notes I’m just keeping myself honest and I think journaling is probably the best way. And so, by sharing my ideas it keeps me more accountable than I would be with my own money. So, having other people follow me into things makes me more accountable.
Matt Zimberg: [00:13:16]
Understood. Just to give you a little bit of feedback you know in our business in the futures trading business because customers use a lot of leverage to probably couldn’t afford to break rules. That’s just a little bit about ours. OK. So, in your trading and personal trading I know that from your e-mail you work with a lot of people who are fundamentals in their view and a lot of people or more technical. What do you prefer as an outlook for the market you prefer the fundamental outlook a combination with a technical? How do you see things?
Howard Lindzon: [00:13:54]
Well I think I’m generally in the stock market come down to price. I’ve learned in the early stage market that if you love everything about the people in the company price doesn’t matter as much. But I think in the stock market maybe in most markets other than early stage I think price. Well I think technical over fundamentals because inside the technical if you know how to read the tea leaves there’s a lot of fundamental data. And I say that in a software area where no one knows how to value things. Technical haven’t worked as well because we have companies defying all kinds of rules because analysts can’t understand how open source works or how crypto works. They don’t really know how to value these companies it’s no one’s fault. But I think how you have technical that they stop working for a while right now because analysts have just been so wrong about how to value these companies. So, I think we’re in this weird gray area where it pays to use both common sense some rules, but I generally end price driven but fundamentals matter. But you have to understand what the fundamentals are driving it so it’s not as simple as just saying I understand the fundamentals. I don’t define what the fundamentals are of Mungo D.B. or elastic search or Etsy or Twilio the companies that continue to defy valuation understanding for years at a time not we’re not talking about three months or what standard parabolic things still look like. We’re talking about trends that just like defying what we’ve ever seen.
Matt Zimberg: [00:15:46]
I think you said it best in one of your e-mails that I read you said the harder is to evaluate the better investment that is right.
Howard Lindzon: [00:15:55]
Oh true. Right. Like I like I think about no one knows anything right. We’ve entered an era where software the machines anything we can agree on is to argue over whether the machines are good or not. Everything else you know no one knows how to value what the machines are doing for us. And I prefer to embrace them and say learn how to be humans around the machines or machines are here like it so it’s over they’re getting plugged in and they’re scaling. And the people that know how to how to work with them as a company as it relates to the market I just think you know I think obviously this time is not different but what is different is rules are getting broken like no one really understands how big these things can be because we have not seen anything like this in the stock market is whether it’s been around for hundreds of years or thousands of years. This time is just. Different the technical are acting. You’ve got to have a combination of really understanding both.
Matt Zimberg: [00:17:01]
Understood. I want to go to you know about I want to talk about social trading and I talk about stock trades. So, you know for the longest time I looked at stock trades and the model and I don’t know how to evaluate things the way you do. However, I saw Stock Twits develop over time to a better platform in terms of interface. It had a better interface it had a better. I saw better engagement between people who are talking about the markets. I saw a model that you were able to capitalize and bring an advertiser into it. So, the question that I have. How did you take a derivative of Twitter, understood it better than Twitter and created I believe that today’s stock tweets is the biggest social network of traders in the world? Right?
