Welcome to 2026

are we up i think so yeah all right all right we're in the show all right hi everybody welcome to the first compound and friends of 2026 you heard that beat drop so you know it is time to get down to business. It's the first trading day of 2026. And I'm so excited. We have Ben Carlson here. You guys that are compound fans, you know Ben from Animal Spirits and Ask the Compound. Ben is the director of institutional asset management at Ritoltz Wealth, where he helps shape portfolio strategy and investment policy for institutional clients. You know his shows, You know the blog, A Wealth of Common Sense, and the 12, 15, 20 or so books that he's written in the last 20 years. Ben, welcome to the show. Hey, guys. I don't have any applause button, but you can imagine if I did, it would be going crazy right now. All right. Michael Batnick, my co-host, is here. Michael, say hello to the folks. What's up, guys? I'm kind of surprised that Lamb Research is the best S&P performing stock of 2026. I know it's early, but did not see that coming. So we wrote about Lamb as being one of the best stocks last year that we had written up in our Best Stocks in the Market column at CNBC Pro. I just wrote about it this morning. Well, four minutes into the year, the time remains. Nice follow-through. Nice follow-through. All right, guys, let's give a quick shout out to today's sponsor. It's VanEck. We talk about hyperscalers every week. You know the story, massive CapEx budgets and the race for AI dominance. But picking the single winner in the semiconductor space is getting harder, which is why you look at the VanEck Semiconductor ETF, otherwise known as SMH, arguably one of the most legendary single sector or single industry group ETFs ever created. SMH gives you the whole ecosystem. NVIDIA, TSMC, Broadcom, the company's actually receiving those billions in CapEx. The industry has matured. It's not just cyclical anymore. It's about supply, discipline, and price and power. Instead of betting on just one chip stock to rule them all, own the leaders. Check out SMH at VanEck.com slash SMH compound to learn more. Thank you, VanEck. Can you guys see the live chat? We have some people here. Let's give Cliff Peebles a 2026 shout out. He says it's early. I know. Brian Grill is here. Smokey Toast is here. Back to work. Another nutty year for national parks. let's see who else is here I don't know we got a lot of folks in the live chats 9.30 as we're recording this Ben where are you? Hey I got 7.30am in Arizona right now Thank you for waking up and doing this When are you going back to Michigan? Taking off tonight and snow is going to be waiting for me so I'm going to enjoy the sun for one more day Alright good for you I'm here till Monday in Florida All right, we're going to start out with our favorite candidates for turnaround stocks in 2026. I just threw a whole bunch of tickers on here that I'm watching, and I don't know how you want to start this. The one that I thought was most interesting because there's now an activist fight is Lulu. Is this even on your screen anymore? Is anyone still even following this company? So it's on my screen because you and I did a show a couple of months ago, Value of Value Traps, and it was Lulu. It's the names that we're talking about today, basically. And we flagged it because The Economist, which I'm sorry, they're just a fantastic contrarian indicator. And I'm an anti-magazine guy, but they just have a special ability. And the stock is up 20% since they wrote it. But I'm not – listen, I don't – Wait, what did they write? They said it's a value trap? I think it was on the cover, like, why is Lulu out of fashion? Whatever it was, it doesn't matter. But I don't know how a retailer like Lulu gets its mojo back. I feel like it's over. Like, it lost. Why did it get crushed so bad in the first one? Because it's down 60%. We actually were at a mall yesterday. My daughter went in and goes, geez, the pins are $150 or something. Is it just a trend thing that this was in fashion and now it's not? No, it's aloe, I think. No? That's what I think. They got destroyed. None of the moms in my town wear Lulu anymore. It's all aloe all the time. I think it's like death by a thousand cuts. At the low end, they're competing with Athleta. which is a Nike brand. And, you know, like everybody makes yoga pants at this point, like Old Navy. It's not, you know, it's not. So at the low end, they have competition where people that want the look don't have to give Lulu $150. And then at the high end, like from a fashion perspective, Aloe has just stolen their thunder. I think the clothes are better, quite frank, better made. And Viewory wasn't around a couple of years ago, at least in a big way. Yeah, good call. There's a proxy fight, and this spring, we'll see what happens, but what's made the stock—let's put a chart up. This name is 59% off its high, so it's just been absolute torture chamber. It seems like it started to rebound a little bit into year-end, maybe because of this. Here's the journal. lululemon founder chip wilson is launching a proxy fight in an effort to remake the company's board while lulu searches for a new chief executive wilson said monday he has nominated three director candidates to the company's board the nominees are on running co-ceo mark mauer that makes sense to me on is like a newer hotter brand in footwear doesn't directly compete with lulu former ESPN chief marketing officer Laura Gentile and former Activision CEO Eric Hirschberg. He's been personally ridiculing the CEO. So Wilson, who is the controversial founder, who kind of got pushed out because he said some not so nice things about overweight women and some of the problems with dressing them, I guess, in yoga clothes. And it was just like very off message. And he's kind of been like estranged from the day to day running of the company for 10 years. He bashes the current CEO. He said, quote, finance-focused CEOs don't know how to attract or motivate creative talent. Even worse, they think they understand great product when they don't. A company bereft of a visionary loses its singular voice for product and long-term strategy. He also ripped them for buying Mirror. Remember that? That was stupid. We knew that was stupid at the time. There were a lot of dumb deals happening in 2020, but that was maybe one of the top worst deals. $500 million for the fitness product. They were chasing