In this episode, I'm joined by Mark Yusko to talk about Bitcoin, crypto, investing, finding alpha, Anson Dorrance, and a whole lot more. Mark is the founder, chief investment officer and managing director of Morgan Creek Capital Management.
Transcript:
William Jarvis 0:05
Hey folks, welcome to narratives. narratives is a podcast exploring the ways in which the world is better than in the past, the ways that is worse in the past towards a better, more definite vision of the future. I'm your host, will Jarvis. And I want to thank you for taking the time out of your day to listen to this episode. I hope you enjoy it. You can find show notes, transcripts and videos at narratives podcast.com.
Unknown Speaker 0:42
Well, Mark, how are you doing today?
Mark Yusko 0:44
Doing great doing great. And I appreciate you inviting me on the show and look forward to the conversation.
William Jarvis 0:50
Absolutely. Really happy to have you on Mark. Do you mind giving us a brief bio, and some of the big ideas you're interested in?
Mark Yusko 0:57
Alright, so I you know, I never do short very well. So I'm all right. Yeah. But look, I the really short version is I grew up on the other coast, I grew up up in Seattle, moved away in high school went to a bunch of different high schools hated my parents, I've forgiven them now. Kind of actually taught me how to meet people, but didn't like it at the time, ended up at Notre Dame studied architecture didn't like that, switch to pre med decide not to go to med school went to business school, right out of undergrad I don't recommend but for me, it was great because I had no accounting or finance or investment training. And then began what I call a series of happy accidents or divine intervention, whatever you want to call it. So I took a job in insurance company, the guy who was doing investments retired, so I got into investments started doing bonds, very boring, but but did bonds.
Now bonds are interesting, it's all kinds of bonds, bonds and convertible bonds. And it was his treasuries and, and a few other things. But although we did some fun stuff in housing bonds, but then I went to work for an equity firm called disciplined investment advisors got my first exposure to quant and value. And really, I think value is a genetic trait. You're either a value person or not. And that doesn't make you good or bad. It's just different. And I'm a value guy. And so I discovered my genetic bias, and which is challenging at times when you start talking about big ideas, which we'll talk about a little bit. But from there actually got the call to go back to the alma mater, went back to Notre Dame worked in the endowment office, and then came down here in North Carolina, as we both sit here in North Carolina, a long time ago now 23 years ago, came down and took over un C's endowment, and built that up through a series of kind of transformations away from a traditional 6040 portfolio to a more diversified endowment like portfolio had a blast doing that. I used the basketball analogy right my first year down here. Everything was a reverse Tomahawk slam. Everything we did made us look great second year had to do layups, third year, had to take a free throw, not until year forward and we have to take a jump shot. And really by year five, maybe a couple three pointers, but it was super easy early on because we had hedge funds and venture capital and private equity and a lot of fun. left there and oh four started Morgan Creek. We were a traditional Ria and investment manager, consultant advisor turned into a fun fun shop in hedge funds and venture capital. And then I got bit by the crypto light. I should say I saw the crypto like a bit by the crypto bug back in 2013. But I'm dumb, right? It took me four years. Well, to me four years to kind of see what had been handed to me in 2013 by my friend Dan Morehead. And yeah, he gave to me a silver platter and I was not running drugs on Silk Road. photography students. I didn't get it. And it's sad. I was joke I was presented with Bitcoin in the same month as the Winklevoss twins. They're multi billionaires. And I'm not because they saw it. I didn't. But four years ago, I really did get it and started Morgan Creek digital. And now I spend all my time in the digital asset space doing venture capital and investing liquid protocols. So tell you I don't do short. Well, so it is the big ideas. My biggest idea is crypto, right? Yeah. And what I mean by crypto is broad based right blockchain technology applied to value so value over internet protocol is the biggest idea. I think of this century. Certainly the biggest of my Lifetime. It's the biggest wealth creation opportunity I'm gonna see in the rest of my career. And I plan to be around a long time I got a 10 year old, I got to work for a long time. So all that's good, but I think value being bi directional, using a three dimensional ledger, that is blockchain is truly transformational technology. And all the businesses that come up around that are just going to be extraordinary. And again, another big ideas that the internet changed everything for media and commerce. It's great. We use it every day, still a long road to go, lots of opportunity. But blockchain changes financial services because it writes the value bidirectional unfinished sources is big, right? Equity markets, big bond markets, bigger currency markets, bigger derivatives market monster like mind blowing the huge Yeah, and my biggest big idea is that every stock, every bond, every currency, every commodity, every piece of real estate, every collectible car, every case of fine wine, every private business, every wedding certificate, every driver's license, every everything will be digital, all of it. All 700 trillion with a T dollars of assets in the world will be digital, and will trade over blockchains globally, seamlessly. 24/7. borderless Lee in the metaverse, so there, I got all the buzzwords into one big idea. And we talk about anything you want.
