In this episode, Mike Townsend speaks with Brooker Belcourt, CEO of Covey, an investment community open to all, powered by the smartest analysts in the world. Brooker is a former Hedge Fund analyst at Citadel, Coatue, and a Tiger Cub. He is also an avid investor, building a place to track his ideas, share them and learn from others.
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Mike Townsend: Thisconversation today is with Brooker Belcourt. The CEO of Covey. Covey is aplatform hosting analysts ranging from hobbyists to traditional financeindustry, veterans, and everyone in between effectively, they're bringing a tonof analysts together and then allowing. You to see who performs the best. Thecompany has raised two and a half million dollars, and Brooker has the perfectbackground to be doing what he's doing.
Mike Townsend: Havingbeen and worked with analysts for many years. I think this is a super excitingyoung startup and definitely want to pay attention to something. If you believein the, in the concept of an. Analysts as a method to determine what is thebest strategy for my portfolio and an analyst takes different approaches.
Mike Townsend: And wetalked about the different approaches that they take. Some are very specific ina niche. Some are high level macro, some are quantitative and Brooker breaks itdown for us. So I hope you enjoy this conversation. Here is Brooker Belcourt.
Mike Townsend: Allright, broker excited to chat with you. I was checking out Covey. I love whatyou're creating here, and it seems like it's been your your life path here. Andcertainly an exciting area to be in for myself and people listening. Can youarticulate what the initial vision was behind cubby cubby and how you sort ofsee things going.
Brooker Belcourt:Yeah, well, first I'm really happy to be here. I love the content you'reputting out so happy to be a part of it. So the why for Covey is we don't reallyknow who the next great investment analyst is. We have no infrastructure tofind them, and it's really a disservice to all of us that we don't know whothat next great investment analyst is, because if we did, we could allocate ourmoney to them and we could all benefit.
Brooker Belcourt: Andso Covey. Is a community to find and reward the next grade investment analystso that we can all copy their portfolio and attain greater wealth as a result.
Mike Townsend: Andthen structurally, how did you set this up? So what's the sort of underlyingmechanics of how, how it works.
Brooker Belcourt: Soanyone can join. It's totally open. You join and you create a virtualportfolio. Of stocks, cryptocurrencies, even ETFs. And so you enter them likeFacebook, 10%, Ethereum, 10%, totally virtual, totally free. And you buildthat. And then we start tracking your metrics. In real time, we have like 50metrics, hedge fund level stuff that we track every five minutes.
Brooker Belcourt: Andwe record all that for you, give you a shareable link. And then at the end ofthe month, we reward the best investment analyst. And, you know, we hope tofind the top 1% and we hope to allocate money to them.
Mike Townsend: So, sowhat does that mean? So if you, you reward the top analyst, does that mean theyget a, they get some fixed percentage of somebody's like, how does the actualmoney flow?
Brooker Belcourt:Yeah, it's a great question. So in the beginning we've been doing this forabout a year. And so for the last year we've been rewarding analysts in otherpeople's. So we were giving away basically cash in, in the form of tokens tothe top performing analysts. And what we're doing right now is we're saying,Hey, this community has created a ton of value and they really own thisdatabase of ideas.
Brooker Belcourt: Andso we want to reward them in our own token so that we can somehow transfer thevalue of this community. Back to the people who contributed all the data. Sowe're switching actually we're in the progress of doing this right now tolaunching our own native token. And so if you join coming, now you'll startearning our own native token and you'll be able to have some ownership in thiscommunity.
Mike Townsend: Andthe, okay. So the introduction of the token is primarily to incentivize peopleto. Is it what's the, what would you, how would you quantify the primaryincentive of the token?
Brooker Belcourt:Yeah, I'd say it comes down to three things. So first the token allows peopleto have governance of the community. So controlling how the future rewards aredistributed.
Brooker Belcourt:Right? It's it's we have to come together as a community to decide who is the,the next great investment analyst. So we have this thing called the alphaalgorithm, which we definitely talk about. And. Is our way of finding the nextgrade analyst. So it's governance over that. And then number two, it's staking.
Brooker Belcourt: Andso to, in order to earn tokens on Covey, you have to stake tokens. And thereason we do that is because. We we launched early on and a lot of people werejust joining cubby. It's totally free to join. And so we needed a way to beable to block the spam. So someone showing up creating a thousand accounts andone of those accounts doing really well, we needed a way to block that.