Peloton. Dumb idea. They also started putting Mickey Mouse and the Kansas City Chiefs logo on their clothes. So basically, the founder is blaming the current CEO. And let's just put up that share price. This shows Calvin McDonald starting as CEO in, I guess, what is that, late 2018? Mid-2018? He had a good start. He just wants a good start. Can we just tell you how hard it is to do these turnarounds and predict these, especially in fashion? I think fashion and exercise, trying to predict the comebacks is so difficult. Because we've got three dads here talking about women's yoga pants. I think trying to figure out these, like you get one of these out of 30 maybe that do come back and the other ones just kind of go away forever, right? Well, also it could be a really, really long time for these companies to come back into fashion, but it does happen. Sydney Sweeney single-handedly resurrected American Eagle this year. Like if you look at a chart, like it happened, the gap has a pretty decent comeback underway. The gap in May of 2023 was a $7 stock. It looked like it was going to zero. It's $25. Abercrombie is having a massive renaissance. The big thing that happened with a lot of these apparel retailers that won't happen for Lulu is they got a denim cycle. the style that the Gen Z's wear is a throwback to the 90s they're wearing big baggy jeans and all the skinny jeans had to be thrown out of the closets Lulu doesn't sell denim so they're not going to benefit from this same wave Abercrombie's $124 stock in the spring of 23 it was 25 I mean it's up five fold so the denim cycle is huge to resurrect some of these hurting apparel and fashion retailers, to your point, but you have to wait a really long time for it. Lulu's not getting that benefit, so I don't know what turns it around. You guys have any interest in the stock as a buyer? If he wins the board seats, it could change the narrative. I just don't care. I'm not buying Lululemon. There's so many other things that are working. I don't need to get involved in this. Someone who's retired from stock picking five times in the last 12 months, can I talk about the stuff I actually am bottom fishing in? Yeah, let's hear it. So you got these on the list. I've been buying Nike and Netflix. All right, let's do Nike first. It's all brand for me. She had a year off because she got hurt, but I'm still buying the Caitlin Clark trend. I think she's going to be the female Michael Jordan. And I think once she has her own shoe out, I think it's going to be massive. And I know that there's been a lot of insider buying. We talked last week on Slack that Tim Cook is a director in Nike, and I had no idea he was. how much I'm studying this stock for buying it. But to me, these are just two brands. Does she sell shoes? Do little girls go out and buy shoes because they love her at anywhere near the same rate that a little boy would run out to buy something because Jordan or LeBron or Steph Curry endorsed it? I don't know. So maybe it's because my daughter plays on a travel club basketball team now. and I can't believe how good the skill is for sixth grade girls now. They have more skills than I did at that age. So maybe that's clouding my judgment, but I just think she's going to be massive. Nike is down four years straight, which I don't think that's ever happened since the company came public in the early 80s. Looks so bad. This is literally like the worst multi-year stretch for Nike ever of all time. But maybe it's so bad it's good. Maybe this is it. Okay. Let's do Netflix. I think this is a turnaround story. It really is. Huh? Netflix? No, I think like people are like, wait, Netflix? I mean, it's decently off a tie. It's in a 30% drawdown. But the business doesn't need to be turned around. The business is as on fire as it's ever been. I own Netflix as well. I'm nervous. I think it might be dead money. I'm second guessing myself. Do you guys think the fact that they're making a push into podcasts is a good indicator or a sign that they are freaking out? Because they took a lot of the podcasts from The Ringer and Barstool Sports and they said, hey, we're taking these off of YouTube. We're putting them on Netflix. Netflix is obviously terrified of YouTube. Is that actually like, hey, they're getting ahead of this? Or is it like, oh, my gosh, Netflix thinks they are in trouble. This is a bad sign. I don't know the financials of these deals. so I don't know if it's like a freak out or not. Like if you told me they're spending billions of dollars to do this, I would say, yeah, that's a freak out, but I don't think that's the numbers. I doubt it. Yeah. Because the content spend for podcasts is like what Spotify did in 22, I guess. Like all that shit is way over. The other thing is that these – I don't think it's either. I don't think it's either like – I don't think they're freaking out. I don't think it's – Because how much of YouTube's revenue or watch time is podcast? I'm sure it's pretty healthy time, but I just I don't think I have enough information. Well, it's the thing that YouTube has that that no one other than Spotify has. It's that and that's why it's strategically important. Netflix is battling YouTube for control of the living room TV. This is not about what's on people's phones only. Like people are watching this show right now on TVs in their living room. So Netflix can't just allow YouTube to start monopolizing more and more of people's living room time. That's the battle. It's going to be a bad look if and when these shows go crawling back to YouTube and go, oh, no, we made a huge mistake. Oh, because the numbers aren't going to be there? I can see that happening. It's just not as easy to click on Netflix as it is on YouTube for some people, I think. yeah and the other thing is that netflix controls its algorithm um more tightly meaning like netflix in what becomes a hit more so than youtube does like youtube has an algorithm but they're not picking favorites the winners tend to be the shows that are really good at mastering the algorithm like what makes people click into a thumbnail what makes people continue to watch what do we have to do in the show opening to keep people like if you already a popular show I guess you have to worry less about that so i i feel like um youtube is safe uh youtube will be fine they keep having podcasts but they lost a couple of marquee podcast video things i just trust netflix