Howard Lindzon: [00:17:56]
I mean everybody likes to say there’s the biggest or the best. I think we’re the biggest in the sense that I just you know it’s a network and it’s small. You know people say you know if I leave it’ll be nothing. You know we’ve always you know people threaten Stock Twits that’s all that where I’m leaving and I’m like you know 2008 we were like we would follow that person and try and get them back on Stock Twits. That’s right. We did those things that we had to do when you were like a thousand people on the network. Everybody felt they were the most valuable cog in the machine. I think today it’s kind of funny in that you know there’s like half a million people a day chatting. We keep it less of those in real time. There’s spam. No matter how much you police know how much you try and explains the rules. People just misbehave, and machines do what they’re going to do, and PR firms do what they’re going to do. But I think we set some basic rules around what Twitter should be and not to judge Twitter. But I’ll explain that briefly is that if you’re going to set up a housing community or you’re going to set up a school or you’re going to set up country no there’s a constitution there’s a set of house rules as Phil and I when Phil was working with me and when we wrote the Ten Commandments for stock twits it was like Thou shalt not you know curse but if you curse and are funny you know what I mean it’s pretty hard to be mad at you. But and if you’re mean to other people and you’re not funny then what’s the value to the community. And I think those are simple house rules. I think here they come terms of service at Facebook and Twitter and they’ve just been open up the terms of service of Twitter got 700 pages. You know and all of a sudden there’s no rules. Once you have 700 pages of rules you have no rules. If you can define your rules in four or five sentences I think you can build it may not be the biggest, but you can build a community that lasts. I think you constant. It’s like the Ten Commandments right. We could argue should there be eight or should there be eleven. But listen if you can’t follow the Ten Commandments you’re not going to you know and I mean you could be president I guess but you can’t be beyond President. But the point is you know the less the rules the better. The other thing is Twitter was built for by people for not the best reason financially right. In the end what Twitter was a real time network. And there’s nothing more valuable real time than finance. You know if when Osama bin Laden when we took down Osama bin Laden the person that heard the helicopters and tweeted you know something’s going on that broke on Twitter 20 minutes before it broke on the newswires. So just that one moment there was more there was more value to be had by understanding how Twitter works than any other network work. And that was worth the most to the futures market and to Bloomberg and to Reuters and to and so the fact that Twitter isn’t making their money from that is the problem with Twitter. Can be the greatest product in the world and I still think it is it will never be the greatest business because they don’t they don’t they don’t make money off the what they will use case is a they. They’ve constantly been in battle about that and about who is allowed to use the platform. And so, it would be very easy to solve Donald Trump problems even if we wanted him on the platform delay by two minutes. You can tweet but we’re delaying your tweets by two minutes so they’re kind of irrelevant because you’re going to have to go find another platform or behave. But like we got a look at your stuff before we share it. We’re not going to market we’re not going to do anything, but you know we’re holding it back for a minute because you’re a lunatic and because you’re not following the House rules just because your president doesn’t mean you can’t follow the rules of Twitter. So what Twitter is they added eight more paragraphs of why the president can tweet. Now that may work because Twitter thinks it’s going to work but it decays the brand. And when you when you when you let the rules just kind of break you know Sodom and Gomorrah kind of start happening and it’s not their fault it’s just then you know when you have venture capitalists money all these saying sometimes the derivatives become better but they’re smaller like you know we have other issues at stock price. We may have a better product doesn’t but we’re also much smaller or so. And we have to live with that. So, the Twitter is an incredible product with an incredible scope and power. But the derivatives are better. Like in the end the derivatives of Twitter.
Matt Zimberg: [00:22:54]
Talking about derivatives. You guys replaced the symbols of hashtags with the dollar sign. Everything with the dollar sign you know which an incredible idea for a financial product was.
Howard Lindzon: [00:23:10]
It was something and we would sit around, and I would like it back then before Twitter started there was everybody was on a BlackBerry. So, Twitter when there was no iPhone when Twitter started so basically you know the first five thousand people, ten thousand, a hundred thousand people were Twittering from their BlackBerrys. Right. So, it was a different universe. So back in the BlackBerry days you know BlackBerry in the pen if we if we if we can go back that far back in the day you know brokers were really using Blackberries and they were using the pin system to text messages because they would break they would be outside the scope of the brokerage. And so, people could share inside information on Blackberries because the pin was outside their email. So of course, I knew all this because you know I was in the investment business. And so, when Twitter came out I was like wait a minute. This is going to be a way for people to just talk about stocks. And of course, it’s public so much more a retail idea than it was you know an institutional idea. But my problem was if I say that I’m buying I mean the Apple store buying an Apple computer and a tweet that were the hashtag and someone wanted to know what if some Apple stock that would be mixed in with Hey I went to the market to buy a green apple. And so, everything you know the Apple hashtag would be like littered with you know contextual information. So, for me it was just a better way to use Twitter as like I’m you know people speak if you’re in finance you know everybody knows tickers. And so, if we if the dollar side needs money so we just started doing you know dollar sign RIMM which was RIM Research in Motion which was BlackBerry and I sent the first dollar sign message to Fred Wilson and he sent me back a message saying well that’s genius and that’s what makes Fred a genius. He recognized that in 08 when I sent my first dollar sign tweet and that was the first that I know of. And then we would talk about stocks with the dollar sign and then we could search on Twitter and see who was talking about it as a stock. So that was the origin of that.
Matt Zimberg: [00:25:18]
I read a I read Fred Wilson’s blog but, but only the stuff you mentioned the e-mails. Could you say if it’s important Howard will mention it.
