AI, Tech, Industrial Policy and Baby Equities with Brad Gerstner (Altimeter Capital Founder and CEO)

Episode Transcript
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>> Jon Hartley (00:10):
This is the Capitalism and Freedom in the 21st Century podcast,
an official podcast of the HooverInstitution Economic Policy Working Group
where we talk about economics,markets and public policy.
I'm Jon Hartley, your host.
Today my guest is Brad Gerstner, who isthe founder and CEO of Altimeter Capital,
the Silicon Valley tech investing firmwith over 10 billion in assets under
management.
Welcome, Brad.

>> Brad Gerstner (00:31):
Hey, Jon.
It's great to be here.
Huge fan of the pod, huge fan of Hoover,so thanks for having me.

Well, thanks so much, Brad, for joining us.
Before we get into technology,industrial policy, and
all these related concepts to yourexpertise, I want to first get
into your origins before youbecame a Silicon Valley investor.
You're a Midwest guy interms of where you grew up.
You were born in Indiana, you did your BAat Wabash College, you spent some time at

(01:00):
Oxford, you did your J.D at IU's lawschool, you worked in Washington D.C.
you served some time asIndiana's Deputy Secretary of State.
Then you did your MBA atHarvard Business School.
I mean, how did you first get interestedin economics, technology and investing?
And who were some of your earlyheroes in that process of discovery?

Well, maybe a little bit of context because I think we're
all byproducts of,of where we grew up and how we grew up.
So I grew up in a small ruraltown in northwest Indiana.
You know, I was coming of agein the late 70s and early 1980s.
My dad, who was one of my early heroes,was first generation college and

(01:40):
he was the general manager ofa company that made auto parts and
employed a lot of the menin this small town.
And like was happening across America,a big corporate came to town,
bought the company andlaid off a lot of his men in 1977.
And my dad felt this obligation to starthis own company, hire them back and

(02:01):
compete on making parts forthe auto industry.
But unfortunately,despite him working heroically,
the combination of Japanese lowpriced cars, 13% interest rates,
13% inflation, he just couldn'tkeep the credit in the business to
keep the business going andeventually shut down.

(02:22):
And so they started calling the part ofthe world that I was in the Rust Belt.
It was pretty depressing.
It all started kind of under Carter andyou know, and
the big changes came with Reagan andVolcker in 1981.
So you have to understand thatthat's what I was growing.
That's what was really going on around me.
When I was in middle school, I startedto pay attention to how the world works.

(02:44):
I started to ask questions andthen as I started high school,
I found my way to the stock pages,into Adam Smith and to Milton Friedman and
to Warren Buffett, which would start thisreal long journey, decade long journey.
Really, into kind of classic liberalthinking around free market capitalism,
around limited government,you know, and at the same time,

(03:05):
my mom was working two jobs and she wassacrificing everything for our family.
And I'll Never forget, in 1985,she shows up with this IBM 5170, right?
Like one of the first personal computers.
And I knew we didn't have the moneyto buy this computer, but
it turns out she bought it on a paymentplan that was deducted from her paycheck

(03:25):
every week because my mom was just hellbent on helping, you know, the kids have
a better journey than the one they werethey were on at that point in time.
My school newspaper in middleschool that I was helping to
edit bought its firstMacintosh PC in 1985.
And soI got introduced to these early PCs and
then this early emailnetwork called CompuServe.

(03:48):
And I realized this technology thingcould be my ticket out of the Rust Belt.
And so I just started getting really,really excited about both learning why
the world was operating the way it did,why this happened to my dad, why
the Reagan policies seemed to be working,and also just fascinated by technology.

That's fascinating.
And yeah, certainly Hoover.
Milton Friedman is a big part of Hoovertransformation in terms of building
out a public policy think tank.
And Freeman came to Hoover after hewon the Nobel Prize in the late 70s.
And then while he was here, he startedreally becoming more of a public

(04:30):
intellectual anddoing producing the Free to Choose series.
And it's amazing to see just how manypeople that's influenced over the decades.
It's awesome.
I mean, it's very interesting how, or
I guess just how influentialthat that's really been.
So you founded altimeter capital in 2008in the depths of the Great Recession.

(04:55):
You know,Altimeter does lots of VC investing.
It does lots of investingin public equities,
a lot of public technology names.
I'm just curious, like,
what compelled you to start an investmentfirm in the middle of a financial crisis?
I mean, who does that?
And who does that so successfully?

Well, first, before, before we go there, I have to go back to
Milton Friedman and, you know,kind of this formative period because it
really informs the decisions I make, likewith Altimeter down the line, you know.
Of course, of course,
the first thing I read of MiltonFriedman's Was free to choose, right?
This idea, you know,because remember in the early 1980s,
it just felt likegovernment was oppressive.

(05:35):
Like it felt like the thing thattook my dad down was, you know,
50% tax burdens, you know,these super high interest rates.
And so you read Free to Choose,it was all about.free markets allow for
innovation and efficiency andpersonal freedom.
And that really spoke to me, right?
And this idea that governmenttends to distort incentives and

(05:55):
create all these unintended consequences.
And so that was really important to me.
But then I kind of went backwardsin order to go forwards.
You and I have talked about your ownjourney and your own study, and so
I think unpacking a little bit of that,you know, Adam Smith,
in this wealth of nations, you know,this idea that free markets and

(06:19):
competition, you know, the individualis generally pursuing, pursuing
what's in their own economic best interestleads to the best public good, right.
And I mean, if you think aboutthe political machinations going on today,
all of these things is thistension between, you know,
kind of freedom and allowing this thingwe have in the United States, right.

