Transcript: Kevin Landis
The transcript from this week’s, MiB: Kevin Landis, Firsthand Funds, is below.
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BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. And what can I tell you? Kevin Landis has been investing in technology companies, I don’t know, 30 years? 25 to 30 years both public and private. He runs Firsthand Funds, they have a number of different mutual funds that specialize in technology companies including one that is one of the rare publicly traded venture capital funds. Imagine an individual VC that itself is publicly traded.
Kevin not only survived the DOTCOM implosion, but thrived. The funds have put up really outstanding numbers all over the past fill in the blank, five, 10, 15 years. He really is super knowledgeable about startups and technology companies both new and old, and one of the things that makes them so interesting is they’re located right out there in the heart of Silicon Valley.
It’s hard to imagine that before Firsthand Funds opened up in 1994, there were no mutual funds located right there in the midst of techland. Really quite interesting. He grew up out there, he went to Berkeley, that’s his backyard, really, a fascinating guy and a fastening conversation about all things technology related.
I think you’ll find this to be an interesting conversation. I really enjoyed it. So with no further ado, my interview of Firsthand Funds’ Kevin Landis.
VOICEOVER: This is “Masters in Business” with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: My special guest this week is Kevin Landis, he is the CIO of Firsthand Capital Management, and president and chairman of Firsthand Funds, founded in 1994 with $500 million in assets under management. Kevin has specialized in technology, the Firsthand Technology Opportunities Fund has been up 102 percent over the past 12 months.
Kevin Landis, welcome to Bloomberg.
KEVIN LANDIS, CIO, FIRSTHAND CAPITAL MANAGEMENT: Thank you very much for having me.
RITHOLTZ: So you spent your life in Silicon Valley and are known as one of the longest tenured technology investors. How did you find your way into tech investing?
LANDIS: Well there is the long boring story of how I you know, touched every stone along the path or there’s more of “The Moment In Time” parable answer and I’ll give you “The Moment in Time” answer and that is when I was in the fifth grade, I told my parents that I wanted to be a historian when I grew up.
Now my parents were both children of the Great Depression and so they were immediately horrified that I would, unwittingly, I was pointing to a profession that wouldn’t make me very financially successful or secure, and they really tried hard to talk me out of it.
And finally, one of them said “You know, Kevin, if you can figure out the history that hasn’t happened yet, then you are going to be all right, son.” And the other quickly agreed and I thought about that on and off ever since, that if you can figure out the history that hasn’t happened, that’s a really good thing.
And I think that that’s a pretty good encapsulation of what I do.
RITHOLTZ: That’s the definition of investing, history that has yet to happen.
RITHOLTZ: So I’m kind of intrigued by your background you have a BS degree it looks like this is a double degree in Electrical Engineering and Computer Science from UC Berkeley before you got your MBA. The first question is why not go directly to a tech start up, was there any — ever any lure to that?
LANDIS: There was, and I consider that but this is one of those moments where fate sort of intervened and my dad’s business was as a manufacturer’s rep in Silicon Valley, meaning he was the customer-facing office, he and his partner were the customer-facing office for tech companies based outside of Silicon Valley dealing with Silicon Valley customers, and his partner had a heart attack and had to go in for coronary bypass surgery during my junior in college and my dad needed it — needed me to come join the business because he would have looked like a one-man band otherwise.
So I spent the first four years of my professional career instead of learning more things about engineering, learning a lot about business and human nature and how to deal with people.
RITHOLTZ: So, Kevin, your first experience in the field was not anything that encouraged you to want to become a — an insider at some tech startup?
LANDIS: Right, but it — I mean, it taught me a great deal about human nature and about business and business strategy in my ear that led to the second job that I got out after business school as an analyst at a high technology market research firm which also began teaching me a lot of the things bit that I had thought that I’ve learned in school but actually weren’t true.
RITHOLTZ: (LAUGHTER) Give us an example of things you learned in school that turned out to be not sure.
LANDIS: Well, if well one of the one of the explanation for the market is that there’s a lot of incredibly brilliant gifted people doing perfect research and that everything that can be known about a company is already in the stock price, but when you’re an analyst at again, at a high-tech market research farm and somebody from a big-named financial firm calls and starts asking you a bunch of very naïve questions, it doesn’t take you long to realize that the Emperor has no clothes, and that maybe you need to modify your thoughts to realize that the world is not this perfectly ordered place where everything is all worked out.
There is actually a lot of confusion out there and that information is not really evenly distributed and all the forces that finance professors will teach you about why market tend toward efficiency, they are all valid arguments but things are usually changing fast enough and people are imperfect enough that markets don’t really always have it just right.
RITHOLTZ: Right, I couldn’t agree with you more. I find markets are kind of, sort of, eventually efficient but that’s the — still leaves a lot of wiggle room and hence, the opportunity for some investors to outperform.
LANDIS: Right, right.
RITHOLTZ: So you are an analyst for a number of years what else did you do before launching Firsthand Funds in 1994?
LANDIS: So after being, you know, staring out as an applications engineer, customer facing with my dad’s firm and then being a junior analyst in a market research firm, then I spent a couple years as a product manager at a little chip company in Silicon Valley and again it was great — just example for myself to realize some of the nitty-gritty stuff that I thought I understood as an analyst, even though I was close to the industry, I wasn’t in the industry and that — again, I just kept learning more stuff that I thought I knew that I hadn’t known.
And that was where frankly though I kind of realized one day that I was making more money trading stocks than I was by my day job and that maybe that was the wrong day job to have, and maybe my true calling was just to be the tech investor.