more than any like to handle the current situation whatever happens with them at warner brothers i trust netflix to navigate that better than any other streamer i don't think i don't think you can give the other streamers that benefit it out, even Paramount, with all the stuff they're building. I think they do give it to Netflix. The main point is not that, oh, no, they're competing with YouTube. That's not like breaking news. Like they know who they're competing with. The bigger story is that it's a two-headed monster. Disney hasn't added subs in three years. Paramount, Prime, the free stuff, whatever else is out there. Peacock, forget about it. Like it's a two-headed race. And I don't think that YouTube doing amazing is necessarily like the end for Netflix, hardly. When they announced the bid for Warner Brothers, I sold 85% of my Netflix, not because I think there's anything wrong. I could just picture a year of back and forth about what they have to do to get the deal done. I think there are going to be like political, you know, very public fights about, you know, people that represent the interests of Hollywood guilds like screenwriters and directors and actors. I just I don't think I think it's gonna be super messy. and so I just wanted to not have that dead money. So this is a big difference between me. If I miss the bounce, I miss the bounce. A big difference between me and Ben, I have no patience. So like Ben will wait it out a year and buy more if the stock goes nowhere or down, which is probably the right move, but I like to buy stocks that are going up in bull markets. I think – look, I think – I've sat through a lot of losers too. I actually think it's a good deal for them if they can do it because they end up with a lot of production synergies. and they end up with an incredible library that they can create a lot of new content from. So I think it's a good deal. But from a portfolio management standpoint, I don't want to sit and watch this and trade between 90 and 100 for the next year while we figure out whether or not it's actually going to happen. And so one strategy, and again, if you own it in a non-taxable account like I do, One strategy is to put a buy stop limit at 101, good till canceled, and just leave the cash aside, and your account will automatically buy the stock if it starts to break away out of this range that it's been trapped in. And that way you don't have to guess. You let price kind of put you back into the stock. But so long as it's languishing here in the 90s, I got to be free to do other things. So I'm bullish on Netflix, but not yet, I guess would be the way I'd put it. Can we do Uber? I think this is, the stock went up 35% last year. So nobody would say that it was one of the losers of 2025, but it's in a 18% drawdown right now. I want to read something from Jonathan Boyar, who has this forgotten 40 list. Barron's picked up some of his picks. So he looks at like 40 stocks from the prior year that were forgotten or left in the dust and tries to pick names that will have a better year prospectively. It might seem odd to characterize Uber, whose shares have surged more than 35% this year, as underappreciated by investors, but Boyar argues that Uber trading at 16 times 2026 estimated earnings before interest, taxes, depreciation, and amortization remains a bargain. The consensus forecasts on Wall Street are that EBITDA will increase by 34% this year. That's 25. And another 26% in 2026. So if they grow cash flow by 26% this coming year, and the stock is selling it 16 times, you have to ask yourself, doesn't it seem like everyone just believes automation is going to render this platform worthless? Okay, I was going to ask you this. What else could be happening here? You're the Uber guy. So I want to talk about this later in the show. but I'm in the Phoenix area and I took my first Waymo and it was as magical of an experience as everyone says it is. And I thought, so what happens to Uber in this self-draft? Like, where are they on that? I think like a quarter of their fleet will be autonomous by the end of the decade. Like it's going to be the same thing. But we, we, you trust them to like make this happen because the Waymo experience was, they have no choice. It was ungodly. It's like I was, my kids kept telling me to shut up about it because couldn't stop talking about how cool it was. And once you do it, you go, oh, my gosh, this is like I can't believe we did this. How do they do this? Can Uber do that? Yeah, well, they are doing it. So they have partnership with Waymo in two different cities. So that's what they're going to do? They're just going to partner with Waymo and they'll be the interface? No, they're going to partner with everyone. So the Uber worldview is that what's best for them is for there to be a highly fragmented autonomous vehicle market globally. and it would be great for there to be hundreds of players all over the world. And they partner with as many of the players as they can to bring those autonomous vehicles onto the Uber app. So they're doing it. They've got a partnership in Saudi Arabia that's already online, or UAE rather. They've got partnerships in England, in Germany, here in the United States. They're working with WeRide. They're working with AVRide. They're working with Pony AI. They're working with Waymo. There's a company backed by NVIDIA called Wave in Europe. They're working with them. The worst thing that could happen for Uber is that Tesla and Waymo carve up the whole autonomous landscape because then neither of them need Uber. So what Uber really needs is for there to be this thriving ecosystem of hundreds of players. The Waymo app was very good. I was – I mean I'm setting the temperature before I get in the car. I'm telling it when to unlock. It blew my mind. I'm sure the people who have used it are used to it now, but it is so cool. Holy cow. The other wild card here, the benefit to both Uber and, I guess, to a lesser extent, Lyft, because they probably won't be as good at forging these partnerships, the most expensive part of the Uber ride is the take rate to the driver. If that goes away and Uber is able to successfully incorporate millions of autonomous vehicles into its app, its profitability should skyrocket, even if they have to split that with the providers of the cars. Dara has said that he thinks the way this market shapes up is that the autonomous cars themselves are