William Jarvis 6:36
I love that. I love that. You know, my first question. It's almost a metal level question. I love talking to people like you. You know, I was talking to Anson Dorrance, his son, recently, and one of my big questions I had for him is, you know, how is Anson so good at finding alpha? You know, I mean, so answer towards his uncle women's soccer coach. He's like the winningest coach in all of history. And you know, it's a very competitive field finances. Also, markets are very competitive. How do you go about thinking about finding $20 bills on the sidewalk finding alpha? Is it a systemic thing? Do you think it's just something you're born with? Like you said, like, you know, the value thing, like you're just good at identifying? Yeah,
Mark Yusko 7:15
no, no, that's a fantastic question. And I love Anson Dorrance. He, yes, he is one of the great coaches in history. And to your point, his ability to identify talent, and bring that talent together is almost unparalleled. I guess there is one guy wrestling coach, maybe at Iowa State or something like that, who actually has more national titles than Anson but it's, you know, those two guys are, are just incredible. And it's funny, I had this experience I got to to talk to the other coach here in the Research Triangle, that myth, the legend, Mr. Williams, the legend, and this other guy who because we're hiring this year, who shot up in a I have incredible admiration respect for Coach K. Yeah, I mean, like Duke basketball, because I'm a Carolina fan. Yeah. But but here's the thing. I had the chance to speak to Coach K number years ago. Yeah. And about halfway through the conversations, you know, Mark, we have the same job. Okay, Humor me? What I have in common with maybe the greatest basketball coach of all time, right? I don't get it I don't see. So Well, let's think about it. We both try to identify talent. Okay, we try to recruit that talent. We try to bring that talent together form a team, we drop a game plan, we put the players on the court and we sit down, right? Holy shit, I have the same job as coach. And it was awesome. Because my job to your point for years, I said, the best job in the world, I got paid to talk to the smartest people in the world. And if I couldn't learn something, if I couldn't find some, some great opportunities, and I was an allocator, right, I allocated capital, either on behalf of universities or wealthy families or pensions to other external managers, right. And then I would sit down, and I would let them take the shots. Now, today, I'm a little different now I actually take shots, I by building a team around me, we go out and Morgan Creek digital and we make investments in companies. We back founders, but it's the same process. We're still trying to identify talent, identify alpha, and Anson things that are unique one, right? He has the benefit of pattern recognition. Right? All of life is about pattern recognition. Right? You make mistakes, you learn from those mistakes. It's like Dean Smith said, You need to Ralph, recognize it, admit it, learn from it, and forget it. And that was the other thing that coach Kay said to me that I thought was so amazing. He says yo separates the great players from the average players, right? Like, no coach, unlike me. He says well, the average player are always focuses on the last play. How many times have we seen someone go down, miss a shot, go back and commit a stupid foul? Yep. Because they're thinking about missing the shot. So the great players focus on the next play. They don't even remember taking the shot that they miss Michael Jordan talked about this, because I've missed 1000s of shots. The game's been on the line. I don't even remember taking them. I want the ball again. Yeah, cuz I'm gonna, I'm gonna, I think I'm gonna make that winning shot. But we can't win all the time. But you can't dwell on it. So I have to recognize it, admit it, learn from it and forget it. And so by doing things and making mistakes, and I talked about this all time that winners lose more than losers. Well, losers are so afraid of losing. They don't do anything. They're paralyzed by fear. They don't take risks. They don't make investments. They don't try new things. You know, and they lose. Winners aren't afraid of losing, they try new things. They lose. And when they lose, they regroup, learn, and go out and do something new. And so yes, they may have more losses, but cumulatively the winds, the power law, right, like venture capital investing,
we do 30 investments in a portfolio 10 of them are going to go to zero. Now, if I knew which 10 Earlier, that'd be great, but I don't. So some 30 are gonna go to zero. And that's great. Oh, no, that's terrible. Right? That's great. Because then I'm gonna have another four or five. They're just off the charts. Yes, the power law, those four or five will make or break. So back to your original question. Yeah. What makes Anson so fantastic a couple of things. So one, he has recruited 1000s and 1000s of people and when you're around amazing people, yeah, you can actually tell the difference between somebody who's we've all been there, right? I said, I know in five minutes. If I'm never invest with somebody, really, I've been no jerk rule. If you're a jerk, I'm done. No downtime. Now, I also know sometimes in five minutes, they're right. They have a fast motor. They're super competitive, right? They don't try to make you feel stupid and tell you how smart they are. They can take complex ideas and make them simple. All those things mean, you can tell someone's got energy, you want to be around them. And you watch kids play soccer, and I have a soccer player. I love soccer. Yeah, I grew up playing I wanted to play in college got hurt. Actually, the best thing ever happen because my first semester of college was not so good. So playing soccer probably would have sunk me. But I love the game. When you're watching. You can tell. You can tell. I mean, you can look and in five seconds, you can tell of the 22 players on the on the field. Which one's the best? Like no, you can. Yes, you can. There's just there's that it. Now on top of that, if you do an answer, and he goes out and you watch a lot of games, and watch a lot of players, and then he brings them together. He does this great thing. So if you walk onto his practice fields, there's a bulletin board. And on the bulletin board are these sheets of paper with every girl's name, from number one to number 30. Ranked on all these things, shooting percentage, you know, 10 year 40 yard dash time, first to last. So when you walk in, if you're number 30. You better start working. Yep. And here's the funny thing, right in any group, right? All these girls come out of high school think they are the best in the world. They are because they are the best in their world. Yeah. But when they come together, how we say someone in any group, someone is the dumbest person in the room, or the worst soccer player in the reds. Cool. Can't be me. Yeah, so. But if you're at the top of that list, again, what you what he would see. And what we would see is there are certain people who are constantly striving to be at the top of that list, it really matters to them. And those are the ones you build a team around. So now there's a last piece of it. That is subtle, and he talks about this. And I love the story. So he recruited this wunderkind, this girl from California and she came to Carolina. And the people have to appreciate that this is a team that for you know, close to 2530 years. Almost never lost. I mean, they lost occasionally. They rarely lost. And that's pretty amazing. So he brings this wonder can girl she's the best in the country. Number one recruit comes in first game. Carolina is losing to nothing at halftime. And he's like beside himself, and he's and he's like, comes in and existences What are you doing? I don't remember him. Carlier it she's wide open. Why? pass through the ball. Coach, we hate her. Swimming, you hate her. We hate her, we would rather lose than give her the ball.