(06:40):
What makes the United Statesgreat is not government, right?
It's government sets the creation,the conditions for
all of this incredible innovation thatcomes from our system of risk takers and
risk capital, the very DNA of the country.
And so, you know, and I rememberthe first time I read, you know,
John Stuart Mills on Liberty,same thing, it was like this idea of,

(07:01):
you know, limited government that was soappealing to me.
And of course, when I looked at the worldaround me, you couldn't help but
to pick up a newspaper again in the early80s and you were reading about Volcker and
what he was doing to, you know, reallysmash and change monetary policy and,
you know, andbring an end to this hyperinflation.
And of course then the debate oversupply side economics, Laffer and

(07:23):
the fact that, we could actually lowertaxes and get higher tax revenues, right.
And so that to me was fascinating.
I went off to college,you mentioned at Wabash College.
And I was lucky, you know,the reason I went to Wabash College,
I couldn't afford college.
I was terrified of debt.
And they were lucky enough to give mea full ride scholarship to come study.

(07:46):
They were going to pay forme to study at Oxford.
And so I thought,I can't pass up this deal.
And I was lucky that their economicsdepartment had a partnership with
the University of Chicago, right?
So that like, really unpacked.
So when I started.
Started studying economics there I wasintroduced to the likes of Gary Becker and
applying these economic theories to betterexplain what was happening in society,

(08:09):
which appealed to me much more than thestuff I was reading in political science
or the stuff I was readingin philosophy or Stigler.
I was particularly interested in the law,so Richard Posner, and this idea that,
all the law can be explained throughthe lens of economic reasoning,
and it should aim to allocateresources efficiently.
And so then when I went off to studyat Oxford, I studied PPE, right?

(08:34):
Politics, philosophy, and economics.
And there it was,just a lucky time, right?
I dove into the works of HLA Hart, whichreally expanded on John Stuart Mills,
Ronald Dworkin, who was not ofthe liberal economic school,
but was exploring some reallyinteresting things about abortion,
euthanasia, the meaning of life, andapplying economic theories to that.

(08:58):
But I'll tell you what really madeOxford such an interesting time,
Jon, was that you gonnathink about the moment.
The war had just come down, right?
So the Cold War was ending.
I'm in Europe.
I had never traveled outside the countrybefore in my life, and I'm out at Oxford.
And the big debate at the timein England is whether or
not they should join a singlemonetary union, right?

(09:22):
This was leading up to the MaastrichtSummit, which was going to occur in 1991.
And so that debate, I remember,I was a member of the Oxford Union,
which is the debating chamber, and
I remember the debates betweenEdward Heath, the former prime minister,
and Norman Tebbit about whether ornot they should join the single union.

(09:44):
And think about this, right?
This has really foreshadowedwhat we've now seen.
The conservatives were saying, this couldlead to fiscal irresponsibility, right?
You had a monetary union, butyou didn't have a fiscal union.
And so it's just going to lead toa bunch of bailouts of countries that
weren't going to be financially sound.

(10:06):
And soit led to all these moral hazards and
potential bailouts that we've come to see,frankly, across Europe.
And I would argue as part ofthe reason that Europe now, for
decades, has underperformedthe United States, and
the national advantage ofthe United States has only increased.
And sothose were absolutely formative things for

(10:30):
me leading up to this period.
And then on the technology side,
I mentioned that I saw someof the early email servers,
but then you getNetscape Navigator in 1994.
And I remember, first reading,

(10:50):
some of Joseph Schumpeter'swork on creative destruction.
And to me, this became an importantthing that drove me into technology,
which is not only was it a way outof the Rust Belt for me in the 80s,
but this idea that capitalism is not justabout companies staying around forever.

(11:12):
But there would actually betechnology that would come along,
it would disrupt what came before it, and
it would be the source of our innovationand efficiency and economic growth.
And that we ought to asa government society,
we ought to embrace creative destruction,not be fearful of creative destruction.
And so that was it.

(11:33):
I went to law school,graduated in 1996, and
I made my way out to Silicon Valleyto see what this place was all about.
And so when I think about that partof this is just getting lucky, right?
It's being, I think, the adversitythat I had trying to understand
what happened to my family,why dad's business didn't work.

(11:57):
And that led me to the excitementabout what leads to human prosperity.
And so I went to law school,graduated, and I started at this big
law firm in Indianapolis, andI was the only one who knew how to build.
I built our first webpage forthis law firm.
I was the only one whoknew about the Internet.

(12:17):
And so as a young associate,
I was getting all of the Internetassignments and technology assignments.
And I got appointed Deputy Secretaryof State, as you mentioned,
by our former Senator Dick Lugar,who really pushed me to do that.
And I got behind this fledgling workin Indianapolis around venture capital.

(12:39):
But I realized pretty early on, I grew upon a small lake in northern Indiana, and I
realized if you wanna catch big fish, yougot to go to the lake with the big fish.
And Indianapolis was not goingto be the hotbed of startups or
the hotbed of venture capital.
And so going back to business schoolin 1999 was really my off-ramp
out of Indianapolis to get toeventually get to Silicon Valley.

(13:04):
So, I give you that as a predicate forwhat was really kind of the framework and
motivation forme ultimately to start Altimeter.
And so I'm happy to jump into that,but maybe explore a little bit more.
What?
Some of that journey.

Yeah, well, I mean, it's amazing,
just I think your story that Ithink you're very curious in
terms of these key questionsof why are countries rich and
poor and what drives innovation.
I think it's amazing to hear yourstory saying contrast to others,

(13:46):
who have lived in some way throughthe call, the decline of the Rust Belt or
the decline of manufacturingin the United States.
And a lot of the response to a lot ofthat I often find is very different,
in the sense that people are veryupset about being left behind and

(14:07):
very upset about this sort oftechnological displacement.
Whereas I feel like your drive andcuriosity sort of led
you to a very different place anddifferent conclusion.

Yeah.

Do you still keep in touch with a family in Indiana?
And I mean, what's your thinking around,I guess, where they.
Obviously, it's been fast-forwarda couple decades later.
Those states are one criticalin terms of determining
electoral outcomes of presidentialelections in the US, and

(14:47):
obviously the China shock hasbecome very front and center and
also is an economic policy issue interms of what to do in response to it.
And we have a lot ofdiscussion about trade policy,
terrorists, industrial policy.
Do you have any thoughts on any of thatin terms of what works and what doesn't?

(15:09):
I mean, we could talk a little bit about.

For sure.

We'll talk about that in a little bit.