Howard Lindzon: [00:25:31]
I’m a filter for them.
Matt Zimberg: [00:25:32]
You are you know this is you know they should thank you. Let’s talk a little bit about back to the markets a little bit. Let’s talk about trends. How do you determine when the trend is on and how do you determine that the trend is actually coming to an end? It’s at its highest. You know it’s in the range. How do you go about determining those things?
Howard Lindzon: [00:25:55] Well I think this is the thing that no one really knows. I think that is very personal. A lot of it is technical but a lot of it is based on catalysts you know for me. You know Nike is going to be in a trend forever. So, the question is how you decide. You know which how media the trend that they’re currently in will be because obviously law is a large number. So. So we had trends like Nike that that know old school trends you know the stocks trend up because the market gets bigger they continue to come up with you know they have such a gigantic market around footwear and they have such a such a great brand but now you add software to great trends and you add less people and more you know operating leverage and you add more margins because less people. And so really you know what used to be cool trends, oil, and fashion and consumer brands you know basically now we have these technology trends like I say Twilio, Etsy, Shopify where there’s seems to be infinite scale as long as they continue to feed the network. So, it’s become much harder you know because the trends seem to be steeper and they seem to be longer. You know riding a Nike trend is much different because it’s still based on kind of historical valuations versus riding a trend around a platform or open source software where like how you measure it what’s good growth for something that’s completely open source. So., I don’t think it’s so easy. I think a lot of it is very personal. So, I don’t want to tell people but I’m trying for me like if it’s not a software company or some kind of like unbelievable trend around fashion I call it fetology like Lulu and Nike. They really, it’s not worth owning stocks in my opinion because I don’t want to own old-world business news when I can invest in private companies. So really, I only want to own software both in the private market and the public markets. So, I’m learning in this new world how much software I want to own in my public portfolio when I can own software in my private portfolio. So, I really think we’re in this new dimension where the probably all kinds of new Alpha because people are going to give up on the old world owning old world economy stocks because they don’t have the potential returns of new world economy stocks. So, I don’t know. I don’t want to answer that because I don’t think I know.
Matt Zimberg: [00:28:48]
It’s personal. I respect the decisions you make. You know it’s a personal decision. So, having said that. So, tell me when you decide to go into something whether it’s in the private listed company public investing in stock how do you scale into a position let’s say you have a portfolio you decide to do 5 percent of that portfolio and that specific asset. Do you scale in as it goes up or you put a little bit in the beginning and you scale if it goes against you? How do you skillfully into a position with the allocated capital draft?
Howard Lindzon: [00:29:26]
In a market like today where it’s just been trending and good I take equal position sizes because they’re all software companies like for the most part. So, if it’s 2 to 5 percent if you know if I’m allocating to 20 stocks it’s going to be the same dollar amount per stock because they’re all high beta high. So, you know in a good market I own 20 stocks 3 to 5 percent per stock. And I’ll trim if a position gets to be over 10 percent of my portfolio I’m going to start trimming. And but in the private markets you know each investment we have in this fund is we’ll write 700 million-dollar checks. We try and buy 10 to 15 percent of the company. So, it’s also you know if a great founder comes along and they’ve already raised a lot of money and they only need a little bit for us you know we’ll break the rule but generally we like to own 10 to 15 percent of the company and we make equal bets across 20 to 25 companies per fine.
Matt Zimberg: [00:30:29]
OK we’ll go back to Stock Twits and I have this question for you. So, I’ll tell you I’ve been a futures broker enough for 20 years and looking at the portfolios of people and the trading of learned what not to do. No, I can’t say that I’ve always learned what to do with very unique individuals that are amazing traders who do not use leverage but for the most part learn what not to do which helps me out a lot as well. When people new people come on board I tell them what my experience has been. But you have this you’ll have Stock Twits and you can actually see how the masses behave. You know you have half a million participants. It’s such an insight insider actually look at all this and say OK I know it’s a fact that I can say I never say anything, but I know it is a fact acceptable and I feel very strongly about it. But in the markets the masses are wrong. So, when you look at Stock Twits, people’s behavior like you know what you see. I mean do they go in and get all excited about one stock and then they will dump it together and say this stock is a shit or look what you went through in December like you said OK, risk management I wanted to, but you said Luckily you didn’t. Right. But I’m sure that a lot of people got panicked and so help don’t leave the world of trading through Stock Twits. I really want to know.