He's like, No, that's the logical. Yeah, no, she's the best player said we don't care. You don't like her. And you had this aha moment, that it's more than just skill or talent. It's how people fit in to systems. It's how EQ is, in addition to IQ works into all of this, it was just one of those things. i Wow, that is a powerful, powerful story. So I didn't remember your original question. As I told you, I talked too much. But I think identifying talent, yes. What about reps Gosu. It's about having good coaches. And the thing about coaching, and John Wooden talked about this, is you don't actually have to be coached by that person. You can read about it, right? You want to emulate and have Mother Teresa as a mentor. She asked God rest her soul. You can do that. Pick up a book about her life. Yep. Read about study. Right? Read about John Wooden read about, you know, Coach K, if you like that read about Dean Smith. I mean, read about people you admire, and emulate what they do learn from them. And take those those lessons as coaching. And then it's about deliberate practice, right? The Malcolm Gladwell, she's probably on my shelf back there. It's, you know, people aren't born. Great, right. Some have certain predilections or certain skills or talents fine. But what separates an all star soccer player from the others, is deliberate practice, right? If I go out and shoot baskets all day long, I will just groove a bad shot, because I have a bad shooting four. But if I got to coach three, I'm probably still not going to be as good as Michael Jordan, I might get as good as Shaq at shooting free throws, maybe. But but so you do have to have some natural talent natural ability. And that's the thing is, you can just see it. Right? We meet people in investing or meet people in soccer or meet people in basketball, you can see talent. So long line dancing to what I think is a really cool question about the overlap between all the different worlds whether it's sports, whether it's industry, founders of companies, Blockchain, crypto, whatever, it's all the same, it ultimately comes down to people, right? And having great people that you surround yourself with to build a team. Very cool.
William Jarvis 17:40
Well, and going off that question, you know, you were, you said you weren't the earliest to Bitcoin, but you were you were very early for a professional money manager. That's for somebody that's like, super, super early. Right. And because I think it's still super early on that on that side of things. You know, how sure, were you, you know, in 2017, was it something were you looked at, you know, when you were sitting there, you're like, you're this is this? Is it? Or was it like, you know, I don't know, like, there's probably a 25% chance this takes off. And, you know, it's out really thinking about
Mark Yusko 18:10
great question. So look, again, I have been very lucky slash blast, although I do believe in TJ Thomas Jefferson's line. I'm a great believer in luck. I find the harder I work, the more of it I seem to have. Right. So I do like luck. And I do think I work pretty hard. And some of my might be that I attract some some good fortune, some Yeah. What a fortune favors the bold, so are brave. So I've been just really lucky, right? I've been in this place. This job, where I got paid to allocate capital to great investors, and happen to get just by happenstance, get involved venture capital, early on, back in the mid 90s. When I was at Notre Dame, Scott Malpaso, great CIO. And I went out to California, and we hung out for a number of weeks, and we tried to build these relationships and, and venture capital was a thing, but it wasn't like the thing. It wasn't. You know, Kleiner wasn't a brand name, and Sequoia wasn't a brand name, like Sequoia was breaking up, Don Miller and hired Moritz. Michael was a Wall Street Journal reporter he'd never done a deal. The other partners were like, Don, what the hell? What are the we're the future? Why hiring? Yeah. And for whatever reason, Don again, God rest his soul. We'll never know why. Maybe somebody does. No, I don't know why he hired Michael. Yeah. And these other guys left. No one's ever heard from them again. And Michael and Don did a few good deals. Yeah. Well, the second deal was Google. And I actually remember can you learn from your mistakes? I remember questioning. What do we need Google for? There's Augusto there's web crawler, right. Yes, competitors, right. Eve's what do what do we need go Before I didn't understand, like today, most people have no idea. Now there are 1.7 billion websites in the world, Google owns half of them. And why? She says, Well, because every time you type in a question into Google, if it's never been asked, it creates a new website. And that puts all the data to answer that question on that website. So it doesn't have to search the whole web. It knows exactly where to send you as you're typing your question. Yeah, genius. Simple, genius. But I didn't think of it. And so, you know, we put half a million dollars in this little company called Google in 1996 or seven, and it turned into $100 million.
Unknown Speaker 20:36
Jesus. Oh, yeah.