toaster ovens. Like they're amazing technology now, but ultimately they'll be commoditized. He thinks there will be whole fleets of AVs that are owned by private equity. Private equity will basically treat these like timberland or commercial office buildings. It'll just be a cash flow. The biggest surprise to me that I had no idea that the Waymo cars are Jaguars. It was a really nice ride. The car was really nice. The cars cost Waymo $150,000 each. Do you know how many rides they have to complete? And the rides are cheap because they're doing what Uber did. I couldn't believe how cheap the rides were. For a 20-minute ride to dinner, it was $10 or something last night. So obviously they're trying to get Mindshare, and then they'll jack the prices up. But okay. The other thing that makes Uber shareholders nervous is Tesla. And he's going to have his own app. And Elon has publicly stated he's not doing deals with anyone. It's going to be an all-Tesla ecosystem thing. And he's still talking about regular people turning their own cars into Ubers, which I would take the under on. I think I took the under on Airbnb a long time ago I just didn't think that hotels would be dead And that ended up being the right bet Airbnb has a really nice niche They almost have it to themselves other than Vrbo But like the hotels have never been busier Because not everybody wants that And not everybody wants to turn their home into a boarding house I don't think everybody wants to turn their car into a taxi I know I'm not doing it. So I think they'll have like a selection of the Tesla population that thinks that's really cool. While they're at work, their car is out completing rides. I don't see that being something that like more than 10% of people do. I don't know. What do you guys think? I agree with you. Uber had a good 2025 because it had a really bad 2024. The stock is basically flat since February 2024. So there is the growth story that continues, but investors just aren't buying the sustainability of it. They're just not. And they might be wrong, but that's the story. Adobe put this chart up. I don't have a ton to say on this. I own it. I have a fairly tight stop here. I'm not willing to ride it to new lows. here's another company where the market thinks nobody is going to pay professional licenses for AI creation tools now that Sora and Nano Banana and all these other products are proliferating and I sort of don't agree I think AI is going to become a tool that professional designers use but they're still going to want to pay the they're still going to want to pay Adobe for pulling all those tools together into one ecosystem and having the highest grade professional version. What do you guys think? I agree. I'm in it with you. And I also am not going to ride it much lower, but I think one of the big stories of 2026 is going to be that AI is making these software companies more efficient as opposed to the view that they're going to really eat into their business. So why is it down so much then? Well, because the view, the prevailing view is that Adobe is not necessary if you could code so cleanly on Chad or Gemini or whatever. And I don't, I don't believe that. And the earnings per share keep hitting an all time high, but obviously the market is not buying that either. I only think it would be like the narrative of this story is going to change 10 different times still. Like it's going to go back and forth a million times until people really figure out what's going to happen? Like an amateur person, an amateur person who owns a candle store can go on chat GPT or Gemini and say, create me a flyer for a 20% sale that I'm going to run on my website tomorrow. And they can have it in 30 seconds. And that might've been something that they would pay a graphic designer for. So that's the negativity on Adobe. But I feel like the word of the year, the Merriam-Webster word of the year for 2025 was slop, as in AI slop. And I just don't think that everyone is going to outsource graphic design to AI. If you're making a movie poster for Odyssey, which you think is going to be a billion-dollar movie, like you're you have people using adobe's uh creative suite to produce that like it's a i think there's a professional market that never goes away is that enough for adobe like if they lose for the amateur users of photoshop and all this stuff but they maintain the professional market is that enough have we taken enough of a discount in in the stock to account for that that's the that's the central question around why this thing has sucked so much i i'm not saying i know the answer, but it's in almost a, what's the drawdown here? 45% drawdown. They took half its market cap in two years. So put that chart back up one more time. I don't know. Did it bottom at the end of the year when all the tax law sellers finished and now it could levitate higher? I don't know. It's a tough bet. I'm making the bet, but I'm not very confident. All right, so we have Sean track a basket of all these loser stocks for the year and see if it outperforms. Yeah. You buying a basket of these losers versus the market? CRM, Salesforce. This was a – I don't know. Is it still in the Dow Jones or did they pull it out? Michael, do you know? I think it's still there. They don't let them out that easy, do they? It just got in there. I don't know if it's still in or not. I know they added a lot of other big tech stocks. So, all right. This has been a wreck for a while. It's in a 28% drawdown. In a year where technology stocks, last two years technology stocks have done incredibly well, this thing just seems to go nowhere. It's another name where the narrative is they're going to get their ass kicked by AI. Enterprise users are going to need less headcount, less employees, therefore less seats that they're paying Salesforce for. That's part of the story. The other part of the story is people are going to write their own code, write their own software to operate their businesses. And as a result, Salesforce will have less dominance over the market when companies become more proficient in creating their own workflow, software, et cetera, using AI. They have a secret weapon though. They have McConaughey. They're paying Matthew McConaughey. True, you do have to factor that in. What if the market is right and very early. And this happens eventually in five or 10 years. And the revenue, the business, whatever, continues to grow. But the