Brooker Belcourt: Sostaking allows us to block that and it also gives analysts a bit of aconfidence interval. So allows you to distinguish who's really confident abouttheir bets. So staking is another one. And then the third benefit, which willbe launching in 2023. Is any sort of monetization that happens from theplatform we hope to transfer some of that value back to the people whocontributed the data.
Brooker Belcourt: Sothe first one we'll see is we'll be launching a copy trading app in 2023 thatcopies the best analyst on Covey and token holders. We will be able to getdiscounts on that product, similar to how like Binance or FTX offers discountson trading fees to token holders.
Mike Townsend:Interesting. Okay. So it's not necessarily foundational to the user experiencethat you can have. I mean, it is now operating without a token and then tokencomes on and solves governance for product development, the staking toeliminate duplicate accounts and then incentives for future premium userexperiences.
Brooker Belcourt:Yeah, it's, it would be hard to do it without the token. You can, the token is,is our way of saying, Hey everyone, you're contributing data to this community.It's super valuable. We want to give that value back to you. It's sort oftaking us from the web two world and saying, Hey, we can actually give data orgive value back to these contributors. And that's how we're doing it is thetoken.
Mike Townsend: Gotit. What, what have you thought about. Or what, what is the, I would thinkintuitively that if somebody were to build a portfolio, have a macro thesis orbe investing in some area, they have some undifferentiated advantage in orthey've studied and observed something. That's the value that an analyst wouldbring is I would think that they. One revenue model would be, people can investin this person. And then this person gets a percentage of the rewards that youknow, it that they manage. So typical, like capital allocator, whether it's aVC fund that gets a percentage of what they carry or a, like an equity trader,a fund manager would typically have like a percentage fee that they take forthe amount of money they manage is that interesting to you. Do you feel likethat's flawed in a way, or what's the advantage of the model you set up incontrast to that model?
Brooker Belcourt: Soyou're saying basically allow like others to almost stake on an analyst andparticipate in the rewards that they get. I think that's a really cool concept.I think that's, that's something that's awesome that, you know, there are a lotof people who are contributing to the discovery of talent and those peopleshould be reward in some way. And so we're actually building tools to allowothers to stake on our analysts, to participate in rewards. And it introduces alot of like complicated dynamics, right? Because, well, how much of thoserewards should they be getting the people who are staking on an analyst versusthe analyst themselves coming up with the ideas.
Brooker Belcourt: Andso we're talking with our community about how to do that, but, but I love thatidea. And the other way, you know, switching your point to another side iswell, Covey is, is a great tool that allows anyone to credentialize themselvesto say, Hey, I'm the best analyst on Covey. Look at me because if you're thebest analyst on Twitter, no one really knows who you are. And no one trusts it.If you are the best analyst in fidelity, you don't know who that person is orthe best analyst on Robin hood, we that's totally lost. And so. With Covey, youcan credentialize yourselves. And we hope that there are going to be assetallocators coming to look at Covey. And we're having those conversations now tosay, Hey, come check out this amazing talent on Covey and help them get seatedand help them grow a fund. Cuz it's really expensive to launch a hedge fund.It's like $300,000. Not anyone can do that. And so hopefully we'll bring thosepeople in in other ways to be able to, to help in this talent discovery.
Mike Townsend: And isthere an, is there an initial revenue model or do you look at the tokens aspart of that or what you just mentioned too as well? The hedge fund is thatmoving into the revenue model and then early days is like free figure it out,get people to use it, build the community.
Brooker Belcourt:Yeah. So our revenue model is going to be off of the copy trading app. So we'regonna introduce an app in 2023. We're building it. Which will allow anyone toparticipate in the ideas of the best, the top 1% of analysts on Covey and thatstrategy we've been testing it ever since we've built the company. We love thatstrategy. The top 1% of analysts on Covey are up like 20% this year and a downmarket. It's it's a really effective strategy and we want to give that to. Andso now you can go to Covey and you can see our top analysts. You can manuallyenter the trades in your brokerage account. It's definitely a bit of a pain.You have to do a lot of work yourself to get those rewards of the upsideperformance. So, what we're gonna do is we're just gonna package that in an appand do all the work for you and charge a very low fee to be able to do that.And that's how cubby will make money and will obviously return value back toour community that contributed to data, cuz it doesn't exist without them.