Mark Yusko 20:39
There's a quad at Notre Dame called the Google quad. I'm like, Yes, this is cool. All right. So luck sitting in the chair, saw that happen. And we did again, with eBay, remember a board saying what you want to invest in a garage sale company? Right? There's 100x investment. I mean, really good. And it was more than garage sales. Right? And, and so I had this aha moment. And now I've crystallized it into this stick that I talked about that. Look, I grew up in Seattle, as I said, my dad sold and installed mainframe computers. And what most people don't understand and give us a super long way of answering that question. No, it's great. I promise I will get there. So the future the center of the universe was not Silicon Valley in 1950. It was route 128, Boston. And so company Digital Equipment Corp, was backed with $70,000 of venture capital for some Boston venture capitalist. And they brought mainframe computing in 1854, from governments to companies. Really big deal. My favorite part is, you know, Popular Mechanics said that they could envision a day when someday computers would only weigh 3000 pounds. Okay, little Yeah, overestimate or underestimate there. So. So, Dec. And Wang, and all these companies got started. And they brought computing to business. Then, 14 years later, there was an innovation out in Silicon Valley. And there was this amazing movement of the nexus to Silicon Valley and DARPA, and this microchip and Fairchild Semiconductor. And this little company called intel that you might have heard Don Valentine invested in Intel, the rest is history. And then 14 years later can why it's always 14 years. My thesis I don't know exactly. But I think the thesis is because young people always invent things, because they don't know any better. They don't know that that won't work. So they try things. Yeah. Like Larry and Sergey, or Marc Andreessen, when he was 19 years old. Yeah, Team browser. And so I grew up in Seattle, moat, many, not most, many of my friends don't have to work anymore. They were smart enough to go to work for a company called Microsoft. Yeah, I wasn't that smart. I was defend myself saying, Look at the picture of the original microsoft 11. You wouldn't blame me right? Now they're all multi billionaires. And I'm not commenting here. But I didn't do it. And to your point, I didn't see it. It wasn't clear to me because I wasn't focused on it. I wasn't thinking about it. I wanted to be at that time. I wanted to be a doctor. I didn't really think about it. And long story short, Steve bombers mom quoted the guy from Dec, saying no one would ever want a computer in their house. Honey, why would you go to work at that company? He has 18 billion reasons why he was right mom drunk. Now he can't dance. If you've seen the video. AND gates dancing. It's hilarious at the DevCon. But 14 years later, I'm at Notre Dame, we make the investment Google pretty good. 14 years later. Okay, that was the internet then the mobile net. Now the mobile net was big, right? Really big. Yeah. And I remember being back in Seattle at Craig macaws family office, and he was famous investor in cellular technology. And asked his famous guy, you know, do you think the mobile net is gonna be as big as the internet? Check mark, your kid may ask you they want a computer like yeah, whatever. You want to phone? They already have to. I don't need another one. Right. So yeah, the mobile net was bigger than the internet and it changed everything in media and commerce. Now we're on the verge of the trust net. So to answer your question 2013 2009 I know about Bitcoin. Yeah. I was not Brock Pierce, who you know, 10 years earlier created virtual currencies and World of Warcraft with, you know, money that you could pay online to each other, you know, natural for him in 2009 to see Satoshi Nakamoto whoever he she they is as this great thing. And Bitcoin. I wasn't there. Even 2010 11 Wasn't there. John 13 Dan Morehead My friend says Here it is. I'm gonna spend the rest of my career on Bitcoin and blockchain infrastructure. Oh, infrastructure. Oh, I see that. I was 100% convinced in 2013 that infrastructure, the picks and shovels behind the technology was going to be big because I'd seen that movie before I'd seen it in the night in the 2000s. And that was easy. But the Bitcoin thing, here's what happened. So my friend tells me to do it. He's putting money in it. Some smart people I know, are putting money in. Oh my god, I should I should look at this. Back then it was hard, right? You actually literally I'd meet someone on the corner, and it was money and there was like $5 wrench, wrist. You know, like, mark where
it was hard. Doing hard things as hard. So I thought about it, but I didn't really do it. And so in 2014, I wrote to my investors. Yes. This is interesting. Yeah. 500 bucks. Put a little bit in try it out. Yeah. And well, I got hate. I mean, really hate, like, will fire you stop talking about that. Go back and do your job. You're an idiot. Whoa, whoa, whoa. Now? I'm a logical rational person. Yeah. An economic actor. My clients telling me don't pay attention to that. Lots of investments to make you Okay, fine. I wanted the price went from 500 to 186. Over the next six months. Yeah, I can see there. Right. Yeah, cool. Then it goes to 1000. They're not? They're not right. So in 15. So I have a unique family. So two older kids, and then the 20 years younger, but my middle son had always want to live in San Francisco, hold up. And I said, Okay, fine. One word, not plastics like undergraduate but blockchain, go to San Francisco. Meet with Dan. Go work at Coinbase. Yeah. Alright. Check it out. And he goes, checks it out. He's like, you know, Dad, maybe it's gonna be a big deal. I don't know. I'm just gonna go to KPMG. It's safe. Guess me San Francisco where I want to live. Now, so you're gonna hate it, but whatever. So he does that. And he did hate it, by the way left after nine months. But the rest of story is kind of funny. So when Coinbase went public, we had a little chuckle. Like, I find out you're right. But you're not smart. You think you're you tell I told you go to coin. Like yeah, but you didn't lever up the house and put on Bitcoin, right? Yeah, that is true. So, you know, again, no one's crying for my son. He ended up working at snowflake and he's doing great, but because he got to San Francisco and yeah, the universe, but to tangibly did I see it? Not until 2017. So 15 Tell my son to go work? Did I go work? No, because I had these clients tell me don't do this. Right. And it started to move a little bit. In 2016. I was like, okay, yes. And actually got some of our clients to buy a little bit, start looking around some other stuff, do some infrastructure. But then a really smart friend of mine said, No, this is stupid. The fork is gonna kill it the hard fork, you need to run away. And I'm not a techie. And he had this techie friend. And they're like, they were very compelling. And yeah. And I listened. And I didn't dive deeper. So I didn't do enough work to really overcome a smart person that I respect saying right now I do. So I didn't pay attention. So but in 2017, I had my aha moment. And I wrote about this, I wrote this long letter about driving an RV actually lives in Eureka, California, which I could not make up. That's great. I had my eureka moment. And it hit me that blockchain was an operating system. Right? The same way that COBOL is the operating system for mainframes, Spark workstations, for mate for microcomputers, DOS and Windows for personal computers,
TCP IP for the Internet, iOS and Android for mobile net. And now blockchain for what I call the trust net. And boom, I mean, literally, I couldn't unsee that this makes sense now that I was all in and, and what I know for me all in is not all in right, like for me, it's okay, now I'm gonna put money in Bitcoin. I'm gonna put mine in Aetherium. I'm going to, I'm going to start this firm called Morgan Creek digital. Yeah. And I'm going to go from spending 0% of my time in 2013. To today, now, it's eight years. It's a long time. Yeah. Now it's 100%. This Well, what about all your other businesses? Like? Yeah, they still exist, but I got good. not so young anymore. Guys who are running those businesses and hedge funds and China and venture capital. And I am all in on this. And so that's a really, really, really long way of saying, I didn't see it right away. Yeah, I started skeptical. Now, here's the thing. Every person I respect, started skeptical, because it is normal. To be skeptical of things that are new, right? Well, Duran says every custom begins with broken precedent. Yep. So when everyone believes something, and you tell them when everyone believes The banking system has to be at the core of the financial system, right? It's worked pretty well for 800 years. Okay. And the last 100 worked really well for the Fed. But now, it's over a bit like what are you talking about? It's over, it's over. We don't need a trusted third party anymore. In the middle of value transfer. We have code. And really cool analogy. And I think I think pomp actually gave me this. That said, you know, when you get lost, do you stop and ask directions? Or do you look at your computer? I mean, your your phone? Well, definitely, you don't stop and ask directions in the south, right? I'm not from the south in here. Say, Well, how do I get a go to where the general store was, and take a left and then go to where the oak tree was? Yeah, guys, I haven't lived here since the 1600s. I don't know what that is. So I trust code and code. Operating systems are very believable, and now to not embrace that, right? It's, well, I that's the long answer to your question.