stock is just dead money because investors are collectively looking out. I don't care about the next 12 or 24 months. The terminal value of this business is a lot lower than it is today This has happened Like we saw this There was a time when one of the best categories of tech stocks were PC makers and Dell and Hewlett Packard And there was a company called Compaq and Intel And there was like this whole ecosystem in the stock market of companies that were highly involved in PCs. And it's not that people don't buy PCs anymore. It's that investors just don't value that business as being worth much. Dell had to go private and then come back out as a public company focused on data center and cloud. At the time they went private, they were like one of the biggest PC makers in the world. Investors valued that business at nothing, like less than one-time sales. It was worse than an automotive business. So there's a universe in which we just decide enterprise SaaS is not worth anywhere near the multiples that people used to pay for these stocks. and that absolutely could be the case. And Salesforce can say quarter after quarter, hey, look, we grew earnings by 10% again. And Wall Street could say, great, congratulations. I don't want any part of this. So I agree with you. That's like maybe an underappreciated risk for not just Salesforce. Obviously, that would have implications for hundreds of software stocks. So I'm with you on that. All right, should we move on? Yeah. What did we decide? We cited none of these. We're giving a great CFA answer there. What's that? What did we decide? I mean, Netflix is obviously the best business here. I don't really care as a long-term investor in the stock, which I'm not. I don't necessarily care what happens in the next 12 months as the overhang from this deal. Is it good? Is it not? Does it go through? What does it look like? All that. In five years, Netflix will be way higher than it is today. Absent a full-blown market crash. I agree with that. I would agree with that. I would agree with that, too. They'd be the safest bet, for sure. Yeah. Yeah. Bankston Mom in the chat is saying Josh is showing his age with the Compaq reference. Oh, I guarantee you most of the people here have had a Compaq at some point in their life. It wasn't that long ago. I was about to throw out the Gateway. Remember that? Gateway. By the way, this is – no, this is NyQuil. Yes, it is. This is NyQuil. I need DayQuil. No, take the NyQuil. Are you sure? Okay. Do we have any meetings later? He's sleeping at the end of the show. I'm going to the doctor after this. Night call without a chaser? That's impressive. All right, chart on. Here we go. Okay. All right, take it away. So, no, I need the chart, please. The viewers need the chart. We need the charts. I mean, take the show away. I know what you meant. Not literally. All right, so chart goat Matt. showed the average stock in 2025, and he broke it down in deciles, which is 10 equal baskets. And he showed what was the 52-week drawdown at the end of 2024. And the conclusion is very interesting. The conclusion is that the stocks that got the shit beat out of them, the worst, in 2024, at least heading into the end of the year, gained 29% on average. And also, on the other end of the spectrum, stocks that were closest to their 52-week high also had a great year, the second best of the deciles. And other than that, like the third and the fourth were sort of no man's land. Like the stocks that were like just sort of whatever, which are some of the stocks that we're talking about, had a horrible year. This is kind of breaking my brain. This can't be normal, right? I don't know. I don't know. What were the stocks that were furthest away? Well, I'm so glad you asked. Next chart, please. Okay. So the Y-axis is how far below the 200-day moving average they were at the end of 2024. Okay? And then this is the 2025 return. So like Dollar General, for example, was in a 30% drawdown. Oh, I'm sorry. 30% below its 200-day. So really extended to the downside. And then it came like 70% in 2025. The names that got even smoked even further. I'm sorry. this is hard to read. SMCI, for example, was down 50% or 50% below. It's 200-day, and it was flat in 2025. Wow. So Micron, obviously, Newmont, Lamb Research, as we mentioned at the top of the show. Right. So the key to outperforming last year was to either be absolutely crushed or be at an all-time high. Pretty much. Very helpful. Let's do the MAG7 chart. Yeah. I put this in here last night. So this is surprising. I think this would surprise a lot of people. So the S&P was up almost 18% for the year on a total return basis. Only two of the MAG7, Google and NVIDIA, outperformed. All of the other MAG7 underperformed the S&P. Huh. Is that crazy? For the year. Yeah. Is it wild that NVIDIA very quietly went up 40% last year? I say very quietly because I feel like it wasn't even controversial at all. it closed fairly close to the high, given some of the carnage that we saw in November for a lot of the AI-themed stocks. This thing was just absolutely fine. Are you guys surprised by that at all? I think it had a rough year, though. It was not an easy stock to hold because it went from 150 down to 85, so a 45% drawdown. Yeah. And then from there, it was game on. It was a springboard straight higher. But then you had a pretty decent sell-off, 212 down to 170. So yeah, guess what? This is the type of stock where it hurt to ride, and that's sort of the point sometimes. Right. NVIDIA up 40%, but still in a decent drawdown from that October. Well, I don't even know what happened there. By the end of the month, it had gotten up to 212, and then in a flash, it was below 200. But doesn't that chart just prove that we never got the crazy blow-off bubble that everyone was waiting for. It just, it never happened. Well, thanks to Sam Altman, it would have happened, or it could have happened, I should say. Yeah, it happened. Which I think is a healthy thing that it didn't happen. Yeah. It didn't even happen in the private market. Like, I think he just, he just got financing at the top of the valuation range or something just happened. I read half the headline. I don't care enough because it's not public stock, but like, I don't even think for all the controversy about open AI, I don't even think it affected their financing in the least. Like, I think they were absolutely fine. So I know we had this kind