Brad's Brief - Elon on Clubhouse, Disruptive Innovation, Robinhooding, and Billionaire Influencers
Hey everyone,
The past week and a half in the stock market have been insane (hopefully you made some money on GME). We've had short squeezes, gamma squeezes, Portnoy losing $700k, u/deepfuckingvalue in the Wall Street Journal, and Robinhood uniting AOC and Ted Cruz. Let's just say that the sequel to The Big Short is going to be epic.
This week's brief is PACKED. I have included some of the best resources to understand the GameStock/Robinhood saga and combined it with some great evergreen investing and creator economy content. I hope you enjoy it.
If you have any feedback or find anything interesting, hit reply!
Brad
What I'm reading
Robinhood Robinhooded Robinhood by Packy McCormick
The delicious irony of last week is that by encouraging so many of its customers to make risky trades on margin, Robinhood Robinhooded Robinhood. It took on too much risk itself, got hit with a margin call of its own, and was forced to reveal whose side it was really on - its own. Them’s the breaks.
There were so many great articles and essays related to the GameStop/Robinhood frenzy this past week. But this essay by Packy McCormick was my favorite. In it, Packy lays out his argument that the Robinhood situation was 100% inevitable. Robinhood was betting that it could introduce tremendous amounts of risk into the financial system, push all of it onto its users and the market at large, and insulate itself from the consequences. And boy were they wrong.
Two interesting things I learned from this essay were:
Payment for Order Flow (PFOF), which is the selling of order flow to high frequency trading firms, was originally invented by Bernie Madoff. This is the primary way Robinhood makes money. 🤯
Citadel, the largest buyer of Robinhood’s order flows, wrote a letter to the SEC in 2004 arguing that PFOF should be banned.
Overall, the essay is great and gives a lot of good insight into the situation. For some other great articles on the subject, check these out:
Equity Financing for Influencers
when influencers wake up to the reality that they are serious businesses and as such should have access to capital and talent, the world is going to change very fast.
Everyone wants to talk trash about influencers, but I have seen first hand the impact they can have on your brand and your sales. Because of this, I have been obsessed with the future of influencers and this article by Sam Lessin is a masterclass on the subject. In the past, only a handful of influencers made it to Billionaire status—think Michael Jordan or Oprah. Sure, plenty made it in the hundreds of millions of dollars category, but why not more Billionaires? This article lays out the reasons why influencers were limited in the past and why you can expect to see many more influencer Billionaires in the near future.
To summarize, the constraints on influencers have been:
Very limited access to capital.
Very limited access to talented people to help them grow.
Aligning incentives around growth is challenging.
These barriers are falling. There has been a cultural flip from trusting institutions to trusting individuals and business infrastructure has been commoditized in a way that gives the individual an advantage. If influencers started treating themselves like real businesses and selling equity that represents a share of their complete, worldwide, perpetual earnings, they would make the transition even faster. If you could, would you invest in an influencer? If so, who?
What I'm listening to
We Study Billionaires - Disruptive Innovation w/ Cathie Wood
Cathie's firm, ARK Invest produces ETF's that are absolutely crushing it. The ARK Innovation ETF returned over 170% in the last year and it is now actively managing over $50 billion dollars.
Key takeaways from this podcast:
Innovation is often not priced into the market.
Wright’s Law can help determine future returns.
The 5 main areas of disruption that ARK is focused on are: DNA Sequencing, Energy Storage, Robotics, Artificial Intelligence, and Blockchain technology.
ARK's innovation research report is excellent as well (it will require you to put in your email address):
Big Ideas 2021: Innovation Research by ARK Invest
The Louis and Kyle Show - Dickie Bush
If I was going to invest in any influencer (see the Equity Financing for Influencers article above), it would be Dickie Bush. He is only 24 and is absolutely crushing it. He just started a writing cohort called 30-for-30 and is producing a ton of great content about writing and growth.
5 key takeaways from the show are:
Writing is thinking.
Starting without a niche is ok.
Experiment in small ways.
Use forcing functions.
Win the morning, win the day.
For more detail on these takeaways, check out this tweet from Louis and Kyle about the show.
What I'm watching
Elon Musk on Clubhouse Interview
I have been spending some time on Clubhouse recently and have enjoyed catching some conversations with some of the world’s most famous and influential people. I missed the interview with Elon Musk this past week, but was able to catch a recording of the conversation on YouTube. Some of the questions that get answered:
Lots of Mars discussion. When are we going to get to Mars? Why do we need to get there? What will civilization look like on Mars? How is Mars going to be different from Earth?
How did Elon get so good at memes?
Why should we care about Neuralink?
What is the best way to educate a 5 year old?
What's Elon's take on Bitcoin?
What does the future of self-driving look like?
And then, to top it off, you get to listen to Elon drill Vlad Tenev, the CEO of Robinhood, about their missteps over the last week. If you missed this chat, its worth the hour and a half listen.
Tweet of the Week
This was the best deep dive into the plumbing of your brokerage account that I have seen. Warning: This thread goes DEEP.
TLDR - This wasn't about Robinhood appeasing Citadel. It was a deeper problem related to lending and rehypothecation of your shares.
Thanks for reading!
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