William Jarvis 31:09
I, you know, I really love that story. And like how you built convinced eviction, from, you know, the beginning, first lining up, Bitcoin, and all the way through. And I'm reminded, you know, when you first told, you know, some of your clients, you should go out and buy bitcoin, they're like, this is stupid. It's very similar to you know, Jim Cramer in 2010 was like, just buy Fang, if you had bought thing in 2010 to 2020 would have to next your money. And so it's like almost a very similar like, it just seems like you like they, sometimes people get the sense you haven't really done your homework and like, that's stupid. But in reality, like some of the things that don't sound, you know, like, the smartest, most complicated things are actually really good investments for that reason really
Mark Yusko 31:47
get us really insightful point in that a lot of times people give you an answer quickly, right? And you immediately discount that, because you're like, Well, you didn't work very hard for even working women. No, no, no, no, you don't understand that this happened to me and right after the global financial crisis. So you know, prices just collapsed. And there's all this distress stuff. And this, this investor says to me, so So who are the best distressed debt managers? I said, name three. Oh, that wasn't that. Why should I pay you for that? Are you kidding me? Because it took me 20 years to be able to give you that answer. 20 years ago, I made these five mistakes. And then 10 years ago, I made these two mistakes. Now, I actually know through trial and error, like the who the best players in that particular field are. And yeah, that wasn't easy. It sounded easy, but it wasn't easy. It's to your point. It's kind of like when something is simple. It's never easy, right? It's simple to say, big tech. Fang was a really good investment. Yeah, 10 years ago, I use the example of Amazon versus Bitcoin. Yeah. People say, Oh, bitcoins too volatile. I don't want volatile. Really, you do realize that Amazon stock and Bitcoin have the same volatility? At exactly the same. It's great. Amazon has compounded for 24 years at about 113% Bitcoin for 13 years at 212%. Same volatility 80. Because you can't compound triple digits without 80 Vol can't do it. Right? I can't. Yeah, absolutely. Right. Right. There is a relationship and linear relationship between return and volatility, there just is you want no volatility, put your money in cash and lose the relationship. But here's the interesting thing. The volatility is not your enemy. It's your friend, in fact, I just teach teachers is embrace volatility, what you want are volatile assets that are uncorrelated with other things. And so the simple strategy was to buy Amazon 24 years ago, and hold it to today. And the problem with that is every year in the last 24 years, including you to have to deal with that a double digit drawdown, double digits, the average of all those 24 years is 31%. Five times last more than half its value. Twice last more than 90% of its value. But when was the last one was the good time to sell Amazon. That would be never Yep, who bought it at the open and held it to today. There's four now I just learned five people, Jeff, his mom, his dad, his ex wife and Bill Miller. That's it. That's it. That's it. There's no one else and maybe there's one or two others but because that volatility is so but if you're a believer in the long term vision, right, Jeff? One of the great visionaries of all time. I mean full stop. Yeah, we took a simple idea it's a funny story because I grew up in Seattle right and yeah, drove across country. Right quit his job at Isha do cross country and crashed on the couch. Of this friend of and said, Hey, this guy's big stock brokers, can I go pitch your clients? And his pitch was so awesome. He's like, Well, I have this idea. I want to sell books on the internet. We're probably going to lose all our money. It probably won't be a very good investment. Yeah, I really like you to give me $50,000 Oh, god, that was the pitch. Like, you're probably gonna lose all your money, but give me and he he didn't raise very much money, but my friend did give him 50k which turned into $300 million. Awesome. Awesome. would be more if he didn't sell it. But yeah, but still awesome. Yeah. And there were times when Jeff was really cool. I remember I don't know it was 2005. Maybe there's an article in Businessweek Hey, Jeff, go mind the store. Because he wanted to do AWS and they're like, Yeah, what do you know about computers? Go go sell books. Go mine the store? Right? Hmm, maybe AWS is a good business. I don't know. Yeah, pretty good
William Jarvis 36:02
business. Oh, man. That's very interesting. Do you think generally, people would be better off you know, paying less attention to the day to day movement of prices or just in just like, you know, holding for the longer term?