of blow-off moment in November, but other than for Oracle, it doesn't seem to have changed much. So, all right. What else we got here? Oh, this is a great one. What's this breaking down S&P sectors? This is Duality Research, whose work we reference a lot. They do great stuff. All right. So we're showing the price return. So communication services, let's Google, as we mentioned, technology number one and two. EPS growth, number one is technology, number two is communication services. But then the PE multiple. So tech actually saw the largest valuation contraction, which is kind of wild. The EPS was up 34%, and the price is only up 23%, which is very healthy. Do you guys think most investors are aware of that or no? No. No way. I don't think so either. People just assume, people assume like tech stocks went up a lot this year. Therefore, we must be paying up for them. And it's just not the case this year. And I don't think most people are aware of that. Hang on. 34% earnings growth with all the money that those companies spent on CapEx is kind of unreal. Like all the money that they spent didn't impact their earnings. Yeah. Well, some of them are on the receiving side, in fairness. like NVIDIA is on the receiving side of the CapEx. I put this together. I hope the data is right. I heard a guy from Morgan Stanley saying that the starting valuation for the Mag 7 right now, January 26, is actually lower than where it was in 25. And I was just curious to see that on an individual basis. And I threw in Oracle and Broadcom just for fun. So there's some weird shit. Put this table up. There's some weird shit going on here. So Tesla is obviously a big outlier that's bucking the trend. A year ago, Tesla was selling at 100 times, trailing 12 months earnings, and now it's 300 times. I just think that that's a change in what people are valuing the company at. It's not a car company anymore. It's a robot and autonomous company. And so that would explain why it's selling at triple or multiple as it was. Broadcom was 190 now it's 72 but you also have to throw that out they have this VMware acquisition that did some funny stuff with some of the net earnings numbers but for the rest of these stocks Nvidia was a 54 multiple this time last year it's 46 Amazon was 47 it's 32 Oracle was 40 it's 36 Apple was 38 it's 36 Microsoft's about flat at 34 Alphabet Slightly higher It's 25, it's 30 And Meta, 25 Now it's 29 So for the most part Like thematically These stocks are cheaper On at least trailing 12 months I threw the forward PEs in But that's a tough game to play Because we don't actually know what the real earnings will be But I thought that was an interesting observation. What do you guys think? Let me ask you a different question. If you had to avoid one Mag 7 for the next 10 years, to me it's pretty easy. What is it? Avoid one Mag 7? Yeah. It's easy? Okay, what is it? I think it's Apple. I feel like you've been bearish Apple for a while. I mean, at 32 times earnings, yes, they can still grow their way through buybacks and stuff. But the company is just not growing. Unless there is a story that comes out of nowhere, which obviously that can happen, I think that I would least want to be Apple. I might think the opposite is you. I sort of think of it in the opposite way because I would ask you a different question. Which of these companies' products do you almost know for a fact will be in your pocket and on your desktop in five years? Yeah, but I don't think those two things are in conflict. Apple was up 9% last year, second worst performing Mag 7 stock. Yeah, so I think the reason why it gets a premium is because of what you just said. You don't know anything. Absent a piece of hardware from OpenAI, like a category killer could happen, I suppose, you know that Apple is going to deliver monster numbers. Now, then it's not monster growth at all. Obviously, all the growth engine is coming from services. I just think it's way too expensive. I don't see any innovation. But finish the sentence. The growth is coming from services. Is there any AI service that can survive absent paying Apple the toll? If OpenAI decides we're not going to build for the iOS ecosystem, it's zero. Even Gemini, like people's point of access to all of this AI shit is coming through the iOS app store. and Apple's taking a 30% cut. If you tell me there's a story where that goes away, I'm definitely worried about Apple. But if it's not going away and they actually get their AI act together this year and Siri becomes something interesting, maybe even a competing chatbot, like, I don't know, I feel like the 30% will make a lot more sense if that happens. Okay, so then which stock, if it's not Apple, which stock would you least want to own? Avoid one Mag7, which is if it's not Apple. I don't think this is an easy game to play. I couldn't tell you any of them. Maybe Meta makes me the most nervous just because the competition between TikTok and Instagram will continue. And that's obviously a fight. Meta is not losing, but they really can't afford to lose it. I can't think of Apple competing with anybody in that same way. I would have said meta just for the thickness of social media. Yeah, it's actually miraculous that they have held the attention of people to the extent that they have. And their AI strategy is like in no man's land right now. Nobody actually understands what they're doing or what all this money being spent is doing. But wait, the Reels monetization is going crazy from AI. Yes, one of the best monetized products that has anything to do with AI at all. But don't you think that all the AI bots are going to make social media just unusable at some point? They're going to have to do something to fix that. I don't know what you do. You put a watermark on everything that's created by AI. People aren't going to care. All right. Did you read the assemblies piece to start the year? All right, so this is, I think, for all of our listeners, all our viewers. This should be required reading. I don't want to go deep into it, but I just want to share this one part because I think it's super important for this year. After a rally comprised in equal parts of technological progress, a surge in tech cap spending, and frenzied speculation, we've arrived at the following destination. 