Ed Harrison, Nikola Tesla, United States discussed on We Study Billionaires - The Investors Podcast
Vision TV ED is an expert in investment banking. He's a former diplomat and technology executive. Ed is an incredible host at real vision and conduct some of the most exclusive discussions with the world's most influential thinkers and finance. So we're really excited to have on the show to talk about the current market conditions in various investment ideas in the third quarter of twenty twenty. So without further delay, here's the talented Ed Harrison. You're listening to the investors podcast. Well, we studied the financial markets and read the books that influenced self made billionaires. The most we keep you informed and prepared for the unexpected. Welcome to the podcast I'm your host Bros and as always accompanied by my co host Preston Pysche. Today's topics are value versus gross stocks, the economy in the coronavirus and last but not least, we are covering the US dollar and the euro. We are super super grateful to have it Harrison with us here for the very first time. One of the top thinkers right now at welcome to our show. Thank you. I don't know if I can live up to your billing one of the top thinkers but I, hope that I can provide some insights into the sorts of things I'm thinking about. Modest I like that and I just want to say for the record Edwards started this into Outon tweet is so I, mean he of all people before the just speaking Swedish because apparently, he knows how to speak Swedish probably the person in the world who should be leased modest. Putting, a lot of pressure on you there. Yes and you know the reason I. Speak Swedish we're talking before is because Danish was too difficult for me to learn. Swedish instead. Our Aso a wanted to kick this into off with the discussion about growth and value because whenever people here gross stocks, these most people think about thank stocks and they relate their outperformance to accelerated total world. Now, you have a very interesting but different thesis of why growth is performing better than value right now what is that? The macro view that I would posit is is that we're in a very low growth low inflation environment, which means that nominal GDP growth is lower result. It's lower both on the inflation front and it's also lower in terms of the actual GDP growth, the real GDP growth itself. So if you look at cyclical terms in the past said, for instance, in the one, thousand, nine, hundred eighties, you got this massive jolt up in GDP and then the cycle continued higher both on a real GDP basis Annan inflation basis. So that means nominal GDP growth is low and when you look at companies throughout the indices, the S. and P. Five, hundred, Russell two. Thousand, whatever be in some senses you can look at them as a proxy for GDP. That is that companies in aggregate are not going to out perform drastically what the nominal growth of the economy is doing. So as a result, you're seeing a lower trajectory of earnings growth, and that means that to the degree that people want to hit their earnings hurdles. That is they wanna hit their hurdles for investing seven percent eight percent whatever it might be they're going to have to go to the companies that are going to have the highest growth and so to me that's one of the key factors driving growth over value at least since the great financial crisis. So, you're doing some amazing writing Ed and you have a very interesting equation. You have momentum equals growth growth equals long duration in long duration equals secular stagnation. What does this mean? How do we complete the equation? So I wrote a post very recently flushing out these ideas. So if you take what I was just talking about it and you move forward to what's happening right now and you look at nominal GDP growth across a wide swath of countries being lower this particular go round just as they were in the last financial crisis, the last recession that we had what you see. Is A need for yield? What you see is that we're seeing the yield curve compress in a way that you have a flattening of the yield curve with interest rates at zero in the short term in the rest of the core flattening towards zero or even in negative rates in Europe and so what that definitely means is that you're gonNA need to have some yield. Pickup somewhere else. So to the degree that you need, you'll pick up the question is where can you get it and why is it that it's there. If you look at it, let's talk about it from a discount Victor Perspective if you look at the discount factor because of the yields falling then that means that companies that pay their investors based upon prospects that are. Five ten twenty years down the line those companies whose prospects are more interesting in a low yield environment because the discount factors mean that those earnings are relatively speaking more valuable than they would be in a five percent yield environment or seven percent yield environment, and so I'm looking at those growth companies which are the companies that actually pay investors. Let's say the Tesla's of the. Or the what would be a good example of that I think it's the Nikola is another great example that similar to Tesla? Kinds of companies are going to pay much further down the line and those payments that they're going to get or the prospects of those payments are worth much more. So you're actually getting a long duration play. It's a bond proxy if you will as a result because you wanna go to the longest duration and this is what you get. When you get a growth company is you get a long duration play and that is what's GonNa win in a low growth environment. So Ed, what do we do as investors to position ourselves based on this information that you just shared with us? So I think that the real problem is you can look at it from a portfolio perspective I look at it the optionality that if you look at two thousand or the run up in the Nasdaq in the one, thousand nine is up two thousand. What you saw was that some of these companies that had the prospects of great profits down the line when two zero. The Boston they went out of business so. Perhaps if you took a portfolio approach and then you had the Amazons in there, you had the ebays in there as well as the pets.com in those portfolios you would make out as well. But I think that what people are doing today is that they are saying to themselves not only do we want to have the Nikola Tesla portfolio that don't have any proven profitability but because the world that we live in is different now where the companies that are going. To IPO actually have profit more and actually the companies that have moat and that are going to give us profits five ten years down the line are bigger like the facebooks, the Amazons, the apples of the world were going to invest in those. So I think that it's a barbell strategy if you will, that is combining the growth companies of today and the growth companies of tomorrow together. So Amazon and Apple, and the one side Tesla and Nikola on the other side. Audience are primarily value investors that sort of like of the very root of where.