Mike Townsend: Okay.So the app is the app foundational to the experience of letting so peoplewould, is it like mechanically? Is that working where people have a crypto. Andthey move that wallet into a Covey account. That's, that's held custody managedby Covey and then Covey is allocating making trades from the crypto accountinto the analyst portfolio. I'm kind of just riffing here, what I'm imaginingit to be. Yeah. How, how is this working?
Brooker Belcourt:Yeah, I love the way you're taking it. You're like you're deep in the cryptoworld and you're thinking about all these cool things that you can do with thecrypto. We're our first, version's gonna be super, super simple. It's basicallygonna be an app. You download it, you deposit money by connecting your bankaccount deposit a thousand dollars and pick a strategy top 1% of analyst ideas,and then we just invest it. So really, really simple you know, long-term, wecould do some sort of thing with custody and crypto, and I think that would beawesome.
Brooker Belcourt: Butit's just, it's just gonna be deposit money and then follow our top analystsvirtual portfolios that are on Covey.
Mike Townsend: Andthese are, these are analysts investing in, in public stocks, not crypto.
Brooker Belcourt:Yeah. So our analysts invest in equities, ETFs and crypto currency. So it's youget everything from them.
Mike Townsend: Gotit. Okay. So in the beginning it wouldn't encompass the crypto. Just be yougive them a thousand dollars connect to your. And then that gets issued intothe, the, you get an allocation of their portfolio based like the rightdiversity of their,
Brooker Belcourt:yeah. Basically you, you would copy their portfolio mm-hmm and you would haveyour own account investment account and it would be isolated. So the managercould never. Actually run off with the money. They never actually touch themoney. So it's all done through your own account that you set up on Covey andyou, you will get access to the crypto exposure as well. We found a way tosolve for that too, which is great.
Mike Townsend: Okay.Got it. You get access to the crypto exposure and that would be through anotherplayer where it's like, Hey, I want 20% in Bitcoin, 10% in Ethereum, Solana,whatever that would be, that thousand dollars comes in through the, the bank.
Mike Townsend: Doesthat get then sent to an exchange? Or is there some company out there thathandles this automatically?
Brooker Belcourt:Yeah, so there's a great company. Actually, our VC investors are also investorsin it. There's a company called alpaca markets, which is awesome. Think of itas like the backbone of Robinhood. And so if Robinhood was a front end, youcould just use alpaca to connect. To crypto to connect you to us equities. Andit does all the trades for you. So it's really great software.
Mike Townsend: Thatis cool. Got it. That really makes this possible. So you think about it, likelet's build a community let's let's I mean, this is, I would imagine whatalpaca must have been imagining who uses this because it's like, ultimately Ithink of what you're doing from the most abstract level is filtering through toget the. Accurate, truthful sophisticated investors, like the best analysts youcould say that most accurately predict the trends in the world. Is that, isthat kind of like, how do you think of what analysts are doing if you'redescribe what they're actually thinking and are trying to accomplish?
Brooker Belcourt:Yeah, there's we should definitely spend time on this. There's a lot of stuffhappening. So with analyst. Just to give you a little context what we've foundon Covey and what we've found, looking at different research that the greatanalysts tend to stay great. And we know this anecdotally, we love Warrenbuffet in 2022 because he is done great in 20, 21 and years before that aswell. And so we think that because he's done so well in the past, he's going todo great. And we think about this with a lot of a lot of other great investorslike Ray. And so that anecdotally works, but also we see it in the data. So wesee it on cutting. We see that the top 10% of analysts generally stay in the top10%. There's very, very little turnover in that top 10%. Like almost half ofthem just stay there month in, month out. So super sticky at the top. And inacademic research, this phenomenon is called performance persist. And it's beenobserved at retail, retail investors, mutual funds, and it's this stickiness atthe top.
Brooker Belcourt: Sothese great investors tend to stay great. And then in terms of like what you'reasking about, well, what, what are these people thinking about? What makes themgreat? It's really hard to say, I'd say their investment styles or lean morefundamental. And you know, they have totally different backgrounds.
Brooker Belcourt:They're from all over the world. They're definitely not from Ivy leagues andinvestment. Which is where currently we go and try to find the next greatinvestment analyst. And so they're from varied backgrounds. What they share isa, is a passion for investing. They're on all over Twitter, on fin Twitter,and, and they're on Reddit.