RITHOLTZ: So you launched Firsthand Funds in 1994, what was the process like of getting that off the ground?
LANDIS: Well, that was really daunting because you know a lot of times when you’re –particularly when you’re young starting out, you have the feeling like the existing business is some sort of a club and you need to get an invite to get in or somebody needs to give you a chance and you have to make that leap — you kind of have to make your own luck and no one is going to hand it to you.
And so my partner and I basically figured out how to form a mutual fund, at that time I couldn’t believe there was no high-tech mutual fund based in Silicon Valley and I couldn’t believe that I that I couldn’t find any examples of tech funds that were run by engineers and it seemed like, “Oh, my gosh, this is — if I don’t do this, I’m going to regret this for a really long time” So we need to figure out how to do this, and then we basically just — we pulled a couple million dollars out of our address book and got in touch with people that we had gotten to know who believed in us, and so “Here is this vehicle in and let’s see if we can make you some money” and that was basically our little start up state there, I think the joke was that our management fee was enough that we could each buy a sandwich each day and that was it.
So what are the advantages of running a tech mutual funds from right in the heart of Silicon Valley?
LANDIS: You know, you can’t bump into people and chit chat without picking up industry scuttlebutt. I mean I do — I had an example just the other day, my wife and I were working with a dog rescue organization and we took a rescue dog for the weekend while the fosters were out of town.
And you know, the guy came back to pick up the dog and we were chitchatting and all of a sudden, before you know it, we were talking about “What’s going on at VMware?” and “What’s the matter with this company and that company?” “What do you think about the CEO leaving there to go to Intel?”
And all of a sudden, I’m in the middle of a research meeting.
LANDIS: And I’m just handing this guy’s dog, so and same thing, you bump into somebody you haven’t seen in a few months at the grocery store, you are always swimming in it. And so people ask like what is your process for going out and you know, getting ideas and getting scuttlebutt (LAUGHTER) it’s like saying what is your process for getting wet when it’s raining. Just go outside…
RITHOLTZ: Dog sitting and shopping.
LANDIS: Yes, right.
RITHOLTZ: That is pretty funny. You’re also the CEO of the Firsthand Technology Value Funds, which is really interesting. It’s a publicly traded venture capital funds obviously focusing on emerging technologies, you were pre-IPO investors in Facebook, Twitter, Solar City, Yelp, Roku leading to the obvious question, why a publicly-traded venture capital firm?
LANDIS: Well, so that was a great moment in time here.
I mean you are probably well acquainted with how easy it was for companies to go public in the late 1990s and then the …
LANDIS: And then there is just the dramatic backlash against that, the pendulum swung really hard the other direction and it wasn’t just people being skeptical of startups and of IPOs, but was also Sarbanes Oxley and a bunch of other really draconian regulation that just made it really, really difficult.
The IPO went from being sort of this rite of passage that people were striving for to being this awful ordeal that people were avoiding at all costs, and that we just realized as we got into you know, 2007, 2008, 2009 that companies by the time they went public, they were so well-known and so expensive that a lot of those early returns that — and you just couldn’t get them in the public market.
So you know I had by this time, already made a career out of mocking and ridiculing …
LANDIS: …companies that failed to adapt on and you know started out in the 1990s I made fun of Jack in Data General you know by 2010, we were all making fun of Yahoo, and plenty of others believing.
And I kind of look at them and say, well, I’m running a mutual fund but in the industry, it is referred to as the 40 Act Fund.
LANDIS: Because that’s the — the Investment Company Act of 1940. And so one day, I just sort of looked in the mirror and I said, right, I’m here in Silicon Valley making fun of people who failed to evolve and I’m running a 1940 Act Fund.
LANDIS: And I thought about that a little, and said you know, I think we need to adapt.
And so we realized that there was an obscure branch of the 40 Act that talked about business development company BDCs and that had kind of evolved into this odd kind of a credit granting model, but we went back to the original version of that which is no, we say, business development company we can make this a venture capital portfolio.
And that was right around the time that companies like Shares Post and Second Market…
LANDIS: Were making it easier to get shares in start up companies.
So that was — that just sort of fell into place and we looked around and said okay, we’re just going to buy — we are going to look at — we are not changing how we look at companies, we are still looking for the same things, right place, right time, market that we like, this looks like a winner, and the that allowed us to really kind of go back to doing what we’ve always done.
I always tell people, you know, you don’t need to pay me to go buy Microsoft for you, you kind of have already discovered that one, and as is today, you know, nobody needs to pay me to go buy Apple, you can buy it on your own.
So what you are looking for are the companies you haven’t heard of yet and the so that’s why we made that shift.
RITHOLTZ: So why do that in a vehicle that’s publicly traded instead of just setting up a separate venture capital fund that doesn’t have to go through all of the usual public listing things?
LANDIS: Well I think that we’ve always had a bit of an egalitarian bent here where it should be available for everybody and it shouldn’t just be that you know, kind of, I don’t want to say elitists but it shouldn’t just be an investment vehicle is only available for the few, it should be available for everybody.
And so I like the idea of a publicly listed vehicle, I mean that is kind of the reason that we didn’t start out with a hedge fund to begin with, we wanted the doors open to everybody. And of course, you know, we’re unconventional enough that I don’t think we do very well in the standard public road show that you have to go through to do institutional fundraising.
So we’re not really adept at that game.
RITHOLTZ: So last question on the Public-Private issue, what you think of the line being blurred between these pre-public companies and publicly-traded companies and all of the SPACs that have come out as a sort of backdoor way to IPO companies that don’t go through that roadshow you are describing?