Mark Yusko 36:14
Oh, prices a liar, famous line that I stole from John Burbank. Yeah, I believe Picasso was right, good artists borrow Great artists steal. And after a long time, I just stopped attributing it to people but John gets credit for that when John's a good buddy. And look price. The daily price of Bitcoin in particular a theorem is totally meaningless. It absolutely completely meaningless. And people should not pay attention to it at all. Because all prices is the the value of the price at which two people agree to exchange a small amount of good or service. That's what prices us use Microsoft stock. If you want to trade you and I want to trade 100 shares, yeah, price that we see on our computer right now. That's the price. Yeah, we want to trade a million shares. That is not the price, the price will be significant lower. If I had 10 million shares like Bill Gates, that is not the price that you couldn't trade 10 million shares right now. So price is not value. Value is what creates over time price is what people agree in the public marketplace to exchange goods and services. And all that matters. With Bitcoin Bitcoin in particular, right? Bitcoin is the most powerful computing network in the history of the world. 1500 times more powerful than the CERN supercomputer. It's the most secure computing network in the history of the world. Been up for 13 years had been down for like 22 minutes. Not one fraudulent transaction. I ask people all the time. What is the last time you had to get a new visa number? Yep. Because visa. Right. It happens all the time. Yep, maybe once every couple years. But here's the thing. They get attacked 30,000 times a day. Like well, how do you know that? That's there. That's like 85% of statistics made up on the spot. Now that's actually a real number. My son was the auditor for VSA. He hated it, which is why quit and they get attacked 30,000 times a day. Now most of them fail. Because it still runs on a mainframe. I love this, right? These are runs on a main. They say it's actually a moat because most people don't know how to hack COBOL. That's awesome. Problem is it breaks, we have to turn on a light the Sunnyvale retirement center and get an 80 year old computer. Which is not a lie, right, my 83 year old dad can still code COBOL most people can. So the reality is that VESA chose fast in computing, you can be fast or secure. Never braid out. Right straight off. It's like building a house, you can have good fast and cheap pick two, you can have a good and fast and it won't be cheap, you can have a good and cheap and it won't be fast. You can have it fast and cheap, and it will not be good. So pick two and, and five, you know, suits or anything that needs to be made. That's the same thing, you know, pay for quality, right? But the key here is, if you think about Bitcoin, it is slow. Yep, that's a feature not a bug, because it is incredibly secure. And so as a base layer protocol, on which other things will be built, it's perfect. And owning a piece of that network is maybe one of the most important things of our age, and why people think that the daily price matters at all. I don't understand. All the daily price does is determine how much you have to pay to get another bigger share of that network. And there's anything is funny, I was on CNBC, I don't know 2018 Something like that. And literally from the time I was about to go on to the time I went on price went from 8000 I mean 10,000 to 8000 Yeah. 20% in 20 minutes. Yeah, I get on a Melissa's like, oh, you know what?
Unknown Speaker 40:07
I got the big dish on that. Yeah,
Mark Yusko 40:09
this big this big drop. Yeah. And it's funny because I didn't plan this but I said, buy it. Yeah. And they all looked at it. Buy it, buy it today or tomorrow, buy it next week by next month. Don't buy it all at once, by a little bit now a little bit, then a little bit there. That's what we should do. We should be accumulating ownership. Because here's the thing in the internet, right, Vint Cerf invented the internet. Yep, that did TCP IP, in the 70s. But it took 20 years for Tim Berners Lee to come along and actually create the internet. Right. And then it took Al Gore to work with Congress to get a law passed that allowed the Internet to flourish. So owl didn't invent the internet, but it gets a little bit. But Tim Berners Lee actually invented or built the World Wide Web. Now Vint, and Tim are not rich guys. Why? Because they couldn't own TCP IP capturing. Couldn't own WWW dot, which is what Tim Berners Lee created. Now the cool part is Tim turn that 9500 lines of code, right, that created the first web page. Yeah. And just sold it for $5.4 million. Awesome. So there's a little richer, which is good. Yeah. I wish I would have bought it. But I Yeah. So. So the amazing thing is all the value went to the applications. Yuck. stole the idea from Winklevoss guys and said, I'm going to build an app free by way, it's free. You're the product. Yep. And then I'm going to take all the data, and I'm going to sell it, I'm gonna monetize it. But I don't have to pay to use TCP IP. Just kind of crazy. Yeah. Fast forward to today. All the wins, right? We invested in Coinbase and block phi and figure and yeah, Gemini and, and eToro. And all these great businesses. And we've made very nice returns for our investors. All of us os a16z paradigm, Blockchain capital Panthera have backed roughly $300 billion worth of companies. Awesome. From zero to 300 billion. Awesome. But the protocols are 3 trillion. Yep. Exactly. So whereas in internet 1.0, there was no capture at the protocol ever. Let protocol level? Yeah. Now 90% of the capture is at the protocol level. So owning those protocols has to be part of your portfolio. And this whole eight, that's my whole thing about hashtag get off zero. You can't have zero exposure. But you're all the volatility Oh, the volatility? No, the volatility is your friend. Yes, Bitcoin is 0.0 correlated to bonds, and 0.15 correlated to stocks. So when I add it to a portfolio of stocks and bonds, my portfolio gets less risky. Yep. Not more risky, less risky. Markowitz won the Nobel Prize. Yep, hard to understand concept. If I take cash, and I had bonds, which are riskier than cash, my risk goes down. And then I had stocks, my risk goes down. No, yes, that is the genius. And that's why people get Nobel Prizes, because they are genius. And if we just embraced these simple ideas faster, we'd all be much better off. But it's hard, right? Because we have to embrace ideas which are counter to what we've been taught or sold or right hold for so long. Absolutely.
William Jarvis 43:48
Do you think Bitcoin, you know, especially the, you know, we just talked about don't worry about price, but I'll come back to price for a second here. Do you think the relative price of Bitcoin you know, we've seen this huge bull Bull Run recently? Does it say anything about our current fiscal policy or monetary policy here in the US?