Yeah. No, I mean, I think there's this
assumption that just because these peopleare being disaffected in that part of
the world, that therefore they mustwant to have a lot more government.
But I find just the oppositegenerally in that part of the world.
If you go to those places that franklyjust shifted back into the Trump column,
you know, Michigan, Indiana,Wisconsin, Pennsylvania, generally,

(15:37):
they find government to be burdensome.
They find taxes to be high, andthey're not looking for more help.
They're just looking to keepmore of what they make.
These are hardworking folk like my dad.
And they wanna have stable interest rates.
They want to have stable inflation.
They wanna have an economy that.

(15:59):
Generally is growing.
They're not looking to get bailed out.
And so, again, I think we're allformed in those early years.
For me, I saw the solutionwas not more government.
The solution was less government, right?
The reduction in tax rates, the reductionin interest rates, the reduction in

(16:22):
inflation that occurred in the early80s unleashed decades of expansion.
And the more I watched, the more Igot convinced that when government
got out of the way andallowed individuals to innovate, right?
And allowed the private market toprovide the risk capitals to those
individuals who were innovative.
Remember, 200 years earlier,

(16:45):
the entire American experiment wasan entrepreneurial experiment, right?
It was not a centrally planned experiment.
And if you look at, I know you andI were pretty mesmerized
by the speech that Milei gaveat Davos now a year ago.
And if you look at the economic growth,I've shown some charts on Twitter, right?

(17:09):
100% of the economic prosperity andGDP growth the world has ever seen.
We have 2,000 years,you have no GDP growth.
And it all happens to magically lineup with the founding of America,
the Wealth of nations, limited government,entrepreneurialism, et cetera.
Government is important tocreate the conditions, but

(17:33):
government did notmanufacture that GDP growth.
That was manufactured on the back ofhardworking people who had the incentives
to do it.
They got to keep the productsof that labor and innovation.
And the interesting thing is,if you look at the last 200 years, right?
The number of years it takesGDP to double, and GDP, right?

(17:56):
We have a fixed amount of labor andcapital, and so
what's the productive output of thatfixed amount of labor and capital?
Well, it's gone up atan accelerating rate.
So the number of years it takesGDP to double has shrunk.
Said in other words,
the number of years it takes to improvethe human condition has shrunk, right?

(18:17):
And so whether we're talking aboutliteracy rates, whether we're talking
about life expectancy, whetherwe're talking about GDP per capita,
whether we're talking about conveniencesand modern luxuries, education,
healthcare, et cetera,it's gotten unequivocally better.
And I think that is not by coincidence.
The United States advantageis not a coincidence.

(18:38):
I think the US's advantage isinherently because we have a government
that's in balance withallowing individuals,
particularly in places likeSilicon Valley, to create.
And I've gotten worried, frankly,over the last decade, watching
particularly in the state of California,people turn against entrepreneurs,

(18:59):
people turn against capitalism,people turn against, right?
The productivity that, frankly,
is the golden goose that createsthe prosperity for these places.
And so part of my mission,both as an investor, I mean, I benefit and
entrepreneurs benefit, and the countrybenefits from providing risk capital,

(19:20):
building the next great things.
All the new AI companies, Jon,are coming out of Silicon Valley.
That's not by accident, but there isa concern that the natural drift can
be away from capitalism ifpeople feel disaffected, right?
And so, that's been something that I'vestudied, I've talked a lot about, and

(19:42):
I think a lot of that was informed bywhat I observed over those decades and
the people that I studied.
But I'm more convinced ofit now than I ever been.
Not that markets are perfect, not thatthe government has no role to play, but
in the balance between government andthe invisible hand of the markets,
the United States has benefited for 200years by erring on the side of markets,

(20:05):
by erring on the side of innovators.
By erring on the side of thislimited government, that is in stark
opposition to what Europe's done overthe course of the last 20 years.
And look at the dramatic differential,we have left Europe in the dust.
And our advantagesare compounding the next,

(20:25):
people talk about the last centurybeing the American century.
I hate to tell Europe and
everybody else, this century is alsogoing to be the American century.

Absolutely.
And no, I totally agree.
I mean, in the sense that, one,I think you're absolutely right.
I mean, what I would call liberaleconomic institutions are a huge part
of why growth started in the 1700s,1800s, and is a huge,
I think, part of what makes the USdifferent from rest of the world.
It's not a coincidence that Silicon Valleyjust popped up in the US, and

(20:59):
I think, not a coincidence that the UScontinues to grow on a GDP per capita
basis coming out ofthe global financial crisis.
Whereas all these other Western Europeancountries, Canada and Japan, even
part of the global financial crisis, havestopped growing on a per capita basis.
And it's very interesting.
I mean, you do have some technologystories of Spotify in Sweden or Shopify in

(21:21):
Canada or a blip like BlackBerryin Canada or something like that.
But it's very clear that the US hasa massive advantage in technology, and
that's a big part ofthat growth differential.
I think you're absolutely right inthe sense that technology isn't something
that just comes out of nowhere exogenouslyand that the incentives matter.

(21:43):
Incentives to innovate matter.
And that really sort of goes backto ease of doing business and
liberal economic institutions.
And right now, like for example, Canadais raising its capital gains tax rate,
and you know, the CEO of andfounder of Shopify is saying,
why would I want to stick aroundin Canada, if you're making it so

(22:04):
inhospitable for a founder likethat to keep the firm there.
So speaking of starting firms, so
you started Altimeter in 2008 inthe depths of the Great Recession.

Yeah, so let's talk about that.

Yeah, what compelled you to start an investment firm
in the middle of a financialcrisis at that time?
And how hard was it?

Yeah, I mean, so with the backdrop that we just talked
about now,perhaps it makes a little more sense.
If you think about it,the financial crisis in 2008 was in many
ways just that a crisis of the financialinstitutions of the United States.