LANDIS: Yes, I think it’s a — first of all, I think it’s a good thing that people get in the habit of looking at companies through the same lens, you know, a late stage public company, you ought to look at it the same way you look at a public company.
And I think that would — that level of scrutiny, that is a good thing, but I’m also — I’m a really big fan of competition, I think it really brings out the best in us. So I view direct listing and back as basically other ideas coming in and competing with the sort of this historical model of IPOs, the standard S1.
And you know I wouldn’t — I don’t know if I would say the old-style S-1 process is broken but it is certainly bent out of shape and doesn’t work that well, because it is just — it is really onerous and it is really tough on the company.
So you really need to be able to put a lot of resources before you do it and that’s unfair to a lot of people and you should be able to go public a little bit earlier, a little bit sooner.
And frankly, you know, today there is — that process allows you to talk a lot more about where you’re going instead of just being restricted and only being able to stay where you’ve been. And where you’re going is kind of what matters for some.
RITHOLTZ: That is interesting, I know quite a few other people out in your part of the woods, venture capitalists like Bill Gurley have been big champions of the direct listing exactly because the IPO process has become increasingly difficult over the past, I don’t know, 20, 30 years? Is that — is most of this a post Dotcom implosion effect?
RITHOLTZ: Was it easier in the 90s?
LANDIS: Yes, absolutely, absolutely. Going public — going public in 2000 was still very, very easy, but you know if you look at the scandal, if you look at of the busted IPOs, the whole PETS.COM generation …
LANDIS: And then you combine that with some of the corporate scandals, i.e. WorldCom, Tyco, Enron, those are kind of my big three.
RITHOLTZ: You could say fraud. We are not afraid of the word “fraud” here.
LANDIS: Right, those — the reaction to those kind of got conflated, so corporate fraud and…
RITHOLTZ: I got you.
LANDIS: … busted IPOs kind of got conflated with– and everyone said, despite the fact that those management teams all went to jail under existing law and justice was served, people still said there ought to be a law and so they made Sarbanes-Oxley.
And I think that’s the equivalent of, you know, e going home and kicking the dog because your boss is mean to you.
So the dog they kicked there was, you know, the next 20 years of tech companies wanting to go public. The other thing I will say there is that you know, the direct listing and the SPAC merger are actually kind of converging on a similar path. Today, there is usually a big pipe of public investment in a private — or private investment in a public equity …
LANDIS: And that pipe investment is highly supportive of a SPAC transaction and it is almost becoming a standard part of it like a required part of it. That is kind of like building your book on the IPO, figuring out who is going to own that stock afterward and it has a lot of the lower cost associated with a direct listing. So people are talking about the blended cost with your pipe plus back transaction.
So the market is trying to find the right mix of that.
RITHOLTZ: Makes a lot of sense in tech stocks right through the 90s, really a unique period in history. I always kind of chuckle when I see some of the young ins compare the current market to the 1999 era or the Dotcom implosion.
Although I’m chuckling a little less these days than I was a year or two ago, what’s your take on this comparison, how do the 2020s matchup against the late 90s?
LANDIS: Well, first, let us talk about how to understand, you know, get I think the feeling that one gets here is we are reminded that a little optimism is a great thing and too much optimism can — you can drive right off the road and that can be a really bad thing.
So it is good to have people looking for — looking towards the future, looking to see what could we do, what could this company do, what — how do we change things for the better? And it should be about that. I think somewhere along the line though, there is a segment that simply is saying how we just get rich.
And there is nothing wrong with the profit motive, it’s great, I’m a capitalist, but you know, it should be what – how are you making the world better and what are you really driving towards.
I’m actually kind of encouraged that a lot of the sort of the striving and the looking forward what can we do has to do with solving really big problems, how do we go to space again? How do we, you know, Elon Musk wants to go to Mars, that is good for him, you know, but how do we send lots of other people there and how do we bring people back and how do we solve climate change? There are some really big things, there is old court a few years ago somebody said we were promised flying cars and instead, we get 140 characters.
LANDIS: To me – that was this great encapsulation again of just how you can kind of get off track when you got a bunch of smart people working on something, you know, it’s sort of, if you are working on making crops grow on some stupid online game that has limited value, on the other hand, if you actually are working on making crops grow, maybe that is better.
So I like that and I like that people are looking at companies and not saying, well, what did you do over the last five years? But what are you going to do in the next five years? That is the right way to look at it, it is the better way to look at it.
I just — I guess I would caution folks, a lot of the companies aren’t going to make it, a lot of these companies are going to fall short of their lofty goals, that’s probably okay, I mean it’s okay that PETS.COM you know, blew up because now you got Amazon, so for better or for worse, you’ve got Amazon, somebody made it, somebody made it work…
LANDIS: And somebody was actually right and all of the hype that they were generating.
And I think it will be this way again, and in the meantime, markets will do their damnedest to give us lots of opportunity to hurt ourselves financially.
RITHOLTZ: So two thoughts about that. One is PETS.COM might’ve been a disaster but today we have, CHEWY which is doing really well. I’m intrigued by the concept of genomic agriculture as the better bet than Farmville.
RITHOLTZ: Discuss some of the things you see that are really more along the flying cars progression than the 140 or 280 character progression.
LANDIS: Yes, right, right.
In other words, the sort of the John F. Kennedy “call to action” moment …
LANDIS: It focuses on duty instead of “Call of Duty.”
LANDIS: So yes. So I guess you know electrification of transport is a big deal, yes, you are still using power, but I think that the part that people are kind of learning from direct experience on their on their personal vehicles is that the great thing about having an electric drivetrain is that you can harvest all the energy that is built up in your vehicle’s speed and I always you know tell people go stand out in front of your house on trash day and watch this big heavy truck going from 0 to 10 miles an hour and back down to zero all the way up and down your block and think about all that wasted energy.