Mark Yusko 44:05
100%? That's the other thing, right? One Bitcoin equals one Bitcoin. Right? That's not going to change. What does change is the denominator? So back in 2018, he was oh, yeah, this huge bear market prices went down. 84%. Yeah, yes, if you're in the United States, not if you're in Argentina, there was no bear market, because they could only buy local Bitcoins. And the prices kept going up because the peso got devalued right over and over and over. So what people forget about is when the price in the price relative to some other asset changes, it might be that your asset is getting better or that the other asset is getting worse. money illusion right. Stocks make a new all time highs, fangs new all time highs. No they're not. If you denominate them in fed balance sheet flattens to nominate them in gold which is real money? They're dead flat since 1996? No, no, no, it's because the dollar had been D that we created 40% Of all the dollars in the history of the Republic was 255 years in the last 24 months. Insane. Really not be surprising that in our backyard here in North Carolina housing prices are up 30% It should not be surprising that the price of a cup of coffee is higher, or air travel or whatever it is. Okay. That is not inflation that people keep telling me that is devaluation the currency, the government is debossing the currency because it's their only way out of the massive debt problems they have, you can't have $3 trillion deficits, right? And actually pay it back. You can't. So you have to devalue the currency. And so there's no question that owning an asset like gold, or Bitcoin, which are perfect stores of value. Now, but wait, gold prices are down this year? Yes. Because JP Morgan is allowed. Right? This is crazy. They're allowed to manipulate the price. They just got found guilty by the Department of Justice it to pay $60 million on 20 billion in profits. I would do that all day? Yes, absolutely. He would let me make $20 billion of ill gotten gains and only pay 60 million with without admitting guilt. I love that part. Yeah. You're the Department of Justice, and not admit guilt. But so gold has been corrupted, be by the futures market. Now the problem is, I think the same thing is happening to Bitcoin right now. There's a reason that they approved a futures based ETF not a spot based ETF, because a futures based ETF does not change the demand for Bitcoin, it changes the demand for paper, and paper can if the banks get on the other side, change the price, and then people who actually own real Bitcoin might react to that change in price back prices a liar and sell their Bitcoin. And I asked this question all the time on Twitter, if you're getting ready to panic sell, think about it. For every sell there is a buyer who is on the other side. What do they know that you don't know? So it makes no sense in this environment to sell because paper prices are pushing down the price in the short run. But here's the problem, a whole bunch of people who don't own it to own it. They own it as a speculation. And they put leverage on it. Yeah, so someone in my family who shall remain nameless called me and said they stole my bitcoin. Who are they? Yes, there's well, you know, it was on this, this this firm over in China. And I levered up, I Oh, no, no, no, they did not steal your Bitcoin, you lost your big margin call. But putting an 80 Vol asset into an account and putting 50 to 100 times leverage on it.
That is dumb. It's just dumb. It doesn't mean it can't be smart, was never smart. But it doesn't mean it can't be profitable. Yeah, in the short term, certainly it can. And we saw that in January, February when the price was going straight up. And then when the fraudsters hit, whether it's Michael Burry, or Elon, and we had to wipe out, and we wiped out of the 1.7 million accounts, and then three weeks ago, we wiped out another million accounts that were over that now, we still have too much leverage in the system. And there's still too much manipulation going on in the futures market. So I still think we're probably going to be in a bear cycle for a while, which makes me happy, like we talked about makes you happy, like, Well, I used to buy more at cheaper prices, because I want to own an increasing share. And I'm still young guy, right? I'm old, I got gray hair, but I'm still young, and more of my money is going to go in prospectively than retrospectively. So I want actually lower prices. At some point, I don't want. I want a series of lower prices in an upward trend, which is what we have right in every year except one of the 13 years that bitcoins been around. We've made higher lows. We had one year 1516 where we went down like 5%. Yeah, but every other year, it's been higher low. What does that mean? That means usage is increasing means adoption is increasing, it means the value is accreting and that value is what matters. And the value follows Metcalfe's law follows this parabolic curve. And, you know, there are a bunch of models out there out parabolic Trav had one back from 2014. That one's been modified now by Tim Peterson, who I think his model is really the best because it has a better decay factor. You know, paragraph traps that we should be at 100,000. Now, Tim says we should be around 38,000 So we're actually a little above fair value by the end of this year. We no one likes to hear that. that, right? Because stock to flow model says, you know, 100? Well, stock to flow is missing one thing, I think and look, I think Plan B is awesome. I love the fact that he put this model together. And it's been very accurate up to this point. But I think it's missing one thing, which is the impact of what you talked about the fiscal devaluation of the currency. And so if you modified for that, I think you would see a different level. But long term, I saw this great thing. So I was down in are over in Vegas this past week for the real vision. Take nice and 350 You know, crypto people, mostly NFT people and Metaverse, people, which is cool, not just all Bitcoiners Yeah. And I saw this great thing Brian Estes, who has become a friend runs off the chain capital, just amazing, amazing guy, credible, inspirational story of what he's overcome, and how he's built his business. Unbelievable track record. And he showed this model that was awesome. The best model for predicting the price of Bitcoin, which makes perfect sense, is how many ounces of gold it takes to buy bitcoin. And if you think about that, well, we call it digital gold. And gold is the perfect store of value versus the devaluing currency. So the fact that it has 99% accuracy is awesome. Now the amazing thing is by 2029 I think it was 2029. I'll go back and look, but I think it was 2029 it actually says that at the at the rate they're devaluing, and debasing the currency, that a Bitcoin be worth 18 million, and everybody was like, oh, that's stupid. That's ridiculous. And like, just do some math. If the relationship holds, which I actually think it will, and I'm not predicting we're going at night, I think we're going to gold equivalents. Yeah, I think that makes sense as a million dollar Bitcoin over the next decade. I think that's a shoo in. Absolute shoo in. And beyond that, the model is very compelling off to check the date if it was 2029 or not, but it was it was a big number. I love that.