Brooker Belcourt: Theylove this stuff and they live and breathe it. And so I think that's the onlycommon denomin there.
Mike Townsend:Interesting. And do you feel that the analysts would, I would imagine thatthere's different niches within. the analyst world that you can observe acompany based on maybe it's individual fundamental performance.
Mike Townsend: Likeyou can, you know, take a quantitative or qualitative assessment. Like, Hey, Ireally like this CEO. I like, I he's super motivating. You know, you couldalmost give that bias towards the company. Like they're in a sense, they're,they're worth more. is higher because the CEO is inspiring. People wanna gowork for them.
Mike Townsend: Youcould say, okay, all the, you know, alpha beta, like I'm crunching the numbers.And then quantitatively, this looks like the right company macro perspective.What are the other, what are, what are the analysts? Do the analysts generallyfall into these categories? And are these categories competitive or does onetend to win out?
Brooker Belcourt:It's fascinating. I would say with Covey. it, what happens first is theydevelop this track record and they rise the top of the leaderboard. And thenthese stories start to be developed about how they got there and what theirstrategy is. And you'll see their profiles become much more intensive about,you know, their quant model or their short model and how they think about.
Brooker Belcourt: AndI think that's also true in, in the markets. When you look at some of the, thebest investors they, they start to do really well. They have this strategy andthink about Ray Dalio and he's got this strategy, he's doing it. And then hestarts publishing all these ways about how he got there. And then we start toget really into it.
Brooker Belcourt: Samething with Warren buffet. He's had this investing style of value. Investingpeople get enamored with it. No one really heard about it. Now they're enamoredwith it because this track record's so amazing. Who knows if that strategy evenworks anymore. It's probably gone. And then, and then we, we build this storyaround it all.
Brooker Belcourt: SoI think that's also going to be the case with Covey is these people are testingout strategies, trying to figure it all out. And then they're gonna craft a storylater about how they got there. But investing is, is so much about trial anderror. And Covey gives you this chance without risking real money to figure outyour strategies, figure out how to actually make money in the market.
Mike Townsend:Interesting. And, and is it, is there a, is there an, an effect to be aware ofwhere people fall into luck? You know, like if you're playing the slap machine,eventually you're gonna hit it. And then, and then people, if people obsessabout that time, or maybe over the last 12 months, A particular analyststrategy looks great, but maybe there's a bias there.
Mike Townsend: Like Iwould imagine cognitive biases must be . I don't know if it's, I, I haven'tgone down the finance path like professionally, but I would imagine havingfriends that have like bias has gotta be super prevalent in how you're thinkingyou know, the past success by.
Brooker Belcourt: Iguess like, yeah
Mike Townsend: Isthat talked about a lot?
Brooker Belcourt: We,we should probably talk about it more. I would say, well, back to thatperformance persistence thing is there's this barbell and Covey where the top10% are really, really sticky. And unfortunately the bottom 10% are also reallysticky. And then in between it's, it's really random. And so in between you getthose runs where it's, Hey, in this month, that person who's been long cryptoall the time does incredibly.
Brooker Belcourt: Andthen they're out of the leaderboard for the next few months as crypto doespoorly. Whereas in the top 10% they were in crypto in 2021, then early 20, 22,they went big into energy. And then they now are shifting into these growthstocks that have been so beaten down that are now ripping. And so you see themconstantly changing and that's what makes them so sticky is they can adapt intoall these different markets.
Mike Townsend:Interesting. And do you feel like these people have, is it typically aframework either that currently is emerging or that might, that you suspectwould emerge? Like, okay, so you're effectively taking the. Decision makingprocess on analyzing stocks, equities funds, crypto, and you're making itsuper, super transparent and public.
Mike Townsend: And.So I, when that, when that happens, generally the best rises to the top, thefastest, and you also get an acceleration of what the best is and increase thebest. So like the internet comes on board. The creativity of people is, is thepotential for creativity is facilitated by the connections of the internet.
Mike Townsend: Andthen I think of in the analyst world, okay, we have an object. It's to increasethe value of our portfolio and effectively it's give money. Allocate resourcesto projects that have the biggest upside and, and that might be commodities. Itmight not be a project, but it's a, how do we, how do we anticipate valueincreasing or decreasing in the future?