And if that truck had an drivetrain, they wouldn’t have to hit the break, they just ease off the accelerator pedal and you would regenerate and store all that energy each time they come to a stop.
So in other words, one of the biggest untapped sources of energy out there is the momentum in these vehicles and the so the minute you electrify, you start to harvest that.
Basic ideas like that are really a big thing and so I think yes, taking a lot of the waste out of the system and a lot of the wasted energy, that is going to get us a long ways towards climate change.
And there are going to be a lot of other great example, but I think if you go to space again, we are going to find better ways and better materials for insulation, you know, heatshield are serious business in the in space and you know I think 10 years from now, we will have much better insulators, so that means we are going to be much more energy-efficient and again that is going to help with global warming.
So there’s a lot that we can do, we have – really, really some daunting challenges but we can get to work on that.
RITHOLTZ: Let me jump in here and ask you this question because I started out trying to do a 2020s comparison to the 1990s and what I’m reading between the lines is the technology that you are looking at today seems to be much bigger, broader impact, more significant both politically, socially, and economically than some of the let’s call them more frivolous DOTCOM technologies that were investor darlings in the 90s and is that a fair compare and contrast?
LANDIS: I think so. If you look back in the 1990s, one of my favorite example is the you know, sort of creative destruction was we disintermediated travel agencies.
LANDIS: There were a lot of people who work in the — as travel agents, there are still a few but they are really kind of high-end concierge folks.
LANDIS: Everybody can go online and book their own travel, right? And in fact, you know, when I fly on Southwest Airlines, I disintermediate Travelocity and just kind of go straight to the Southwest site.
So that is a great efficiency but yeah and it’s not just the 1990s with everyone wanted a website, having a website for certain things, that was really, really good but even since then, you know, looking at what the tech industry did with transportation, the ride hailing services, Lyft and Uber, fixed a really, really daunting problem which was that there’s nothing wrong with the cab, it’s just that it is not here, the cab dispatch function just never, never evolved to where it ought to be.
So now that we have GPS in our phones, we can hail a cab no matter where we are.
That is great, it solved some problem but you know what I think a lot of us just sort of are uncomfortable with the idea that a lot of this amazing technology is really useful in keeping current on our Instagram feed and posting copies all over the place. That’s not a good look.
I mean even if you look good on your Instagram, that is not a good look just being all about that.
RITHOLTZ: Makes a lot of sense. So let me finish by circling back. Do you think the current environment is a late 90s bubble-like market and if not, do you see pockets of bubbles in any areas in particular?
LANDIS: You know,, somebody asked me the other day about do you see bubbles and I said, well, of course I do and I realized I there is the Haley Joel Osment character in the movie “The Sixth Sense” where he finally confesses to…
LANDIS: He says “I see dead people” and he is very scared as he says it, I kind of feel like I see bubbles everywhere I look and that’s — what I’m realizing is that is just the normal natural part of the environment. There are bubbles all the time everywhere and you just — you are not noticing them because when they pop, they are — each one isn’t necessarily big enough to take down the whole system.
But you know most companies fail, most companies don’t get there, the actual survival rate is a lot lower than you think it is when you do the real accounting of it and working with start ups, you can see that pretty quickly.
That’s okay. Lots of stocks are overpriced, that’s okay, because the benefit to getting a few companies be really successful and solving it, getting it right, those benefits are worth it.
RITHOLTZ: Quite fascinating. So let’s talk a little bit about we will start with the technology funds, doubling your benchmark is quite an achievement, but what I’m more fascinated by is you’re up that much without owning Amazon, Alphabet, Apple or Facebook, how do you accomplish that?
I thought you had to be in the giant big cap tech stocks to put up triple digit returns like that.
LANDIS: Well, you know it turned out that a $20 billion market cap can go to 40 billion just as easily as a 1 trillion market cap can go to 2 trillion. And in fact, in some cases even a little bit easier. You know, it is true that there are moments, and I you know, we saw these again you know in the 90s and at other times when people just want to pile into tech they pile into the names that they already know. And because they get comfort in those names, they feel like they understand them because they are familiar with them, it turns out those aren’t actually the same thing, but okay, fine.
There are moments when people do that. But taking a longer view, there is a better moment when people are craving growth and they’re saying that to go get a company that has robust growth reviews come, you can’t take the people who are already worth $1 trillion or more and populate your portfolio just with those names.
You need to find companies that, you know, maybe they’re — only 20 billion in market cap but they’re on their way to $100 billion, that is a better rate of return but you got to be comfortable that you’ve done your homework and it’s not a household name and people might look at your funny if you tell them that you own this crazy stock named CHEGG or ROKU, and that’s okay.
RITHOLTZ: What about Tesla? I know you owned it briefly but it really was never a significant part of this portfolio. Why not own a Tesla? Is it you mentioned earlier you don’t need me to tell you to go by Microsoft, is Tesla in the same category?
You know, Tesla is a great example of when you’re right, even if — forget why you’re right, if the stock is working, maybe the best thing for you to do is just turn off your computer and go to the beach and let it keep working for you.
And so you know, shame on me for thinking that I was you know overly clever when the market the market was really, really frothy, and so I thought I’d get cute, and on a really, really down day I would buy some beaten up Tesla shares and then write some covered calls again, and the worst I could do is you know make X percent and of course, then it rallied right it and I got taken out of stock.
And that was just me trying to prove myself once again that I’m not a very good trader and I should stick with investing.