Howard Lindzon: [00:32:00]
There definitely is an edge. I wish I was a client and knew how to take advantage and take advantage not you know trade against the stream. Right. That because I don’t even believe in that.
Howard Lindzon: [00:32:14]
It’s just mass behavior you want to go against the mass behavior.
Howard Lindzon: [00:32:18]
I said I am a believer that the that that crowd is generally right because I’m investing in trends. The idea is not to be the first guy to a party or the last guy to leave the party. And so, it’s a fear and greed right. It’s very much like Larry David or Jerry Seinfeld. Like you don’t need to be first. And I think that’s the first thing. You don’t have to discover oil to have made billions of dollars. And you don’t have to still be drilling in 2019 to get rich right. There’re other things that are going on. So, you don’t want to be the last person to leave and you don’t need to be the first-person in. Now within that parameter there are crowds but there’s different crowds. What’s fascinating about Stock Twits and obviously I thought the same thing with Twitter, but they made some cardinal mistakes I think because of their being public company and having to meet revenue goals. They’ve kind of hurt themselves but for Stock Twits what’s fascinating is I have like they call at Facebook a god view. But really at the end of the day Stock Twits has data that I look at once in a while not to trade with but just be fascinated by because we see patterns just like you would see patterns on prices we see patterns of behavior whether it’s the amount of people that are bullish or the amount of people that are bearish call it like a social VIX that I have the power or I have the luck to look at it you know I added in December I was writing about it I was like I didn’t even though the prices still haven’t really we’re in panic mode. The market was in such a panic and you know I was buying, and it was scary I mean I don’t like to buy counter trend, but I was buying Apple and Facebook and I was a little bit early. Not much not too early in hindsight but I was buying the Nasdaq and I didn’t want to buy the Nasdaq because it’s not like the markets really were crashing. But the sentiment was so bad and so off the charts that I couldn’t help myself. And I think forgetting that I didn’t make enough money off that trend. I think just seeing that negative sentiment allowed me to stay with some of my positions a little longer than I probably should have. So, I should say there’s a lot of luck involved and that’s why I don’t like to use just machines because it is my own money now. I don’t manage another people’s money. So, I mean maybe I got lucky, but the sentiment was so bad on Twitter and Stock Twits in December that it was not so much the mass of it was. Sometimes they called the move shut the casino their four or five people that I can read, and I know you do the opposite. So, I think there’s also more value in finding you know the shows on these platforms that just are always wrong like they’re doing everything right. They’re writing they’re sharing but they can’t help themselves. They’re the ones that panic at the bottom and they’re the ones that panic at the top and they’re actually better than the masses at figuring out the market.
Matt Zimberg: [00:35:28]
Interesting. I want to tell you I’ve learned in my own personal trading in my own investing I considered a lot what my group does over time. I said what the good guys do and what the masses do, and I’ve made good decisions based on that when you have edges.
Howard Lindzon: [00:35:47]
Following the edge cases are better than following the crowd meaning following doing the opposite of what the people that are always wrong is good and doing what the smart people do consistently. Also, good. I don’t really so much worry about the masses. I’m trying to find this stuff like social networking you’re trying to you’re trying to draft behind the really smart people that keep an eye on the really dumb people as well because they’re dangerous, but you can also make a lot of money off. But to go fast you have to go behind just smart people and listen I don’t mind sharing just like other smart people don’t mind sharing. Just don’t slow us down like we’re sharing because we want to go faster but don’t get in our way and don’t crash. You know what I mean like if you’re going to crash on the side of the road like you know and I mean clean yourself up and I think that’s kind of the way I look at it.
Matt Zimberg: [00:36:34]
Awesome. OK. Let’s talk about communication. Let’s talk about this far as you know where the tech is going as far as interaction. So, we started with the e-mail to Twitter. Now everybody is just texting one another. Where do you see the next wave of communication between people? Where is it going? Today I will tell you that our what we’ve realized in marketing the majority of people don’t even open their emails because there’s just too much to read. Even if I response with one line. It’s just too much to read. Where do you see the communication? And obviously if you have kids so you know how they communicate you know God forbid they call one another you know because you have to be normal. God forbid you end up hearing another voice. Right. So where do you see this is going? Where is the next wave of communication? And I mean this is good? I mean it’s a good communication?
Howard Lindzon [00:37:32]
Cross to judge I mean you can’t. It’s not their fault that they have Google Maps and Snapchat and Uber.