Mike Townsend: Andthen invest accordingly. It's a form of fortune telling, I mean, it's a form ofpredicting the future really, but it's necessary to do like I'm trying to makesense of it. I'm trying to think like what, what are the. What are the patternsin analysts? Are they, yeah. You know, like why would someone be goodrepetitively?
Mike Townsend: Whatdo they have insider information? Are people's brains susceptible to gaining abigger picture of the world? Like, do some people intuitively have an advantageover other people?
Brooker Belcourt:Yeah, I think it's the definitely the best analysts do tend to have some sortof a process. And so, so my background is I've been working at hedge fundsbefore Covey for the last seven or so years.
Brooker Belcourt: Andmost recently I was at Citadel before that I was at a tiger management Cub,which is like a big hedge fund complex. And before that I was at CO2. What Inoticed over that period is first any person who wants to put money into ahedge fund, they always ask, do you have a process? Do you have a process?
Brooker Belcourt:They want something that's repeatable. And I would say that each of the PMs orthe firms I, I worked at, they definitely had a style that stayed the same.When I looked at at Cotu Felipe LA font he's running 20, 30 or so billion.Hedge fund one of the most successful tech hedge funds. And he had this stylewhere he would invest in huge addressable markets that are pretty obvious,right stuff like streaming or access to fast internet.
Brooker Belcourt: Andhe would pick the number one player in that market and invest in it. So if itwas streaming by Netflix, if it was payments by visa if it was fast internet byEquinix, which is an enabler of really fast internet and he had this thesis andhe just kept doing it into different markets and he would have to get reallygood data to be able to do that.
Brooker Belcourt: Butit was a process that was repeatable and it wasn't that complicated. And atCitadel it, I observed something similar as well. There was trying to get allanalysts to get into this process where we would look. Quarterly reports. Andwe would try to come up with a process of predicting what was gonna happenafter the quarterly results.
Brooker Belcourt: Andwe would combine data with management conversations and try to predict that anddevelop a process so we could get a hit rate above 50%. And so it's all aboutdeveloping this process. And I do tend to see a lot of the, the top analysts onCovey, have some sort of a thesis or process that they do tend to stick with.
Brooker Belcourt:We're learning more about them. We've only been around a year or so, and we'relearning more about them and seeing who the top, the top analysts are and howsticky they are. And we're actually working on doing a little bit of a profilepiece on all of them so that people can learn more about their processes.
Mike Townsend: Hmm.That's interesting. And do you feel like that, that in the hedge fund worldwe've largely surfaced the best ideas? Or do you feel like there's a lot ofuntapped potential to analyze the world in a, in a, in a better way?
Brooker Belcourt: Oh,I think there's, there's so much untapped potential. I think that, yeah,there's, we've learned that in this whole Reddit phenomenon in wall street,bets and fin TWI.
Brooker Belcourt: andall, all the, these apps that have developed that have popularized investing,we've learned that there are these amazing. That are not working atinstitutions, not working on wall street. And they have these ideas that aretotally differentiated, that are not being deployed by wall street. And soCovey's goal is to go and find these people because there's no infrastructureto find them.
Brooker Belcourt: AndI think there's an amazing talent, an amazing alpha left to be able todiscover. And it's a huge realm. Where we can create almost a new mutual fundcomplex that beats the old mutual funds that you and I would probably never putany money into because we just don't trust the institutions that run thesemutual funds like JP Morgan and Wells Fargo.
Mike Townsend: mm-hmmmm-hmm and the people who would be the analysts themselves I'd imagine. Liketable stakes would be, you have to be full-time if you're going to be one ofthe best, you know, this can't be a part-time thing that you just throw upthere, like a lottery ticket. There's probably a identifiable repeatableprocess. And there's some uniqueness to the process. You know, if you don'thave any one of those.
Mike Townsend: It'sprobably, you're probably not gonna be a top analyst. Are there other thingsyou, you anticipate that will separate the top analyst from the rest?
Brooker Belcourt: Ithink to be, I think that the two out of the three things you said reallymatter, I would say, I don't think you necessarily need it to be a full-timejob right now.
Brooker Belcourt: Ithink just like a lot of the, the tech startups, these things start as theseside hustles for people. Covey's probably a side hustle for a lot of people,right. And then they see that they're doing really well and it turns into moreof a full-time job. And so I think that part is, is we're really gonna appealto the side hustle and hopefully it'll be a full-time job for people later on.