LANDIS: You know, t when you see a company like this that becomes just absolutely unsupportable on the valuation side then the numbers just don’t seem to work, you can you know you can pull your hair out, you can shake your head or you can jay, all right, well, that is the power of optimism, that is the power of when people really believe in something, they will really support the hell out of it and find other examples of that that you can put in your portfolio that haven’t been discovered yet, and that haven’t gotten all of that psychology behind it just yet.
RITHOLTZ: I love this quote is yours, quote “I’d like to remind people that the time to invest in Netflix was when you never heard of Netflix” explain the thinking behind that.
LANDIS: Well, you know, the argument is that any great investment in technology and what you’re going to see is that those stocks performed best when people were just figuring it out and adding it to their portfolio. There was a moment where somebody would say, you know, ABC Corporation, never heard of them and then, oh, I think they’ve figured them out, oh yeah, I’m in on that idea, I like that.
And I just — if I look back over the years, some of our best year performance wise were when other people were falling in love with the — falling in love with the stock we already own, but we made those investment in years where we didn’t necessarily perform that well. So you know, you make your best investment in year two and maybe you get all the return out of it in year four when people catch up to your way of thinking and start to agree with you.
RITHOLTZ: Quite interesting. You know, you launch the tech funds 1999, sometime late in that cycle and the returns despite that timing, they have been top decile for over 10 years, 22 percent a year or for 15 years, 19 percent a year and I’m looking at your five year return is 40 percent a year, what are you doing that is garnering these sorts of returns? Is it simply finding these currently unloved but future loved tech companies? Is that the secret sauce?
LANDIS: The shortest answer that I can give you to that question is what are we doing being right and that is going to happen a fair amount of time — a fair amount of the time anyhow, you know I go back to my early days as an analyst at a market research firm and when people said, well, how big is this market going to be and how you to determine how big this market is going to be, nobody knows, nobody really knows how big upside is.
And that the market that you can understand really, really well are already established. You want to know that how big is the market for automobile tires? There is somebody who’s got all that data. You want to know how big is the market for dental floss and toothpaste, somebody’s got all that data, and you know what? That is not what you want to invest, it is really boring.
If you want to know the market for a new generation of small satellite, nobody really knows and that’s what makes it so interesting.
And so having worked in the job many, many years ago as a young kid and realizing that I was supposed to come up with a number, I kind of understand now that it is not all about buttoning up your spreadsheet, sometimes it is about leaning back in your chair, staring at the ceiling and asking yourself just how big has this market become? How big is this opportunity and that — that is the key thing there, where — when you see a company that is in the right place at the right time, they are on the right track then the question is just how much bigger could this market become? How much — how high is up?
And if you got a good feel for answering that question, then you’re going to be in some really promising stock and a few of them are going to work well for you and that is what’s going to make that different.
RITHOLTZ: So last of these questions, you are a board member at several Silicon Valley startups, I have to think that helps you keep a close eye on trends that are developing in the private sector, does this translate directly to ownership in the public sector?
LANDIS: Yes, absolutely, because in the commercial world, it’s not that you know, public companies only transact with public companies and private companies only transact with private companies, right? It’s all mixed together. And one of the things, of course that being on a start up board teaches you is that well, I guess it’s a sort of a peak behind the curtain and you see how much chaos is actually present at most companies and how you know, there — how many fires they have to put out every week while still focusing on the big picture.
And so you will — you know, you will learn a few things that are really important and then along the way, yes, you will get valuable scuttlebutt, you know, one of my favorite is the — well, my favorite observation is you ask people their opinions on things, you’ll get much more valuable information that if you are just asking for a data point.
And everyone thinks that insider insight is all about who is going to make their quarter, who is going to miss their quarter. I really couldn’t care less. That is the — that is the wrong game to play and you can get in trouble for playing that game anyway.
What you really should be doing when you are talking to somebody is ask yourself, this person is an expert at something, they know a lot of things that I don’t know, what can I learn from this person? And usually, it is not about them divulging some fact and figures, it is about them sincerely honestly sharing their opinion, those guys over there are a bunch of bozos, these guys over here are the right guys. By the way, the real talent is leaving company X and going to company Y, that is the kind of stuff I like to get and so yes, working closely with startup companies gets you that.
RITHOLTZ: Quite fascinating.
Let’s talk specifics about some of your favorite investments today, what sectors and types of businesses have you most excited?
LANDIS: Well, you know there’s always a collection of revolutions that are sort of underway within tech and you know, you hear about what is getting disrupted today and what is in mid disruption and what is in early disruption. So despite the fact that Netflix has been at it now for many, many years, we’re still kind of in maybe the middle innings of streaming and the fact that cable companies are still in business and still pushing the old business model is evidence that there’s more to come.
You know the old saying is history doesn’t repeat but it rhymes, what I would say is that today, Roku rhymes with Netflix, Roku was that company that when I talked about it three or four years ago, I got a blank stare and today more and more people recognize the name and kind of understand what they do. And they fit that pattern of the company that fights with no one and wants to be everybody’s partner and get themselves in the middle of that trend it kind of finds their niche within that ecosystem.
And the so I’m excited about the move to the sort of the on demand streaming and I’m excited about Roku’s position on what is still a really, really big wave.
So that is one example. Another great example I think is when we look at EVs electric vehicles, one of the things that you have to dig a little bit to get this appreciation is the voltage and the current requirements for electric vehicles are different and that requires a different materials technologies, so a lot of the more efficient electronics are not built on silicon but they’re built on silicon carbide and it just happens that there is this company that’s been struggling since, I kid you not, the late 1980, it is called CREE, and based in North Carolina, and they have been struggling their way down this really difficult learning curve of how do you work with this exotic material.