(22:42):
I was paying attention tothe technology companies, right?
And there's nothing about2008 that slowed down
the success of those technology companies.
We were in the middle ofmy first super cycle.
So Altimeter tends.
My investment theory going way back hadbeen to know and understand something

(23:03):
particularly well to gain a competitiveadvantage, to build a moat.
In terms of my understandingof how the world worked.
And if I understood itbetter than other people,
then I could invest at a price todaythat would compound for a longer period.
And the reason I was getting that pricetoday is because I understood it better.
So going back to that first personalcomputer and those email networks and

(23:26):
all the things that got meexcited about technology,
I had studied technology asan anthropologist, right?
As a researcher,
as an analyst from when I helped startGeneral Catalyst back in 1999 and 2000.
So we were still right in the middleof the compounding that came
from the Internet.
And it unleashed massive benefits forindividuals.

(23:50):
Just think, anybody could Google anythingin the world and discover any information.
And again, it wasn't the governmentthat provided that innovation.
To humanity it was a private company,you know, in Google.
And it was still compoundingat super high rates,
as were other vertical search companies,companies like Zillow and
companies like booking.comthat I was an investor in.

(24:12):
And so I was really excited.
And some of my heroes of investing, right,
guys I had grown up with in Boston asSeth Klarman, the founder of Balpost,
he founded BalPost in 1981 in the teethof the 1981 recession, right?
We're just talking about that when Volckerwas trying to imagine founding bauposts in
the teeth of that recession.

(24:34):
Or Paul Reeder, who became a dearfriend and my mentor in the business,
who founded PAR Capital, he founded itin 1991 in the depths of the SNL crisis.
Or my good friend Chase Coleman,
who founded Tiger right afterthe Internet bubble burst in 2001.
So I knew it could be done Iunderstood the path to do it.

(24:54):
And soI wasn't afraid of the events of 2008.
Of course.
I remember talking to investment banks.
I had to set up a prime brokerageto get the business started.
And several of them said to me,I don't know if my bank's going to exist
in six months, butI'm happy to sign you up as a customer.
That's how bad it was.
And so I knew that it was incrediblemoment in terms of price of entry.

(25:17):
And my enthusiasm for technology hadnot been diminished at all, right?
If anything, I was buyingcompanies that were, you know,
as Warren Buffett says, I mean,these were deep, deep discounts in sales.
I bought my first stock that Ibought in the public fund in 2008.
October 1, 2008, was Priceline at $45a share, today it's over $4,000 a share.

(25:42):
That is a venture capitalreturn in the public markets.
Okay, and that was the opportunitythat was presented at the time.
And I knew I wanted to build a firm thatlooked different than the other firms
that I saw.
I wanted a firm that would benefit fromunderstanding all the way from early stage
venture capital all the waythrough the public markets.
I had a belief that if you,if you could take advantage of and

(26:05):
combine these networks, you would.
The work on the public side would giveme advantages on the venture side, and
the work on the venture side wouldgive me advantages on the public side.
And I promise you, back in 2005, when Istarted doing that at PAR Capital and
then in 2008 at altimeter,that was not a common belief.
In fact, most allocators of capitalsaid Brad, we don't want you to do both.

(26:28):
Pick one, we want you to be great at one.
And I said, you don't understandthere are inherent advantages, right?
Network effects by doing them together.
And so we launched what was one of,you know,
the first crossover fundsis what they call them now.
At the time they weren'tcalling them that.
I moved to Silicon Valley and
we've had great success in both the publicfund as well as the venture fund.

(26:53):
And I attribute that really to two things.
Number one, I just bet on America andI bet on the future of technology.
And Jon, if you look at the last15 years of technology,
technology companies havecompounded earnings at 15% and
their stocks have compounded at 17% for15 years.
Non tech companies in the S&P 500have compounded earnings at 4% and

(27:17):
their andtheir stocks are compounded at 6%.
Technology as a percentage ofglobal GDP has gone from 5% to 15%.
So it seems to me that, you know,if you're going to invest,
pick a boat that you know is rowingdownstream like this is the best
advantage, you know,that we have in this country.

(27:38):
And so I figured if I was planted inthe heart of Silicon Valley investing in
technology, public and
venture, not only did I have the tailwindsof just a great industry sector, you know,
that was going to continue to compoundat higher rates than non tech,
that was going to continue to becomea bigger percentage of global gdp,
but that I would be ableto find the best of tech.

(27:59):
So if I could pickthe best 25% of tech and
avoid the 25% that was being disrupted,that we could provide a lot of alpha on
top of the decisionjust to invest in tech.
And so that was reallythe motivating principle behind it.
But I have to tell you, those early days,basically I had no money, I was passing
a hat and I started with very little andyou know, but I'm certainly happy I did.

That's amazing and I think very unique in the sense that you're
investing in both public equities andvc, you know,
with this focus on technology andyou know, obviously, you know,
you've had some big VCwinners like Snowflake and
being very early to Nvidia,that's a publicly traded company,

(28:43):
I mean, it's had a very big recentrun up which you were ahead of.
And just the explosion in interestin generative AI which has driven
a lot of that.
You've also really influenced some ofthe more established firms out there, like
you compelled United Continental to changeits board directors of report performance.

(29:04):
And in 2022, you wrote an influentialletter to Facebook recommending that
they reduce their headcount andshift their focus away from the Metaverse.
Remember, Facebook changed its nameto the Metaverse, or sorry to Meta,
just because it wanted to sort of signalthat it was all in on the Metaverse.
And this is something thatthey subsequently did.

(29:28):
They listened to your letter and they wereresponsive and they reduced their head
Cambridge significantly andpivoted away from the Metaverse.
I mean, tell us, you know, what is youroverall, you know, approach to investing?
What's your investment philosophy?

Well, first it's, I think to be successful at anything,
you have to be deeply passionate about it.
I'm two things, I'm a researcher andan analyst, and
I'm deeply passionate about technology.
Right.
And I think the byproduct of what we do isgreat for the country because I think it
provides economic productivity andgrowth, which drives our economy.
So that's what the animating featureof what I get up and do every day.

(30:04):
If I had to say,what defines our approach?
Number one,I'm a thematic investor in technology.
We have super cycles,the Internet, mobile, cloud, and
now artificial intelligence.
And so it's identifying the super cycle,identifying what you think
will be the biggest winners andthe biggest losers in the super cycle.