Brooker Belcourt: Interms of the other trade, you just, you really need to be passionate aboutinvesting. There's a big group of us that we wake up. We check out stocks in, inthe foreign markets. Nine 30 is a ritual every Monday through Friday, where wecheck the market open 4:00 PM. We're thinking about. And we just love thisthing.
Brooker Belcourt:Love chatting stocks, that annoying person at the dinner party that just wantsto talk about crypto or stocks. And, and, and that's definitely a personalitytrait that you almost need to be addicted to it. And a lot of our analysts lovethis stuff and, and could chat your often. We have a discord server where wechat about ideas.
Brooker Belcourt: Sothat's the other trait that I'd say to.
Mike Townsend: Yeah.What type of personality trait do you think is most commonly. Like in, in asuccessful analyst, is it like, I can't imagine that most people are deeplymotivated. Like making money has certainly gotta be a motivation. It's like thereason you play the game, but it's not really the motivating, engaging, youknow, thing, cuz there's some people who have made more money than they canspend, like Warren buffet.
Mike Townsend: It'snot about the money. At a certain point. How, how do you think of the differentmotivational factors or like personality types of people that, you know, maybepeople are sitting there thinking like, oh, you know, I'm really interested inthe market. Maybe this is my calling and then they should feed it more.
Mike Townsend: Like,how would you, if you were to talk to a young person or anybody, how do yousort of think of like fi identify who these people are?
Brooker Belcourt:It's, it's really tricky to say. I think for me what it is. In life. It's sohard to find like these absolute truths things that are like definitely true.And so when you think about what investing is, is it's coming together with allthis different research that you put together and then placing a bet andsaying, I believe that this is going to happen.
Brooker Belcourt: Youknow, I believe that everyone's going to start using TikTok and Facebook isgoing to fail as a result. And it's so rare in life where you can actually.Come up with an idea and place a bet and then be proved right or wrong withpretty definitive certainty. The market will ultimately be the truth teller.
Brooker Belcourt: Andso I think it's people who are really attracted to, to that process and, andtesting their assumptions and, and really making, like putting themselves outthere and making a bet that's one personality trait. And then another one thatwe see. Just the, the classic analyst simply doubts everything.
Brooker Belcourt:They don't, they don't believe I in anything and they doubt everything and theythink everything's BS and they, they try to, to question it all and, andhopefully be proven wrong.
Mike Townsend: That'sinteresting. yeah, I could, I really liked what you said there about the. Likeit is, it is, there's an absolute, absolute to the market.
Mike Townsend: Likethe Bitcoin price is there's this one price. Yeah, sure. It may vary like in,in some small degree by exchange, but really that's just noise on the, on thepricing indicator. And it is also kind of differentiated. I think, of fromgambling, like in gambling, you have similar mechanics, right? You're trying topredict the future.
Mike Townsend: Youmake some sort of educated bet and there's a quantifiable outcome that'scorrelated to like your monetary returns, but the sophistication of betting isshallow. It's not, and it's not influential, so it's both not sophisticated andlargely like the complexity of it. It's like, okay, I'm gonna make a bet withyou, or I'm gonna buy a lottery ticket or pull a slot machine or roll a dice onthe table.
Mike Townsend: Butultimately like the inputs to that are pretty limited. Like, I, I can only pickred or black or pull this thing. And, and so I think sports betting gets moreengaging. Like I I've listened to some podcasts by sports betters who have likea system, like they're more close to. Market analyst then I think then justpeople buying lottery tickets, but it's, it's some, there's something similaralong that same vein.
Brooker Belcourt:Yeah. It's one of the few places in this world where you can come up with athesis and actually find out if your thesis is right and, and profit from it.But I think, as you're saying before, it's not necessarily a profit, it's justputting yourself out there and believing in something and then seeing if itturns out to be true, that that's the part that I love.
Mike Townsend: Yeah.Well, I wanna talk about that for a second. So we have truth, right? Is themarket. The market is undeniably the price that it is. And like I said, there'ssome buy, sell slippage there. the there's often I find that I'm fascinated bythe, the biases that people have on like a collective level. You know, I thinkin crypto, especially there's an assumption that Dows or community based votingsurfaces, the best ideas, and maybe that's like an inherited Western idea ofdemocracy inherited up, or maybe it's a fear of centralization, but I fear thatI feel that.