And they have finally found themselves in the exact right place at the exact right time because power electronic made with silicon carbide performed much better and give you better electric vehicles.
So you don’t need to decide if you want to buy Tesla or you want to buy Lucid Motors or you want to buy Neo, if you want to get exposure to this trend, you can buy CREE and we have, and that’s one of the stocks who has performed really well but still has a fairly modest market cap, and it has plenty of headroom and we’re really excited about that.
RITHOLTZ: I recall CREE is one of the big innovators in LED lights, I don’t know, 20 years ago, is this the same company?
RITHOLTZ: Who came up with the LED on a chip…
LANDIS: The company….
RITHOLTZ: Or something like that.
LANDIS: Absolutely right, but this falls into the category of a solution in search of a problem. What CREE developed was the ability to work with silicon carbide and they struggled for years to try to figure out what the end market for silicon carbide really pays and they thought it was LEDs for a while but then, what they found was that you didn’t have to make the perfect LED using silicon carbide, you could make a cheaper LED using other technologies and other material and you can do it in China, and so never mind all that.
And that was a really daunting challenge for them to get through that, but they did.
RITHOLTZ: Quite interesting.
So are these changes that are coming slow, iterative changes or are some of these more revolutionary than evolution?
LANDIS: I think that it’s – somebody once called a successful startup company an overnight success ten years in the making.
LANDIS: This — also, and if you think about how long we had cell phones before one day you look around and noticed that everybody had a cell phone you know for me that was gosh, you know, in the early 1980s when I was a college student, nobody had a cell phone, by the end of the 80s anybody in sales had a cell phone but that was about it but by the end of the 90s, it seemed like everybody had a cell phone, but all they were doing on their cell phones was talking.
So you can see that the big — the big important changes, they take years to unfold but when you look back at it, you can’t believe just how different these were from one decade to the next.
RITHOLTZ: So obviously EVs are a long-standing trend that has nothing to do with the pandemic, but you’ve mentioned some things that seem to be a little pandemic-related, obviously streaming being one of them, what about things like distance-learning and remote work? Are these pandemic trends are or do they have legs? Are they going to continue once things start getting back to normal?
LANDIS: I think those examples are both trends that were happening already but the pandemic accelerated them. One of things that happened here is that our daily lives has been so disrupted that almost anything is on the table. We are willing to rethink things and we are willing to go try new things.
And so that is overcoming the inertia, I mean inertia is really, that’s really tough, you got something that’s not broke, why fix it? And you know that’s what you pay your cable bill every month and figure that next month, I will work the other thing out. And you know, that is really true with education.
Unfortunately the state of education is such that you’ve got people who have through no fault of their own, are a great advocate of supporting education and find themselves being defenders of the status quo. And so I guess one great commentary I heard about a company one time is the guy said, this is a great company, they just forgot to evolved.
I would look at our educational system and say they kind of look like they forgot to evolve and this pandemic now is maybe, maybe going to give them the necessary kick in the pants to hurry up and evolve and figure out how to make it better.
I mean my alma mater, UC Berkeley they’ve got students living on campus or living off-campus close by but doing distance learning from their apartment rather than moving back to their parents’ house but that’s a little odd, it is clearly a workaround and I think that’s causing a lot of people to ask some very good questions and figure out what is the better way to do this and how — are we just getting stuck in our old ways of doing things or not?
RITHOLTZ: I think with college, there’s the whole social physical interaction aspect of it that gets a little lost with distance-learning, but there is obviously room for both, right? They’re not mutually exclusive.
LANDIS: Oh absolutely right. You could argue that the university experience, a lot of it is about learning in the classroom but a lot of it is about getting on with life and you know leaving the nest.
You can also argue that for elementary school, a lot of it is about learning but a lot of it is simply daycare so parents can go to work. You could argue that in a lot zip codes that it is actually about making sure kids are not food insecure and it is actually a great way to make sure that you’re investing in more ways than one in the next generation.
So one of the things that happening is people are stepping back and looking at the educational system and saying, well there is more than one function going on here. Which of these functions can be done better and differently and are these naturally bundled together? Is it right to bundle daycare and food with learning your ABCs.
Probably, it seems to work, is it natural to bundle together learning differential equations and organic chemistry with learning how to go out and do your own laundry and shop for your own grocery? Maybe. But you know just which part of this picture need to be disrupted and rethought and which part of the picture is working just fine and ought to be preserved. That’s a great exercise for all of us to go through.
RITHOLTZ: So let’s stay with that idea around remote work. Obviously, there is Slack and Zoom and all the other technologies, the enterprise companies like Google and Microsoft and even Apple for that matter have been big winners in this space, but I personally find the Groundhog Day effect of seeming every day is the same, you’re not what you describe as the person who you’re dog sitting for or going to the supermarket, you very much miss that and I think it’s as true for work as it is for school or your local community.
What do you think stays from the work from home phenomena once we get past the pandemic, what changes are taking place and how will the world look after things get back to quote unquote “normal” if we ever do — we’re certainly not going to return to pre-pandemic world, but what does normal look like in the future?
LANDIS: Well, one thing that I think changes, you know, I am looking for the silver lining, right? So one thing that I think that changes that is a really good thing is that people are focused a lot more now on deliverable, so when we are just going to have a Zoom meeting and we are going to talk about X, Y and Z, we are going to get to the end of that Zoom meeting where it’s going to say, “All right, well, we are going to come back around in three days and meet again.” and this is exactly what people need to have achieved or brought back to the table here.