Matt Zimberg: [00:37:39]
Oh, if they don’t have Google Maps as that’s it you know it’s like no oxygen on Earth. You know it’s like they don’t where they are. They’re on Mars. It’s just litigation kids.
Howard Lindzon: [00:37:49]
So, it’s not their fault that these tools exist. So, I think it’s I think we’re hitting a new area where there’s so much noise on every channel that you have to be an expert in every channel. So, I don’t think he can be a one trick pony. I think you have to use text. You have to use e-mail you have to use billboards.
[00:38:05] You have to use radio you have to use TV as podcasts you have to use Zoom you’re using Zoom today you have to use Skype. You have to use Google Hangouts. You have to be a magician of communication. So, I think I think it’d be dumb to be an expert in one. I think the best most successful people are going to try them all and be an expert at many. I think you’re going to have to be an expert in three. You may not have to speak Spanish Hebrew and English but you’re going to have to speak text. Slack, Twitter, Instagram, Tick Tock you’re going to have to speak three to five languages and those languages are not going to be luckily you’re not going to luckily English is going to be these people that want to learn Chinese. I don’t know why you did that. You should learn Slack. So, I think you should learn English. Well you have other people have other Israeli somehow the longer they stay in the United States the worse their accents get.
Matt Zimberg: [00:39:06]
I think that’s kind of our thing you find that’s only because we’re finding more Israelis to talk to.
Howard Lindzon: [00:39:13]
Yeah maybe. I think there’s some kind of thing you sign when you leave Israel like never to fake your accent the longer you stay in the US make your accent worse the. But I think English is the only language to learn and you need to English writing in English and speaking in English is more important than ever. And I’m talking about the skill of writing and you know Ibanof who works with us who’s Bulgarian, but he writes perfectly in English. I think you know the fact that Americans can’t write in their own language is discouraging English. And so, you know we’re very focused on our kids being able to write and communicate because that’s the skill. So, I think writing is under but, so I think anything that you can’t just get away with just text. But I think Text is my favorite because it’s my narrowest network. My second favorite is email and then my third favorite is short form you know Stock Twits and Twitter because that’s my community. And then beyond that I just don’t have time to learn anything else. But it’s so three. For me it’s those three.
Matt Zimberg: [00:40:28]
I think what I’m hearing is that as the software that really prevails. That’s the language you have to learn. It is what it.
Howard Lindzon: [00:40:36]
Is like you’re using Zoom. No, it’s not that hard. It’s not fun to learn a new product. But you know it’s like What is it a 15-billion-dollar company. I mean we’re a little late, but it is better than Skype.
Matt Zimberg: [00:40:48]
Just for everybody else who doesn’t know you send Howard a Skype invite and he says you’re out of your mind I’m on zoom so we’re on Zoom thanks to him and we’re going to continue using zoom. So, thank you.
Howard Lindzon: [00:41:01]
Well you’re ahead of the curve like whether you like it or not. Now you’re ahead of ninety nine percent of people with a better product in the future you’re doing your own version of living in the future even though Zooms a public company. All right this.
Matt Zimberg: [00:41:15]
I think your partners in the back. I was like you’ve been invited to the show. We want to be there too.
Howard Lindzon: [00:41:27] They’re installing cactuses.
Matt Zimberg: [00:41:28]
No, I see I see a nice cactus in Arizona. It’s good. OK. Let’s talk about something else. Let’s talk about the future of money. Where’s it going? You see people using Bitcoin, Venmo, PayPal. Where is the future of money going to be in your opinion?
