The Absence of Stuff (EP.83)

Episode Summary

Executive Summary: The episode ranges across investing fundamentals, student debt, financial education, advisor-industry consolidation, market structure debates, and consumer behavior. The hosts stress that long-run stock returns come from businesses growing dividends and earnings, argue that practical financial literacy is improving but still uneven, and suggest that Goldman’s purchase of United Capital signals continued competition rather than a wirehouse surrender. They also question sensational takes on WeWork, HFT, and surveys, favoring nuance over hot takes.

Main Topics: Why stocks work: dividend growth and inflation protection (Priority: 5/5): The hosts revisit investing basics, arguing that long-run equity returns come from companies increasing earnings and dividends, which helps preserve purchasing power against inflation. They use the S&P 500 dividend-per-share chart as evidence that upward compounding dominates temporary downturns. Student debt, Robert Smith’s gift, and the value of financial education (Priority: 5/5): They discuss Robert Smith’s pledge to pay off Morehouse graduates’ student loans and connect it to the broader need for financial literacy in schools and colleges. The conversation highlights rising state mandates and Harvard’s new personal finance offerings, while noting that elite institutions can still be out of touch. Career outcomes, networking, and personal responsibility (Priority: 4/5): One host reflects on his difficult early job search and argues that many young people blame external forces too quickly. The lesson emphasized is that connections matter, but so does effort, self-awareness, and accepting that early career paths often take time to develop. Goldman Sachs acquires United Capital (Priority: 5/5): The hosts analyze Goldman’s acquisition of United Capital as a sign that large financial institutions are serious about competing in the RIA and mass-affluent wealth space. They note private equity-backed advisor firms may need liquidity events, so consolidation was likely inevitable. WeWork losses, growth-stage capital, and conflicts (Priority: 4/5): They react to WeWork’s request that investors treat losses as investments, largely defending early-stage cash burn as normal while acknowledging that cheap capital enables aggressive growth. They also discuss concerns about related-party real estate transactions and whether the company can sustain investor patience. Market structure, HFT, and skepticism toward big narratives (Priority: 4/5): The hosts push back on Michael Lewis’s anti-HFT framing, arguing that competition has compressed HFT profits and that market-making provides real liquidity even if the public-good case is overstated. They prefer a balanced view rather than treating all Wall Street practices as inherently harmful. Personal finance behavior, surveys, and cultural commentary (Priority: 3/5): They critique consumer-spending surveys, discuss credit card delinquency trends, mock overused financial clichés, and comment on Game of Thrones, art auctions, and retirement habits. The recurring theme is that people often overread headlines and underappreciate the importance of saving, time horizons, and discipline.

Key Arguments: Dividend growth is a concrete mechanism by which equities preserve purchasing power over time, making inflation the central risk investors should care about. Long-term stock returns are driven by business earnings and dividend growth; temporary declines are small relative to decades of compounding. The Morehouse student-loan payoff is significant not just as philanthropy, but as a potential natural experiment worth studying over decades. Financial education is improving, with more states and schools teaching it, but elite institutions like Harvard still have gaps in representation and practicality. Career success is influenced heavily by networking and connections, but young people also need to take responsibility for learning the job market and exploring paths early. Goldman’s purchase of United Capital shows that big banks are not conceding the RIA space; they have the capital and strategic motivation to compete. Private equity-backed advisory firms eventually need exits, so M&A is a natural endpoint in the independent advisor ecosystem. WeWork’s losses are not unusual for an early-stage growth company; the real issue is whether investors are willing to keep funding the model. High-frequency trading should be judged in the context of market liquidity and lower trading costs, not only through sensational estimates of wealth extraction. Investors and consumers should be skeptical of surveys and headlines that extrapolate too much from weak data or cultural anecdotes.

Data Points: S&P 500 dividend growth: ~6% to 7% annually - Discussed as the long-run growth rate of dividends, illustrating compounding and inflation protection. Dividend drop during financial crisis: Decline in 2007-2009 described as small relative to the post-crisis rise - Used to show that temporary downturns are outweighed by long-term growth. Students to have loans paid off at Morehouse: 396 students - Robert Smith’s commencement pledge to eliminate the graduating class’s student loans. States requiring financial literacy: 19 states - Mentioned as part of the rising push to teach financial knowledge in high school. Harvard students from families earning $80,000 or less: Roughly 25% (eyeballed from chart) - Used to discuss socioeconomic diversity and access at elite universities. Harvard low-income student share: 3% (2000-2005) to 5% (2006-2011) - Shows gradual improvement in enrollment of low-income students. Harvard ranking among colleges for low-income students: 2011th out of 2,395 - Illustrates that Harvard still ranked poorly on low-income enrollment in the cited study. Goldman private bank minimum account size: $10 million - Contrasted with United Capital’s target market to explain Goldman’s strategic move. United Capital assets: $25 billion - Size of the RIA business Goldman acquired. Marcus assets: $35 billion - Goldman’s consumer/mass-affluent platform was cited as part of its broader push. Goldman private bank assets: $480 billion - Shown as the scale of Goldman’s wealth management business. WeWork Q1 loss: $264 million - Referenced in the discussion of growth-company losses and investor patience. Negative-fee ETF: -5 basis points for first $100 million; then 29 bps - Used to discuss the SEC-approved promotional ETF structure. 403(b) fund fee change: 4 bps to 3 bps - Example of administrative effort spent saving a single basis point. Young-adult credit card delinquency rate: About 5% in 2014 to about 8% now - Cited as a trend in 90+ day delinquency among ages 18-29. All-borrower credit card delinquency rate: Still under 5% - Used to argue the broader system is not in crisis yet. Estimated work absences after Game of Thrones finale: 10.7 million Americans - A survey cited and mocked as likely exaggerated. Charity auction artworks: Stainless steel rabbit sold for $91 million; white canvas sold for $15 million - Used to comment on extreme asset pricing and excess. Permanent life insurance contribution example: $100 per month for 40 years - Illustrated why a young single person likely does not need permanent life insurance.

Pivotal Quotes: "the entire boogeyman of investing is inflation" — Michael Batnick: He frames investing as primarily about preserving purchasing power over time. "saving and building wealth is the absence of stuff" — Ben Carlson: He explains why saving is invisible compared with conspicuous consumption. "I think that you should be able to disagree with somebody and not totally kill them" — Michael Batnick: A broader point about resisting social-media-style absolutism when evaluating public figures and ideas.

Implications: Listeners are encouraged to think long-term, ignore hype, and focus on fundamentals: savings, diversification, time horizon, and financial education. The industry takeaways are that RIA consolidation and fintech competition will continue, while hot takes on markets and culture should be treated skeptically.