(30:27):
A lot of that is established in the firstthree to four years of the super cycle.
And then those companies will compound fora long period of time.
Right?
And so it's following that passion,investing thematically.
And then we think like owners,we tend to hold things for a long time.
In the venture capital world, that meansowning things for 10, 15 years, right?
Our holding period on the public sidealso is much longer, you mentioned Meta.

(30:51):
We owned that company for over a decade.
And so we compound in these companies fora long time.
So long as they continue to benefit fromthe super cycle and so long as they're
benefiting from what's going on in termsof their management and leadership.
I love the fact that Meta, you know,is led by just an incredible founder.
But when you think like owners,you know, like,

(31:13):
it also leads you tosome other conclusions.
Number one, I don't want to buy cigarbutts, you know, like, like Ben Graham
used to talk about, I want to buyfantastic businesses at fair prices.
Now what's a fair price?
Okay, because in technology,everything always looks expensive.
But in my, in my world,I look out 10 years and say,

(31:34):
what can possibly happen here?
And then I discount that.
Back.
So in the case of booking.comI talked about that company.
I teach a class at the old Graham andDodd securities analysis class as
a visitor maybe now for 12 or13 years at Columbia Business School.
And I used to feature this case asa case study because every sell side

(31:57):
analyst on Wall Street had the opportunityin 2005 to figure this out.
But most of them were so focused onthe next quarter or two quarters ahead,
they couldn't possibly imagine whatcould happen over a period of 10 years.
And that, that longevity, that ability tosee where this was going, that is your
alpha, that is your competitive advantage,and that's what allowed us to

(32:18):
buy it at a time that other peoplemight have thought it was expensive,
but if you looked out three orfour years, it was actually really cheap.
Or in the case of Meta,[COUGH] I remember in the summer of 22,
I couldn't have been more excited forMeta, right?
People said to me,you didn't believe in what Mark was doing?

(32:40):
Totally different.
Like, I love the fact that he hadtotal control over the company.
I think he's one of the mostgifted founders of our time.
But I thought that the worldwas changing under our feet.
I thought artificial intelligencewas going to be the next big wave.
And I was worried that Covid had ledall companies into this age of excess.
We hired too many people.

(33:01):
We had these negative interest rates,this ZIRP period that just led to gross
excesses across the economy,misallocation of resources.
And so my conversation in the letter,ultimately I said,
was an open letter toall of Silicon Valley.
We all had gotten lazy, out of shape,and we needed to get more efficient.
And, you know, my rallying cry to Mark washe was the type of leader that could lead

(33:25):
all of Silicon Valley, not just Meta,to be more efficient, and he did.
When he launched the Year of Efficiencyand all the credit, by the way,
100% of the credit goes to Mark andhis team.
But when he wrote the Year of Efficiency,a few months after I had written
the letter, Time To Get Fit, he said,flatter is faster, leaner is better.

(33:45):
And this is really important becausehe didn't say, I went from 87,000
employees to 62,000 employees justbecause I wanted to expand my margins.
He actually said, by getting in shape,you become a better company.
Less layers in the decisionmaking process.
You become faster, you become better.

(34:06):
And that really, you know, andI could tell you because all of these CEOs
were texting and calling,they all wanted to follow his lead, right?
And so that was, you know,a super important move.
And remember,his stock was at $90 a share.
The headline in the Wall Street Journalwas Meta is dead.
And it couldn't be further from the truth.

(34:27):
He doubled down on artificialintelligence before ChatGPT was launched,
which wouldn't be launched until fivemonths after we were having those,
those interactions and that letterwas written, he doubled down on AI.
They continued to focus on the metaverse,just didn't grow it as much, and
they reduced their headcount,they got flatter and faster, and
they've been a huge beneficiary of AI.

(34:49):
And we still own Meta.
So now I've owned it since 2011,2012, shortly after the IPO.
And so we think like owners and ultimatelybuilding a trusted brand where we partner
with the world's most iconic foundersfrom sometimes the earliest stage, right?

(35:09):
Snowflake, you mentioned it wasbefore they had their first client,
before they had any revenue.
You know, we were one of the largestshareholders in that company.
And then we invest along the cycle.
We continue to invest in them.
When Sequoia came in,one Iconic came into that round.
We did the same thing with Mongo,[COUGH] we did the same thing with so

(35:30):
many other companies along the way,Zillow, etc.
But we also, sometimes we don't,
we don't see it until theycome into the public markets.
Remember, a lot of these companieshave grown 100x in the public markets.
Finally, I would just say that companiestend today to stay private longer.
So there are two features,two things that have happened.

(35:53):
Number one, we've imposed a lot ofregulatory burden on going public.
Jon, and remember, follow the incentives.
What happens when you imposea lot of regulatory burden?
Well, the private markets respond.
So the private capital markets havegotten much deeper, and they said,
just like on private credit, on theprivate equity, on the growth equity side

(36:15):
of things, we said, fine,if you don't want to go public,
we'll provide IPO like capitalto you in the private markets.
I think this is a shame because nowbecause of a lot of this regulation,
small retail investors don't get a shoton goal on investing in OpenAI early.
They don't get a shot on goalin investing in Uber early.

(36:38):
They don't get a shot on goal, investingin amazing companies like Stripe or
Databricks early,because they stay private much longer.
So Altimeter invests in those companiesjust as though they were public, but
we're investing out of private capital.
I think that needs to change, by the way.
I think we need to tacklethose regulatory burdens.
I think we're better off as a country whenthese companies are coming public sooner,

(37:00):
but that's in fact what's happened.
So we invest early, we invest alongthe way as they become very big companies,
many of these valued at 20-60 billion,100 billion in the private markets or
in the case of OpenAIrecently at 150 billion.
And then, oftentimes, we lead their IPOs.
We're one of the major buyers in the IPO,and we continue to invest.

(37:22):
Why?
Because market leaders in supercycles tend to compound for
a very long period of time.