Howard Lindzon: [00:42:00]
I think the future of money is like you said at the beginning it was the fact that I can go to Israel and of course I can afford to stay in a hotel. My wife’s now in the video. I think the future of money is our social network because I think money is, so it’s created so much anxiety and will continue to do so not having it creates so much anxiety that once you get it people still don’t know how to behave with it. But I think this next generation is done a good job. They just don’t need much right. They’re a very lean generation. You know they they’ve strict you know fast food bad for them but they’re still eating it. They vape. They have their smartphones, but they don’t need that much right. Like in order to interact with machines you don’t need suits and ties. So, people need one season of clothing unless they live in a really cold area so there’s less. People need less. So, money is changing from an era of consumerism to an era of sharing in the gig economy. It’s not like it’s not like a blip. This is a real thing. And so, I just don’t know I the gap down a basket of money is you know I own PayPal Mastercard I own Shopify some bitcoin I just recently had some bitcoin again. So, I don’t know I don’t trust any of them, but I use all of them. I’m a late user of Apple paid you know like I like smart people keep saying that Google pay an Apple Pay are going to be the big winners there. But if you look at a chart of MasterCard and Visa they’re living on the railroads the financial railroads in the United States are Visa and MasterCard I mean they couldn’t be disrupted by Google and Apple. That’s pretty impressive. So, if you look at the charts of MasterCard you would say they’re the winners in China kind of got around the rails Tencent and Alibaba are the MasterCard and Visa and Facebook and Shopify of their countries all in one thing. You know the Chinese in China it’s like we’ve had an era where they don’t even need to cheat like we thought of doing this. You know everybody in China is supposed to be a criminal but Tencent and Alibaba are so big and so profitable that they don’t even need to cheat. So. So we’ve hit this era where I don’t know. But it’s not gold. OK. That’s dumb. And you know Google’s not going away but it’s dumb because it’s not portable. So that’s a Bitcoin in its worst-case scenarios is gold. Because kids don’t care about jewelry. Culturally maybe India and other places so I think Bitcoin is a real thing, but it can still go to zero being the real thing. And in U.S. dollars or thing but I don’t know beyond that.
Matt Zimberg: [00:45:10]
It was very weird to me that one day that Facebook decided to have their own currency. I was thinking is every social group and every organization out there is going to have their own currency is Amazon going to have their own currency. Facebook have their own. It seems like every social group out there wants his own currency even Venmo and PayPal and all those it’s like some groups that interact between themselves and consumers that use PayPal friends who use between one another Venmo. I wonder how it will grow.
Howard Lindzon: [00:45:42]
I don’t know. I think. I think. I think if they can figure out its they can solve the speed thing and offload all the small transactions and lightning network and a few other groups are working on this stuff. Then I think crypto gets really under estimating how big crypto will be but dollars you know if you’re stuck in the middle of a jam and you somehow have dollars on you that’s always safe but it’s you unless i’m in New York I have no cash in my pocket. So, New York’s the only place where I carry cash. I probably should carry cash all the time because it can get you out of a jam. But kids’ day I don’t know what cash is if they lose their debit card and you can’t Venmo them money their fucked. That’s crazy, that would’ve caused us so much anxiety 30 years ago. But they’re not anxious over that. They know that they’re one phone call away or one text away from having access to capital. That creates a lot less anxiety. So, they have their own anxieties but they’re not going to have the same ideas about money.
Matt Zimberg: [00:46:44]
Ok we’re on to the last question here. OK so you talked about NASDAQ. I think the news that came at an all-time high today I believe? Right. I’m not going to ask you for at the height of the market or you know because a lot of people like to call the tops which is dumb. You know we don’t know that we’re just you know the first move is always fundamental. The last move could be emotional but that emotional part we don’t know how long it’s going to last. But in your opinion what are the warning signs we should look for? You know where do investors that have been in this market for example for the last five years. If they were lucky they got in 2009 2010. What are you looking for in terms of warning signs? To say you know what this is because if you get the early warning signs early enough even though the trend will continue, and you can top it you say you know what. I don’t care anymore. And then you know you go to cash or whatever the case is what are your what are you looking for in terms of early warning signs?
Howard Lindzon: [00:47:52]
Well we’ve had too many. So luckily, I’m not you know I think I think its competition right. Like right now to me why would I own a regular stock if I can open up open source or a platform stock or a middleware stock like Twilio. That’s the competition. So, there’s competition is like I don’t care what Exxon’s trading at. I’d rather relatively own a software stock I’ll buy like the worst software stock before I buy so we’re already seeing those type of warnings times when guys like me or don’t even want to look at an old economy stock. So, I’m part of my own warning. I think listen cash in two-point seven percent is good competition. I’m pretty comfortable with having 30 40 percent of my money in cash all the time when I can earn 3 percent risk free. I don’t have to worry about travel and what stocks are doing. So, I think we’re seeing a lot of competition for stocks at the same time the valuations are high or unknown meaning we don’t know how to value these things. So, kind of having stocks are already on borrowed time but they have been for you know 2 3 years. But I’m bullish because everybody’s still worried about the same things that I just mentioned to you. So, because information so freely available. There’re so many smart people you know worried in talking about it. I think we’re seeing these types of like booms and busts in different markets and not so much overall. There’s so much there’s so many places to invest in and network and do things that the warning signs are not the same anymore. Just like I said it’s hard to value companies it’s hard to figure out one true warning sign. So, I don’t know what the trigger will be it won’t be something that you and I are talking about today and it won’t be something that won’t be Trump and it won’t be something that everybody’s talking about every day. It’ll come out of the blue. So, I just I think people have to decide what their allocations to the stocks are. For me it’s somewhere between 30 and 60 percent of my investable money it’s never above 60 and it’s never below 30 so it’s not that big a range. I try not to worry about it that much.