65 to 75 of S 500 returns profit and capital spending since the launch of ChatGPT have been derived from 42 companies linked to generative AI Without the benefit of these 42 AI stocks, the S&P would have underperformed Europe, Japan, and China. To reinforce the point, tech sector cap spending contributed 40 to 45% of U.S. GDP growth over the last three quarters. up from less than 5% in the first quarters of 2023. So it's not that there's nothing else going on in the economy besides AI, but I guess my question to you guys is, isn't this still the big risk for yet another year, 26, that the AI CapEx story somehow stumbles or changes? Isn't that like still, if you had to rank every risk out there for investors, isn't that still the number one? of all of the risks that you could foresee this is the obvious answer right but it's yeah no i agree and people always want there to be a new narrative and they want to say something clever but i sort of still think this is it this is the main thing ben what do you think i i start wondering if we're lumping all these into one thing and people want there to be this conclusion right it's either going to take off and change the world immediately or it's going to end and there's going to the bubble is going to pop but why can't it be that four or five of these companies don't figure it out and four or five of them do? And if Google is the one that leads the charge, what if there is no end to the story and it just keeps growing and growing and we don't get a conclusion that everyone wants? Possibly, literally. You stole that from me last week. No offense. This is Semblist. I mean, I literally said that. Did I not? Did I not? You guys talk to each other too much. This is Semblist. In this year's Outlook, We focus on four major moat risks. U.S. power generation. You might have a Michael dream on that one. I don't know. It's possible. China's ability to scale. Duncan, Paul, I received some animal spirits. You were there. All right. We'll get to that later. China's ability to scale the tech moat on its own. China's approach to Taiwan. And then the ultimate profits earned on $1.3 trillion in hyperscaler cap spending. This year looks to be another version of 2025. A 10% to 15% correction at some point due to profit taking. and a growth scare, but then equity markets end the year higher. Even so, it's the right time to start focusing on these questions. So those are like, give me this chart. This is the tech cap spending in 2025 versus the spending on every other major US infrastructure project. So you're looking at the black bar versus like four of these things combined, Manhattan Project, Electricity, the Apollo Project, the Interstate Highway. Anyway, Sembalist is the best. And I guess I still come down on the side of like, yeah, this is still the most obvious risk, but it's also the right thing to focus on. Will this continue or not? And if something can make it not continue, we're going to have problems in the stock market. So. All right. It was another tough year for stock pickers. Only 27 percent of large cap equity mutual funds outperformed the market. Which sounds really bad because it is. Try it on, please, John. Nope. Next one. Most active managers are falling behind. There we go. So not quite the worst year since 07, but not quite. I guess it's the fourth worst year. But in fairness, most stocks did not beat the benchmark. So you can't show this without showing the next chart. 33%. I mean, this is wild. This is just brutal. It's impossible. How do you do this? In this type of environment, good luck. If you're not overweight, the big winners, you're just not going to keep up. So wait, is this less than 35% of stocks had a better year than the S&P? One out of three. One out of three, yeah. So what you do is you change your benchmark if you're an active manager. I'm not tracking the S&P anymore. I'm doing something else. Go to the Russell 3000. I think the key is you just own the 35% that do better than the market. Isn't that the cheat code? We keep saying that this is the hardest market ever to outperform it, and it probably is for the S&P, but throw that active chart back up, John. The numbers aren't that much worse than they were in the 2010s either. This is just – I think this stretch of this past 16 years or so is just trying to outperform the S&P has been almost impossible. That's why we don't have any stories of these legendary investors like Bill Miller or whoever. We're not creating new ones. No, they're not. Yeah, yeah, yeah. No way. Is this just what it's going to look like for the rest of the next 10 years? Will there ever be mean reversion in stock picking? I think at some point there's got to be. Well, how about this? In the market, so Josh said the biggest risk is obviously AI. I think I talked about this with Michael last week. And Michael, in my defense for your AI take, I was five beers in doing Animal Spirits last week because I came from the bowling alley. All right? So give me a break. So here's the return since 2019 for the S&P. We're up 30%, up 20%, up almost 30% again. 2022 is down 18%. but then we're up 26, up 25, and up 18 last year. So we're going 18% per year since 2019. Isn't the biggest risk just – it's mean reversion. Like can we keep doing this for this long where we have returns this high in the market? That's the big risk. I mean that's to me has to be shown though with earnings growth next to it. That's what I was about to say. Because it explains it. If we keep it up, then yes. So if you're going to keep the earnings growth up somehow – Then yes. Then the answer is yes. But if you're not, then it's not going to be yes. But in a vacuum, it does seem like the obvious answer is this can't continue indefinitely. And it won't. We know it won't. But it can continue for three or four more years probably, right? We know bull markets last longer than people say. Yeah. All right. Which IPO are you buying if you had to pick one? We think all of these are coming to market this year. This is also easy for me. Which one you want to own? Yeah. I mean, it's SpaceX, no? How could it be the other two? But at any price? At a trillion dollars? I just don't want any part of OpenAI or Anthropic. I sort of like Anthropic. They are dominating the enterprise AI layer. I think they have more corporate customers than any of the other AI services. I guess it's going to be a tough story because they'll be up against Alphabet. that and it's erroneous yeah they're having success right now but like so what is that sustainable well it's not erroneous