So I guess the coworker who just sort of hangs around and chit chats with everybody and tries to look busy and tries to be in meetings and all that, doesn’t actually contribute that much but is just trying to make sure he keeps his job, that guy is in trouble because in the age of Zoom meeting sand in all of this and working from a distance, you can’t hide the fact that you’re not delivering the goods. Or it is much harder to hide that.
So I like that, you know, I get — this came partly from a conversation I had with a woman who is a — went from being at a consultant to an employee and she said, you know, actually consultants do really well when they get hired because every time that they have a meeting or project, they’re looking for what the deliverable at the end and they always come thru with something and they force people to define what it is they need and what it is they want.
But that is not the only thing, there is a lot of other stuff that maybe the softer side, the more creative side where just hanging around other people and thinking about things and bouncing ideas off each other, that’s really great, I guess that maybe the journalistic equivalent of that is where the good story ideas come from. They get – you know, ideas get tossed around and people think about things and magic somehow happens.
But that takes place in any workspace where the people make each other more creative by this total interaction, that’s the thing that I think we are going to find has been missing in all this work at home stuff.
So we need to get — we need to get the right mix of that so I think there will be a lot of offices that will tell you that you only need to come in a couple days a week and you can work from home some other days.
RITHOLTZ: Makes a lot of sense.
Last pandemic-related question. So casinos are close, sports gambling seems to have all but disappeared and a lot of people are replacing it with trading. What do you think of the whole Robin Hood TikTok Reddit community actively daytrading, for lack of a better word, is this anything significant within the market or is this just a small niche of visible but not especially market-moving participants?
LANDIS: Well, you know, first off, I will just comment that at as an active — as active investors, we can’t complain that the market gets it wrong from time to time. I mean markets were always right then we would have to go find a way to make an honest living somehow.
LANDIS: So that’s for the you know the Robin Hood crowd, I love those guys when they are buying stocks that I already own and but you know I don’t get to have it both ways. If people get overexcited about something, there could be a harm and you know that and you could or you can paint all sorts of scenarios, right?
What if you — what if the Robin Hood crowd is your favorite stock right through the ceiling up to a point where you just absolutely can’t justify it and so you do the rational thing and sell it and then it keeps going up. So everyone thinks about like this is going to crashes, it’s going to be terrible and all that, I look at this and think how many people got forced out of Tesla because that crowd pushed that stock up so fast and they would have been better off if the stock didn’t look so explosive to the upside and they just made a lot — a lot of money over time.
You know, I think we all look back with certain things with regret and I mean, I look back at Amazon, it’s been out of my portfolio for the last 10 years, I would be even happier today if I hadn’t let that stock just run right up from — out of my grasp.
So yes, one scenario here is that crowd takes some of my best stocks pout of my hands by making them too expensive.
Let’s talk about those downturns in those recessions, you said those are usually seen as bad times for growth stocks but they also reveal the best opportunities for what stocks are doing well and what’s just been coasting. Explain.
LANDIS: Yes, well, look, somebody said once that the you know, calling something a commodity is not a dirty word you know, certain commodities you know, there were times when you really wanted to own oil, there were times when you really wanted to own cotton futures.
If you think of growth as a commodity then growth is most valuable like any commodity, it is most valuable when it is scarce. Well in the midst of a recession, growth is really scarce and a lot of the mainstream companies that were — a good year was when they grew four percent and a bad year was when they didn’t grow at all, those companies might be shrinking and a lot of the other companies that you know thought that they could grow 10 percent every year are struggling to grow one percent or two percent, that is when growth really is the most valuable and if you can identify growth and see it where other people don’t get appreciated, you’re going to be making some of the best investments of your career right during those times.
And so yeah you look at 2008 and 2009, that was probably a really good time to get into Netflix, probably a really good time to get into Apple, in boom time, everybody looks like a growth story and that is wrong.
And during a bust, looks like no one is growing, that is also wrong.
RITHOLTZ: Quite interesting.
So I only have you for a finite amount of time, let me jump to some of my favorite questions that I ask all my guests, and since we’ve been talking about Netflix, let’s discuss what have you been streaming these days? Give us your favorite lockdown entertainment?
LANDIS: You know I have to say that like a lot of people like complex business and drama and true crime story, that “Breaking Bad” put us all on a really dark path and for me, that path went from “Breaking Bad” to “Narcos” to “Ozark” to “000” to “Gomorrah” and so currently I’m streaming “Gomorrah” which has got me thinking that I can almost speak Italian and it’s just very dark.
And so I need to break out of that rut because you know, it’s not a good place to be soaked. The other great thing that I saw the other day was a biography on Ulysses S Grant, and it was a wonderful look, when most people look at that period in US history, they focus on Lincoln.
Grant was a wonderful strategist and it was a great example too of an individual who wasn’t really a big success in life until he found his role and when he found his role, he became a big success and that was wonderful. And I’m a big fan of the “Planet Money” podcast over at NPR, but of course, I did listen to “Odd Lots” the other day on their story on TSMC and I thought that was well done.
RITHOLTZ: Taiwan Semi.
LANDIS: And I love — there’s one called “Cautionary Tale” that talks about disasters and how they happen. And then finally “Hardcore History” is the kind of niche sort of a military history game which is great to you know to get your strategic gears turning.
RITHOLTZ: Quite interesting.
Tell us about your mentors. Who helped to shape your career?