And absolutely, I mean, it's fascinating just how fewer public
companies are today than it's a decade ortwo ago.
And I agree, I think the regulation isdefinitely a part of it, going public.
Also, I think there's just a lot ofcompanies that don't wanna be publicly
traded, and they don't wantmark-to-market valuations all the time.

(37:51):
Whereas, if you can beowned by private equity,
your marks are a littlebit more infrequent.
And there's this whole concept ofvolatility, laundering and so forth.
And so public markets, or sorry,private markets offer this
sort of ability to hide a publicscrutiny in a certain way.

(38:11):
So it's interesting how it'sevolved a little bit over time.
I wanna talk a little bit moreabout generative AI and chips.
It's obviously a very front andcenter topic right now.
And I wanna in particular talk a littlebit about tech industrial policy and
really how you see it.
As an investor, you actually understandthese companies that are being

(38:33):
subsidized andthere's this whole challenge.
So let's talk about like the Chips andScience Act, for example.
So it was passed in 2022, and
they had this partial goal of re-shoringchip supply chains to the US,
obviously chips are a big componentof generative AI GPUs in particular.
And I'm just curious how is thatre-shoring going in your mind?

(38:58):
Is Intel kind of a dead company?
That industrial policyis just propping up?
Did the struggles to build TSMC chip fabs,facilities,
production facilitiesin places like Arizona?
There's been a lot ofdiscussion about that.
Does that suggest that we should maybebe instead like encouraging to build,

(39:21):
fabs in, in sort of friendly, cheap laborplaces like, like Mexico, you know,
so-called friends.

Really, you're really trying to get me going here.
Let me first just say,we've been working on
artificial intelligence for decades now.
I made my first kind of AI investments,if you will, all the way back in 2005.
Backing one of the heads of AI out ofthe University of Washington at the time.

(39:49):
We invest in Cerebras,another chip company.
Yeah, some period of time ago,well before ChatGPT, so.
So like ChatGPT brought AIto the public consciousness.
But think about this at a big level.
The Internet was laying down the rails.
Mobile created ubiquity, the cloudcreated data ubiquity in the cloud.

(40:14):
But really artificial intelligencebrings it all together, right?
I was at a dinner once maybe in 2015 or16, where Bill Gates was asked,
haven't all the interestingthings been done?
And he said, we haven't even started.
And somebody said, well, what do you mean?
He said, we won't even startuntil computers go from
calculators to actually helping us think,right?

(40:36):
We are at the dawn of the moment wherecomputers went from 10 blue links to
giving us answers, right?
To becoming agents,to becoming assistants,
to helping us think,to solving problems on our behalf,
harnessing all of the informationhumans have ever seen.
Okay, I think this super cycle is gonna bebigger than all the other super cycles put

(40:57):
together.
Like, I think this is what we're goingto be investing again against for
decades to come.
It doesn't mean that we won'thave bubbly valuations and
lots of companies won't work.
And that's part of the creativedestruction with Schumpeter that we
talked about.
That's good.That's not a sign of failure,
that's a sign of success that we actuallyallow companies to fail in this country.

(41:19):
And this is one of my problems,frankly, with the CHIPS Act.
So let's talk about the goal, right?
It's a noble.
I have a concern about our nationalsecurity dependency on a single country
that is in dispute, ie Taiwan, asthe source of all of our advanced chips.
So I think everybody can agree on this,right?

(41:41):
That having 90% of the advanced chipsupply chain in the world in Taiwan and
an adversary in China makes us veryuneasy that we have this big dependency.
Whether you're Nvidia havingthe dependency for the manufacturer of all
those chips or any other chipmanufacturer having that dependency.

(42:02):
And so it's in the US national securityinterests to reduce its dependency,
a single threaded dependency on Taiwan foradvanced chips.
But there are a lot ofways to achieve this goal.
And what I concerns me, I have a podcast,BG2 pod with my good buddy Bill Gurley.
And one of Bill Gurley, you know,things he and I just resolutely agree on,

(42:26):
going all the way back to Stigler andregulatory capture is the problem is when
we start picking winners and losers,when the central government starts
picking winners and losers,it generally Always ends bad, right.
Markets allocate resourcesactually quite well.
And so I think the government hasa role to play to say, listen,

(42:47):
we need to incentivize businesses, lotsof ways to incentivize them to build fabs
in other parts of the world other thanthe United States or other than Taiwan.
Now it's nice that they buildthem in the United States.
So TSMC building fabs in Arizonamay be a very good thing.
Maybe we wanna give them tax breaks and

(43:08):
other things to get the bestcompanies in the world.
And TSMC is the best fab inthe world to get them to do it here.
So we reduce our dependency on Taiwan.
I think that again is in ournational security interest.
But the idea that we shouldprop up a bad dying US
manufacturer because we havesome nostalgia about intel,

(43:30):
I think is a really bad idea, right?
I don't think that the government shouldbe involved in that sort of industrial
policy.
I don't think, you know,the company is too complex today,
has too many different areas of focus.
Right.
This is the process ofcreative destruction.
Intel's in the situation it isbecause of choices intel made, right?

(43:54):
And so I think in that situation Iwould rather see us figuring out ways
to get TSMC to multi source itsmanufacturing in places like Mexico and
Japan and Southeast Asia andIndia and other places,
much like Apple is moving a lotof its production to India
to reduce its single threadeddependency on China.

(44:18):
I think that is all smart nationalsecurity interest decisions,
but I think you have to be very,very careful as, as you know,
Gurley likes to warnabout regulatory capture.
I think this is another area.
So when government is handingout all this money, right,
when they're picking the winners andlosers,
I think more often than not it leads usto a worse place, not a better place.