Matt Zimberg: [00:50:14]
Just like you I lived through the Nasdaq meltdown, the mortgage backed securities and now we’re in a bull market again I’m always asking myself where’s the next asset bubble that could affect the market.
Howard Lindzon: [00:50:30]
The meltdown that got me. I wasn’t even in real estate and I spoke out killed in real estate. So, any in the end you’re going to get when the tidal wave hits it affects something that you never thought it was going to affect anyways right. So, you just have to understand you have to have some predefined rules and not get caught up in the euphoria. I mean you know how good this market is I’m not going to have 60 put more than 60 percent of my money in stocks and I’m going to stick with that rule and no matter how bad the market gets like in December I couldn’t sell anymore because I was down to 30 percent stocks. So, it helped me stay in the market you know. So, having those predefined rules meaning OK I’m down to 30 percent in equities in December. If the market falls another 20 percent I’m down another 6 percent on my money. It’s not going to make a break. My life and so living understanding the math of those things really helps you know it’s having more bigger rules around you know fear and greed that’ll prevent you from doing stupid micro things around fear and greed.
Matt Zimberg: [00:51:35]
That’s because you have a good risk management you’ve been doing this for a long time.
Howard Lindzon: [00:51:40]
I’m very optimistic which I’m wired luckily. And the second thing is I’m scared because I’m Canadian, so I’m scared of everything. So, I never going to be more than 2 percent obscurity American could come and take Canada tomorrow. I’m always scared. Looking over my shoulder.
Matt Zimberg: [00:51:58]
I always think about you know because every time I went through those things that that’s of course you know in hindsight I’m thinking there’s a there’s always something what you said is that what’s going to bring down the stock market down is something we’re not going to talk about today. I was thinking What is that something that nobody talks about today. I think you know what I think it is. I think it’s the student loans. I think I think today there’s a bubble. I mean it’s an it’s just every single student that I talk to. It’s just. Oh, it’s the trillions of dollars of debt. And they’re the next consumers.
Howard Lindzon: [00:52:39]
I’m not insulated from it. That’s what I’m saying. I don’t know how I’m connected to it but I sure you know I’ve got my kids through college. They don’t have school debt and never visit a campus in my life again I think you do to me and all these other places are slowly replacing them already in the background. So yeah. They have their own problems that they brought on themselves. And I’m trying to distance myself as far as I can from the educational system and that’s why home schooling you know Fred Wilson talks about that’s a big trend. So, the trends kind of taking care of itself. If you are a professor at one of these institutions, you are now at risk but if you’re me or you and you know but I don’t think it’ll be that good we’re actually talking about it. It’s been an era we’ve been talking about the student debt crisis for four or five years. So, when it happens it’ll happen. I think what’s more important about it when and if it happens was who were the derivative? How big is the fallout beyond what we thought it was going to be? And that’s generally what we can’t predict how people will behave but it won’t be good. People won’t behave well will be affected more than we think. And if you have a good social network and if you have good money management skills you’ll be fine.
Matt Zimberg: [00:53:54]
Great. I agree. All right I want to thank you for your time. Continue to write whatever you’re writing that e-mail. I know it takes time and dedication to write its wonderful things. I love that you give a lot of credit to your friends in the industry. Your e-mails are not me me me. You know it’s like it’s more of a credit to the people who surround you which is such a nice thing. I tried to do the same thing. You know I tried to get oh say my success in life is because of the people who surround me and really the good heart of other people that always helps. So, I want to thank you for your time. I hope this is not the last time that we did an interview. I would love to have you again. And that’s it. We should go a really good weekend. Good Friday. And we’ll be in touch.
Howard Lindzon: [00:54:43]
All right enjoy. Thanks for having me.
Matt Zimberg: [00:54:45]
Thank you. Thank you, Howard. All the best. Have a good weekend.
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