LANDIS: Well I, you know, I didn’t — I didn’t work at the you know at the elbow of DaVinci or Michael Angelo or anything like that but I did read a lot from — specifically in investing from Peter Lynch and Warren Buffett. You know Peter Lynch when he wrote “One Up On Wall Street” kind of gave people permission to realize that they have an edge, you’re an expert at something, you just need to figure out what it is.
And so as an engineer who was looking at tech stocks and wondering about the efficient market hypothesis, that was a great way of framing things, that was very helpful. And I just love the homespun wisdom of Buffet, he is great at actually being a bit of a disruptive radical and disguising it as being very conventional kind of homespun avuncular guy, but both of those people gave really well reasoned explanation for why it was that the Emperor has no clothes and that is one of those great lessons in life that they don’t tell when you are a kid growing up that the adults are kind of making a lot of this up as they go.
LANDIS: And it’s not quite such an orderly place as you are led to believe.
RITHOLTZ: To say the very least.
Let’s talk about everybody’s favorite question. Tell us some of your favorite books and what you might be reading right now?
LANDIS: A couple of books that I really enjoyed early on had to do with individual overcoming adversity so “The Count of Monte Cristo” “The Old Man and the Sea” and “The Old Man and the Sea” is still kind of my favorite and made me enough of a Hemingway fan that I later on I read several of the other books and one that stuck with me was “For Whom the Bell Tolls” set in the Spanish Civil War and have a great lesson that there are times when you need to be decisive and you’re going to regret doing the thing you know you need to do.
I like reading strategy books, so you know, Michael Porter’s “Competitive Strategy” is a classic, you know it provides a great framework for a lot of your competitive thinking but if you’ve already read that, I recommend “The Art of War” kind of a classic, and on the economic side, I think a great book for me was “Free to Choose’ by Milton Friedman, but I guess close runner up behind that is “Freakonomics” which is just a wonderful way of just being — being creative and how you frame the question is really, really important and I got a lot out of that.
Now the next book I have to tell you one of the silver lining from the pandemic was getting in the healthy habit of going for long walks and listening to books on tape, so I have listened to “The Great Gatsby” now finally and enjoyed that a lot.
But when I was a senior year in college, I’ve gotten into an argument with a guy who is a sociology major and you know, sciences versus humanities and I made the case that you know, really, if you are going to learn the science, you have to do while you are at the university.
And I think the way I won the argument at least in my version, I won the argument, was that I said, I can always go read “Moby Dick” good luck five years from now getting your head around quantum physics.
LANDIS: And so you know, I never went back and read “Moby Dick” so the next book I’m reading will be going out for a walk, a long walk with a podcast and “Moby Dick” is up next.
RITHOLTZ: That’s interesting, to be fair to the sociologist, I recently took a course on astrophysics on line, it’s not the same as having those exams coming up each quarter but you do get broad exposure to an area you might be interested in. Not the same as the class but certainly intriguing.
And I had the same experience that you did with “Old Man and the Sea” I started reading it on a flight to Florida and by the time we landed, I was done and it was just an absolutely, you know, it’s one of the books you are sad when it is over and you immediately want to reread.
LANDIS: Yes, yes.
And you really want to meet the Great Dimaggio, that was the great – but the hero of the story, as his own hero and the Great Dimaggio that he hears about on radio.
RITHOLTZ: What sort of advice would you give to a recent college grad who is interested in a career in either technology or investment management?
LANDIS: Well, I think I would give the same basic advice no matter what your career interest is and that is so much lies whether it’s – is your career and what business you are going to be in, it’s not really about money. Money is a construct that many economics professor will tell you it’s only there to facilitate ever more conflict bartering and you are always bartering what it is you could do for somebody and what it is they can do for you.
And you are making all of these trades and so before you start sitting down and figuring out how to barter, you need to understand what it is you have to offer other people. You need to get to know yourself and figure out what it is that you can offer others.
And if it is not enough, then you need to cultivate that, you need to work on what can you become. And once you figure that out, then you can make your way in life a lot more effectively.
And I – that it’s not about finding a job that you can get that pays well, that is only one component, right? I mean the perfect job is one where — the perfect career is one where you enjoy it and so even when it’s not payday, you still enjoy going to work, you are good at it, and other people value it.
If you can get those three things to line up for you, it’s going to click but you can’t do that unless you really know yourself.
RITHOLTZ: I think that is pretty good advice.
And our final question, what do you know about the world of investing in technology today that you wish you knew 25 or so years ago when you were first getting started?
LANDIS: (LAUGHTER). I guess what I would say is that the world is a much bigger mess than you realize. It really is chaos out there. And there are a lot of things that are far from perfect and that is actually a good thing. Because it means that you can go out there and you can find ways to improve it and I think the example that everyone can relate is that – generations of people complain that they couldn’t get a cab and then somebody created a ride hailing service where you could and got rich doing it.
So yes, it is a big mess out there, and we can’t complain about it, our job is to say to ourselves with the conventional wisdom usually wrong about something, maybe more than one thing, our job is to figure out what the prevailing wisdom is wrong about and then act on that.
RITHOLTZ: Quite intriguing.
Kevin, thank you for being so generous with your time. We have been speaking with Kevin Landis of Firsthand Funds. He is the CIO of Firsthand Capital Management and President and Chairman of Firsthand Funds.
If you enjoyed this conversation, well, be sure and check out any of the other 400 or so we have done over the past seven, almost eight years, god, that’s pretty insane. You can find that at iTunes, Spotify, wherever you find your favorite podcast.
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I would be remiss if I did not thank the crack staff that helps put these conversations together each and every week. Reggie Brazil (ph) is my audio engineer, Atika Valbrun is our project manager, Michael Boyle is my producer, Michael Batnick is my head of research, I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.