Yeah, no, I totally agree with that.
And I do think that there is,I mean, some rationale for
non economic objectivesin construction policy.
You think about sanctions, it's like,I think it certainly makes
sense to use sanctions asa geopolitical tool, particularly when

(45:02):
you're dealing with threats,people that threaten U.S. interests.
And there have often been libertariansthat have harshly criticized sanctions,
say on Iran.
But at some level if theseare nuclear countries or
potentially a nuclear threat tothe United States or their allies,

(45:23):
taking a sort of even a short termeconomic hit from those sanctions or
industrial policies.
Say to, I guess subsidized chipmanufacturing either in the US or
in allied countries might be kind ofa second best option if you're sort
of dealing with this potentially hugelydisruptive event that could occur,

(45:45):
like the Chinese party of Chinainvading Taiwan or something like that.
So I want to shift just a little bit to,you know, your.
Your advocacy of baby equities.
It's a concept that'ssimilar to baby bonds,
where every child receives at birth,a publicly funded trust account,

(46:07):
which is invested, in the case ofbaby equities, invest in stocks.
And you spent a lot of time on thisas part of your nonprofit that
you run called Invest America.
I mean,tell us a little bit more about that.
I mean, I'm curious what someof the main obstacles are.
I mean, your Democrats, like Cory Bookerhave long championed this cause.

(46:30):
It was once part of Hillary Clinton's2008 presidential campaign platform.
I mean, why should free market Republicansor Democrats be interested in.
And I know you're a limitedgovernment kind of guy.
How do you square that withbeing in favor of baby equities?

Well, first,
it's radically different than whatthey were proposing with baby bonds.
And I'll get to that.
But it's the right question to ask, right?
I am a limited governmentproponent all the way.
But the thing that scares me the mostis seeing the misalignment we have in
America and the attacks that are goingon on capitalism that I think.

(47:09):
So if we just think aboutthe natural hand of the market here,
all this prosperity is terrific.
But it's undeniable that it's alsoled to a lot of wealth concentration,
because that's the natural byproduct.
Today, a single founder ofa company can service 3
billion customers like Mark Zuckerberg,okay?

(47:29):
And soI fear the attack on capitalism is coming.
And Ray Dalio talks about this beingthe greatest threat to America.
And so, ironically,I believe Invest America,
making every child a capitalistparticipant from birth,
is by far the greatest andcheapest insurance policy in

(47:51):
defense of free market capitalismthat we could ever create.
3.7 million individualaccounts created every year,
a 401k from birth where it's, each ofthose families has control and title.
And then the private marketflywheel can turn, right?
Those families can save and compoundin the upside of the American economy.

(48:16):
We have all sorts of companies from Dellto Uber who say they'll contribute to
the accounts of the kidsof their employees, so
it will compound in that way as well.
So, there's no government program andthere's zero government account.
That is a radical differencefrom the concept of baby bonds,
but why do we need this?
Right, and I think it comes downtoo few people are participating in

(48:41):
the upside of the American economy today,and this is a very simple way.
Okay, let's talk about the cost herebecause I'm really excited about DOGE and
the Department ofGovernment Efficiency and know and
what we're gonna to do tobring our budget into balance.
So, if you give a thousand bucksin a seed capital count to each of

(49:04):
the newborns in this country,every year, it costs $3.7 billion.
Okay, $3.7 billion,to put that in perspective,
that's about the cost ofa single Patriot missile system.
To put it in further perspective, the $175billion that we poured into Ukraine,
that many of us think is a misguidedadventure that has not made Ukraine Safer.

(49:28):
Okay, that $175 billion would pay forthis for
45 years, and170 million American children.
It's time that we start making trade offs.
So, you andI both would agree markets aren't perfect.
There are places thatthe government can coordinate

(49:49):
private market participationto unlock human potential.
So, this is a massively NPV positiveinvestment, how do we know that?
We have controlled studies, right,by our friend Kevin Hassett,
who was Trump's chairman ofthe Council of Economic Advisers,
by economists on, on, on the left likeRob Shapiro, and what do we know?

(50:13):
We know that kids who have an investmentaccount for birth, they're more likely to
graduate from high school, they're morelikely to be financially literate, they're
more likely to graduate from college,they're more likely to buy a home,
they're more likely to start a business,they're less likely to be imprisoned.
We know those facts, okay?
Think about all the wastefulprograms we have in this country,

(50:35):
that is redistributing wealth rightafter the problem occurs, right?
Trying to help kidsgraduate from high school,
trying to help kids graduate from college.
The problem is we don'thave the incentives for
enough of these kids from early on.
So, I know a little something about this.
I was born on the wrong side ofthe tracks, I was born with nothing,

(50:58):
I was born poor.
Trust me, I understand,pull yourself up by the bootstraps.
But the reality is, if we just givea little nudge, a tiny little nudge,
doesn't even have to be a thousand,if we think that's too much money,
make it 500 bucks,it only cost us 1.8 billion a year.
Here's what we have, the behavioraleconomics economists know two things.

(51:18):
Number one,we have a cold start problem, okay?
We know that savers save more, once theyget that little snowball rolling down
the hill, and they see the compounding,it incentivizes them to save more.
Even if you study the cohorts of thepoorest people in this country, if they
have a savings account, those cohorts actjust the same way that rich folks do.

(51:43):
They will save money, obviously a lesseramount, but they will save money.
And so for me, the market failure hereis that we have a cold start problem.
It's very difficult to set up a custodialaccount that compounds in the stock
market from births,government can help us there.
And the second thing, you know,
beyond that cold start problem is wedon't have an infrastructure, right,

(52:07):
that is universal, so it's super simple,everybody a kid when they're born.
I have two children, when they were born,
we had to fill out paperwork thatgot them a Social Security number.
All I'm saying is they should also be ableto check, everybody has a box check and
they get an Invest America account.
Now, the Invest America accountwill be administered by

(52:28):
private market participants, right?
A private label to the U.S. Government,every kid can open their phone,
they see their Invest America account,their name, the amount they have in it.
And that they own a little slice ofBerkshire Hathaway, of Apple, of Nvidia,
of United Healthcare,of the upside, of America, right?

(52:48):
This isn't about creatingmillionaires there,
these concepts around universalbasic income, et cetera.
This is the problem, this is what we'regoing to get if we don't get more people
in the game from the start.
So, I want to harness the powerof the private markets.
I wanna empower individuals andfamilies, and
start them on a journey that bythe age of 18 they'll have $40,000 in

(53:11):
these accounts because the Americaneconomy is the most powerful in the world.