it's like speculative that it's sustainable or not i would say and it's i don't know if it is is it too obvious that none of us would pick open ai i think if we had to short one of these all of us would say open ai is that at 500 at 500 billion it seems i'm paying them and I'm frustrated every day. I'm getting a lot done with it, but it's so stupid sometimes that I can't believe I'm paying $20 a month, $250 a year. Sometimes it's so stupid that I'm just like, I got to go to Gemini. I can't deal with this anymore. It wants you to pay $200 a month. That's why. But I don't even know that the results would be materially better. It's like, and then if Gemini... Try it for a month and see if you notice a difference. Why? You're paying the $200 a month? Yeah. What are you getting that I'm not getting as a result of that? That's confidential. $200 a month is a lot of money. I'm getting better performance. You know this for sure? Maybe I'm cheap. No, but do you ever try the old version versus the new? No. So that I can't do. But I've tried it compared to Gemini. And it's... All right. So I'm going to send you a query. I'm going to send you a prompt, and I want to see your result versus mine. I have something very specific in mind. We'll do that when you're feeling better after your NyQuil wears off. All right. So are we all saying that anything but open AI is the – I'm with Michael. I think you have to pick SpaceX. You'd have to. I mean that's going to be crazy when that – do you think that's going to happen this year? He said this year. So is SpaceX happening? I think so. Let me ask you guys a question. What did we not talk about today that you are very excited to see what happens over the next 12 months? I'll go first. I'm going to stick with the private credit stuff and the private market stuff. I am just really curious. I don't have strong opinions here, but I'm looking forward to fast-forwarding. Are you buying some of these stocks? because you've been on this story for a while. Would you buy some of these? Blackstone is one of my largest positions. But what's the thing that you're excited to see that like nothing major blows up and these companies are fine? I'm just excited to follow the story because it is meaty. It is very juicy. The conversions from private to these closed-end funds, I'm excited to learn more about some of the deals that blow up that, you know, there's blowups in public markets too. Like it's inevitable. It's going to happen. So I'm just excited to see if this spreads. And a lot of the fears come true or if it is actually a better mousetrap than syndicated loans, which, by the way, those two things aren't mutually exclusive. Like both things can be true. I don't think the economy is bad enough yet to worry about the whole category. But there are some fringe players who have made promises to investors and to financial advisors that they just can't keep. They were going to be – even in a healthy economy, like the wealthy consumer is spending like there's no tomorrow right now. But Sachs just missed an interest payment and had to file for Chapter 11. So even in a good economy, you're going to have some failures. But I think the fringe players, they're going to experience a lot more failures than a Blackstone will. And that's where the action is going to be. Sachs is a great example. I haven't read the story yet, but I saw that they just raised money not too long ago. And the fact that it's already going belly up, who's underwriting these loans? Yeah. We had a blow up in Boca Raton down the street from me. There's a project called Via Meisner. They just filed for Chapter 11 this week. There's a project called Via Meisner. It's going to be, I think, 366 luxury condominiums in one tower. A second tower is going to have a Mandarin Oriental hotel. And then the two things will be connected by like outdoor amenities and a huge shopping district. This thing is like the size of a New York City block. You can't even imagine how large this project is. And they just filed for Chapter 11 today. And everybody's owed money. Mandarin Oriental is owed a half a million dollars. They haven't paid taxes. The junk bonds or the banks are all owed money. And this is in an amazing economy for luxury spending. What happened? They can't build it. They can't get it done. The financing is too expensive. And I guess they haven't sold enough units. And people that bought the units want out because this has been going on for 10 years. It's like a giant white elephant. So my point is there are always, even in a good economy, there are always going to be failures. the test is going to be the fact that these funds are so widely held by relatively unsophisticated investors who have been sold these things by intermediaries. And that's where I agree with you. It's going to be interesting this year, even absent a credit cycle. It's going to be really interesting to see what falls apart. One more thing that I would throw out is, can international have back-to-back years of outperformance? Everyone's waiting for a recession for these things. Oh, for the private stuff? That was going to be my thing. Well, the international stocks... Sorry. Am I back? You're back. See, this is why you short Airbnb. Shitty internet and the pool heater broke too. No, but I think the international thing we didn't talk about even. No one cares international stocks are up 30% and emerging markets are up 35%. No one cares. So if we get another big year for international and the dollar keeps falling, will people start to care and we'll get a huge inflow of money there? Because no one's talking about it at all. Yeah, it's a really great point. You have country stock markets up 30%, 40%. I think Japan went up 25% this year or maybe more. And you're just not hearing people pounding the table publicly on international stocks yet. Maybe they need two years in a row of good performance before anybody wants to return to that story. Josh, is there anything that we didn't get to that you're interested about in 2026? Probably, but we're at the 1026 a.m. mark. Oh, no. It's 1026. That's the hard stop. All right. Say yes. It's time to wind down. Michael, feel better. I want to say thank you to everybody in the live chat who joined us to begin the new year. Great to see you guys. and we'll be back on all your favorite shows going forward. Thanks to Ben for joining us and happy new year. Happy 2026. Here we are. Thank you.