Mike Townsend: In away there's a, there's a blind spot there where like the herd mentality can bewrong. Like EV everyone can be wrong on something. And yeah, I see thatsometimes happening in the markets. And I would think of analysts as like,they're the ones independently thinking, and they're the ones keeping themarket from going off the rails or from believing something that's not true andmoving us all in the wrong direction.
Mike Townsend: Do yousee any like consistently played. biases in the market that you think are thatmost people don't appreciate.
Brooker Belcourt:That's a, that's definitely a tricky question. I think. Yeah. I think over longperiods of time, the market is definitely true. And so there are over shorterperiods of times. There are these like booms and boom and bus cycles.
Brooker Belcourt:Mm-hmm which tend to happen. And. Pushing up on fear and greed and, and you cansee that most recently in 2021 with the loose monetary policy, everyone gotoverextended and then it, it pulled right back in. And so the, the marketdefinitely goes through these swings. But I, the one thing that I would observejust from my experience at at hedge funds is when you look.
Brooker Belcourt: Theway people model companies like Google Facebook and Amazon, the consistentthing I noticed was people always assumed that revenue will decelerate fairlyquickly for large companies like Amazon and Google. And so they see the revenuegrowth of 40% this quarter. Then next quarter, it's 39% the quarter after that30.
Brooker Belcourt: 3536 and slowly decelerates. And they, they, they become more short term cited.And what actually happens is if you look at the models for Amazon and Google,is that revenue like rarely does decelerate. And when these companies are doingsomething extraordinarily well they can attain incredible revenue growth overlong periods of times.
Brooker Belcourt: Andso consistently analyst model deceleration and. With these amazing companiesdoes not turn out to be true. And so I think it's that old premise that we getreally excited about something happening really fast and it doesn't happen. Butthen if you wait five years, it happens like way bigger than we actuallythought it would ever be.
Brooker Belcourt: Solike we overestimate the short term and we underestimate the long term, Ithink, is that thesis and bill gates has quoted that. And you see that inanalyst models for investing.
Mike Townsend: Yeah.That's fascinating. yeah. Why is that? We underestimate the short termunderestimate the long term overestimate, the short term.
Mike Townsend: Weyeah, we want, I think of it from first principles perspective. We want, wewant the most from the least amount of work. So if, if we're seeing thathappen, there's like a positive feedback loop that can it be exploited when, ifyou think of them like resources, sometimes I, I like to think in real simplenatural terms.
Mike Townsend: Soit's like, if there was a ton of, if we stumbled upon. A ton of fruit. Like allof a sudden we're walking in small tribes, like pre-history days, humansdiscover all this abundant fruit and maybe they index on that being thestandard. So it's like, oh, we discovered this. So that, that will continue to bethe way it is or they'll be even more if we keep going.
Mike Townsend: Andit's, it just seems like such a deeply encoded part. Like, like life, like, isit, do you view that as a flaw? Do you view it as a judgment flaw? That is,that is across many, many, many different people that, that we get these boomand bus cycles or, or on the flip side. Yeah. Do you view it as like, yeah,this is a good thing.
Mike Townsend: Thisis the ideal way markets should grow.
Brooker Belcourt: Ithink it's just really hard to think long term. and to understand howcompounding works. And there's Warren buffet will say this whole time that likethe most misunderstood thing is compounding. And it's just like for our brainsto understand what something growing at 10% over long periods of times looklike is just, it just, it's so hard to, to capture that in our own head.
Brooker Belcourt: Andwe're really good at figuring everything out on the short term. It's just sohard to think about things long. And a lot of the greats like Warren buffet cansee, can look at Coca-Cola in the nineties, in the early two thousands and say,okay, this thing can still keep growing at 10%. Whereas a lot of us will belike, ah, everyone drinks Coke.
Brooker Belcourt:It's over this. There there's no point in investing this thing, but the thingjust keeps chugging along, keeps chugging along, cuz he understands compoundingand what that looks like over long periods of time. And so it's just so hardfor us to, to think 10 years out and to, for example, for cryptocurrency.
Brooker Belcourt: Tothink 10 years out and think about all the implications of what Ethereum couldbe like, what Bitcoin could be like 10 years out and wait that long and justsit and put it aside and, and, and hopefully not think about it as much as,and, and what will happen is you'll see that the usage growth will slowly startcompounding and you, you start with a million users on ethere.