William Jarvis 52:16
I love that. Mark. We're running up on time. Do you mind if we do a quick couple of overrated or underrated software? Okay, tell me whether it's overrated or underrated maybe a sentence or two. Why. So, let's see. Modern monetary theory overrated
Mark Yusko 52:32
overrated dumbest idea in the history of dumb ideas, economist mean economics called science it's just a series of opinion after opinion that it's a new one. So long story MMT. Really bad idea. I call it modern monetary theory. Yeah, it's a silly idea. Silly proponents. It's it's basically just code for devaluation of the currency and the dictator playbook. So wildly overrated. I love that.
William Jarvis 53:04
Inflation today. Is it overrated or underrated?
Mark Yusko 53:07
Overrated. It is definitely transitory. It's, you know, the current numbers we're seeing are basically oil prices and just car prices because of supply chain disruption, and the silly lockdown measures for the COVID. So I think long term we're in a deflationary spiral. Gotcha is the devaluation of the currency. And the best writer on this is Lacey hunt at a firm called Van Hoisington. And anyone who doesn't read his query letter should, and he finishes every letter with either stay long, long bonds. He's had one trade in 30 years long, long government bonds, he's outperformed stocks by a wide margin, like being long a dozen and didn't do anything just plays golf and and so that's a must read and once he changes his mind, if he ever does, then we'll have a different story about inflation.
Unknown Speaker 54:00
Gotcha. And bonds overrated or underrated right
Mark Yusko 54:03
now. I think overrated in that people should other than long duration treasuries. People shouldn't own any bonds shouldn't own high yield bonds shouldn't jump, you know, traditional corporate bonds. Everything's over levered. Consumers are over levered companies are over levered. And the risk of those assets, you're basically buying equity in wolf's clothing, right. So I think there are many better opportunities we run a fund called SPAC plus where we use Spax and do the arbitrage of the treasury pool, plus the warrants to make you know, eight to 10%. That's way better than cash and bonds mean orders of magnitude better than cash better.
William Jarvis 54:46
Definitely. The first sufficient market hypothesis overrated or underrated,
Mark Yusko 54:53
underrated but misused. Markets are incredibly efficient, long term. An incredibly inefficient short term is kind of like price and value, right? I mean weighing machine and voting, right? The idea that markets should be efficient day to day, minute to minute, no, of course, they're going to be inefficient because now there are humans involved. And there are machines and bots and all kinds of crazy stuff. So, but over the long term markets actually are quite efficient. And that's why I believe everything should be market based, right? The Fed should not manipulate interest rate, we shouldn't manipulate wages, we shouldn't have minimum wages, let the market determine. And price fixing is bad. No matter what price you fix. That is a bad decision. Markets are efficient. And capital markets are very efficient, doesn't mean there aren't inefficiencies. It doesn't mean they're dumb people do dumb things, or even smart people do dumb things from time to time. But long term. I think the efficient markets hypothesis makes sense, but not shorter.
Unknown Speaker 55:55
Gotcha. Chapel Hill, overrated or underrated,
Mark Yusko 55:58
totally underrated and Al Nasta. It's not true. People who live here, appreciate it and understand it. I think you got to break it into things. So the town of Chapel Hill is a very nice town. Yeah. And I think if you're young and single, it's a tough life. Because it's it's really not. It's not a vibrant Hip Hop fantasy like Charlotte or, right now, Austin, Texas. If you're a young family or an old family like me, it's awesome. I love it. Because it's international people from all over the world. You have the vibrance of new students coming in every year. You got great restaurants and a great pace of life. So love Chapel Hill, the school. Awesome, right? Think about this. How many schools public universities in the country get 10,000 applications for a couple 100? That's not done zero. Like every time I meet someone from out of state who comes to you and say I'm not your valedictorian. Like how did you know that? Right? Pretty much the only way to get it unless you're an athlete. Yep. And it's amazing. So I I'm all in on Chapel Hill. I'm big fan of the Tar Heel blue.
William Jarvis 57:04
That's great. I love that. Well, Mark,
thank you so much for taking the time to come on. I really enjoyed conversation and learned a ton today. I really appreciate it.
Where should we send people like on the internet to find find you?
Mark Yusko 57:15
I'm easy. I'm loud. So at Mark, use go on Twitter. That's where I live. And people say I spend too much time there. I I love it. I mean, it's the it's the best place to test ideas. You know, throw something out there. And if everybody agrees and like, that's not probably not right. If everybody tells me I'm a freakin idiot, like, I'm on to something. Yes. One of my things about investing. If you make an investment and you feel good about it, yeah, you're probably gonna lose money. If you feel really good, overconfident or lose a lot of money. You feel sick to your stomach. You make money. If you feel really, really uncomfortable, you make a lot of money. And life is way better outside the comfort zone. So So do that. So at Mark yusko is easy. I do answer DMS occasionally. I'm bad at communication. We're also at Morgan Creek cap ca p.com. And we got a bunch of letters and videos. If you go on YouTube and type in around the world with Jusco, our YouTube channel will pop up and we do a weekly series of webinars on different topics. We did one yesterday on Spax. I also did one yesterday, kind of recapping everything we've talked about this year, from MMT to network effects and Metcalfe's law. And so those are out there on YouTube. And then that's probably it. Other than that, you probably find me. Believe it or not, this weekend hanging around poker stops around your hunting grounds at Southpoint Mall. So my son and I will be out chasing Pokemon tomorrow for Community Day. So
William Jarvis 58:58
good stuff. That's awesome. I love that. Well, thank you, Mark. I appreciate it. We'll put those links in the show notes.
Mark Yusko 59:03
All right. Thanks, man. Appreciate it.
William Jarvis 59:12
Thanks for listening. We'll be back next week with a new episode of narratives.
79: Bitcoin with Mark Yusko