You know, it's a fascinating idea, I think,
in the sense that, like there isthis I guess behavioral challenger,
I think you call it, cold start problem,which is like one, you know, only,
I think 40, like less than 50% ofAmericans own stocks to begin with.
And very, I think a very suboptimalnumber of individuals own,

(53:37):
even if it's, you know, say,through a public pension plan or so forth.
So I think, you know,how do you develop those habits?
And I think part of this idea is,you know,
trying to expose people to those,you know, good habits and
kind of endowing them with a toolthat would allow them to do that.
And I guess, part of it's like,you know, tracking, your performance,

(54:01):
the performance of the stocks over time,I mean, so.
Exactly, like, how would it work in thesense that, like, so you get it at birth.
I mean, you can't, I guess your parents orthe child that receives the accounts
can't really sell this until likeage 18 or something like that.
Or how does it work in terms of when canthey first sort of begin to liquidate,
or draw down some of that account?

Yeah, no, it's a great question and
of course it will ultimately bedetermined by the legislative process.
But we have a great listof champions on the right,
from folks like Senator Hagerty andTed Cruz to the left,
and you mentioned folks like,Mark Warner and folks like Cory Booker.

(54:45):
But ultimately they'll have to,hash that out,
I'll tell you from my own perspective,right?
Imagine this, your parents will be ableto opt in just like they would if they
set up a custodial account foryou at birth.
They get to see, you know,this compound, but
by the time you're in the fifth grade orin middle school, every kid has a phone.

(55:07):
They'll open it up on their phone, andthey'll see and button and trust me,
you know, you talk to Fidelity orSchwab or Franklin or, you know,
JP Morgan, the number one page everybodylooks at who owns stocks is what they call
that money page.
What's my net worth, and what do I have?
It's gamification, it gets people excited.
It gives them a reason to learn, we havefinancial literacy courses now in school,

(55:29):
demanded in curriculum in 30 states.
Here's the problem, if none of these folksown anything, if their parents have never
participated in compounding or savings,then it's really hard to learn about it.
But if instead, I'm the seventh gradeteacher, I say, pull out your phones,
open up your Invest America account,whether I'm in rural Indiana or
rural Mississippi, right?
Whether I'm in urban Trenton or urban la,

(55:53):
kids who would not otherwiseparticipate are now in the game.
And I'll tell you that unlocksMassive human potential.
And it's going to save us a lot of moneydown the line by getting these folks into
the game early.
But here's what,here's what kind of the going rate is.
At 18, they can take up to 25% ofthis dollars to buy a house or

(56:14):
to start a business or to go to College.
At age 30,a certain amount more would come unlocked.
At age 40, it's all yours, right?
And by age 40, if you start with$1,000 and just add $750 a year.
So this could be your birthday money,bar mitzvah money,
a little summer mowing money.
Or it could be that your parents workat a company that matches, right,

(56:37):
puts money into the accounts of the kids.
And we have dozens and dozens of companiesthat have already committed to doing that.
Or it can be philanthropically.
We know across the countrythere are ready people
from Maine to Texas who willcontribute philanthropically to this.
So imagine we're going to have 14trillion of wealth transfer that

(56:58):
comes up over the courseof the next 15 years.
Jon.imagine if folks like Michael Dell or
Warren Buffett said, hey,
I want to create a trust account with$10 billion in it, and it will match for
every kid in the state of Texaswhose family earns under $150,000.
Now, that's an efficient way, right,to get more people into the game.

(57:21):
And so that is the current thinking,you know, that they will have control over
these accounts starting at age 18,but it's going to lead to a lot
more economic productivity,a lot more people in the game.
And here's the numberone thing it's going to.
And our good friend Joe Lonsdale, I wasdoing the American Optimist Podcast with
Joe, andJoe is also a limited government guy.

(57:43):
And so he's,I think starts off suspicious at this.
And then he became a bigsupporter because he said, brad,
my biggest fear is that we're losingalignment with America's kids.
Less than half of people under the ageof 40 believe in capitalism, okay?
He said, the Marxists are gonna hate thisbecause every child from birth is going to

(58:04):
be aligned with capitalism, right?
We help them understandwhat America is all about.
It reengages them both civically andeconomically.
Jon, in the upside of America.
And doesn't create a biggovernment program to do it right.
It does it on the back ofthe growing American economy.
It's simply a 401K from birth,
and it's a tiny little seedfrom the federal government.

(58:25):
That is an absolute rounding error,
less than one-tenth of 1%of our federal revenues.
So let's stop spending all this needlessmoney, right, helping these kids later
down the line when they're incarcerated ornot graduated, and let's just redeploy
a tiny amount of that money, right,to see them and then get out of the way.
Government.Get out of the way.
No government administrative agency justlet the Treasury Department administer it.

(58:49):
And let's get that snowball growing forevery child in America.
And I'll tell you, there'll be a hell of alot more aligned with American capitalism.

Well, it's a fascinating, I think, financial education kind of idea.
And, you know, could,I think teach a lot of people potentially
about obviously diversification,time value of money, compound growth,
I think is a really,really fascinating idea.
And certainly, you know,someone who's actually.
It's was my 35th birthdaythe other day and I was.

Happy birthday.

Born, thank you,
I was actually born whenthe Berlin Wall was falling.
It's amazing how many people born afterme kinda have no memory of the USSR or
socialism and kinda the negativity or
that some of the negativeeffects of that on the economy.
And I think how do we develop tools ina post Soviet, post USSR kind of world to

(59:40):
teach people about the benefits of freemarket capitalism, even if there's some
small cost of government,I think is a very interesting idea.
A real honor to have you on, Brad,and hear about your career and ideas.
Thank you so much for joining us.

It was a lot of fun, Jon, I look forward to a little walk
around Stanford here soon andcontinue the conversation.

>> Jon Hartley (01:00:00):
Thanks so much, Brad.
This is the Capitalism andFreedom in the 21st Century podcast,
an official podcast of the Hoover EconomicPolicy Working Group where we talk about
economic economics,markets, and public policy.
I'm Jon Hartley, your host.
Thanks so much for joining us.
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