Brooker Belcourt: Andif that's growing 20, 30% every year, that's gonna be a huge number and over aperiod of 10 years. And it's just so hard for us to fathom that and have thepatience to wait for it.
Mike Townsend: Yeah.Yeah. And do you feel on crypto that, that it will largely supersede theexisting financial layer we have now? Or how do you see crypto emerging? In thelike five to 10 year spectrum.
Brooker Belcourt:Well, I am incredibly bullish on crypto and I love listening to your podcastand, and hearing all about the different founders working in crypto that youinterview. It's awesome. So I am incredibly biased definitely the wrong one toask, cuz my answer will be that over a long period of time over our lifetime inmy lifetime, I believe that crypto will slowly take.
Brooker Belcourt: Ata lot of the things that traditional finance does and it will replace them withmuch cheaper, faster services. And so it will take a really long period oftime. I, I believe that it will be one of the biggest trends over my life. Andso that's why I'm working in this space, but over time they will slowly takeaway.
Brooker Belcourt: Itis simply a better service. Just look at the markets in the us, the marketsare. five days a week for six and a half hours a day, the crypto markets areopen 24 hours. Like that advantage alone is, should be enough to startmigrating people over to it. The settlement time in the equities markets arethree days.
Brooker Belcourt:Sometimes in crypto, it's done in. Like these advantages will slowly drawpeople over and the transactions are now getting cheaper. And so slowly it'sgoing to, it's going to chip away and you're going to see it, it happen, butit's going to take an incredibly long time, right? If you thought thate-commerce was gonna be the next big thing in the nineties, and you invested inAmazon when it was less than it was 0%, basically eCommerce penetration, youwould've thought, wow.
Brooker Belcourt:Maybe it could. To 5% today. I think we're at 20 or 30% and that's taken 20years. Like it's that's and that's eCommerce. And it's so obvious the benefitsof it now, but it's still only around 30%. It's for crypto to creep intotraditional finance. Like, if it gets to the same growth rate of eCommerce,that means that we could take 20 years to, to creep into that much of apenetration of a 20 to 30% penetration.
Brooker Belcourt: Iassume it'll go along that. So this is gonna take a very long time, but there'sgonna be huge growth for a lot of players in the space.
Mike Townsend: That'san interesting comparison. Do you feel like, is it to be specific too? Is it30% of all e-commerce transactions are on Amazon now?
Brooker Belcourt: Idon't think Amazon is having all of them, but definitely check it out on yourown.
Brooker Belcourt: ButI think it's, I think at 30% it's just the broad e-commerce sector.
Mike Townsend: Oh,got it. So 30% of all. Yeah. I'm sure we could Google this, but rough soundsabout right. 30% of all transactions are in. E-commerce probably more spiked onduring COVID.
Brooker Belcourt: .Yeah, I think it's spiked up in COVID but now it's back to the normal growth.
Mike Townsend: Eitherway huge, but still comparable to offline. And in certain level, like offlinejust makes way more sense, you know, if you're buying food or something. Butyeah, Amazon, the clouds, like, I, I sort of think of it. Like Amazon has justtaken all physical products and just made them a click away and that, and soeasy to do.
Mike Townsend: Andthe, if you explain that to someone 20 years ago, they probably agree thatthat, you know, you could map it out and say, well, you. All these logisticallines, you have all the products that are centralized in warehouses. You havedistribution trucks that run seven days a week. It all like payment processingis stored on the app.
Mike Townsend: Likethe it's not in a way, the simple versions that the, the simple aspects of whatAmazon is doing is not complex to explain. Hard to do in the back end. I couldsay build a warehouse, but obviously that requires a lot of work. And you coulduse predictive analytics to say an artificial intelligence maybe, but I likepredictive analytics better to say, okay, these are the products we expect thatwill be purchased in this city.
Mike Townsend: So, Imean, it just has a structural advantage to it and, and orders, a magnitudeefficiency advantage. Crypto, how do you compare, do you feel like. that cryptois the same order of magnitude advantage over the traditional finance base aseCommerce was to traditional commerce. Or do you feel like it's orders of
Brooker Belcourt: Agreat question. So if you think about the brilliance of what Jeff Bezos did ishe saw that over time things were going to be bought online, right? And so theway he thought about it is, well, what is this sector that I can start. that isso obviously better online and he didn't go to groceries. Right? That's reallyhard.
Brooker Belcourt:These things are super perishable. He'd have to have a warehouse that has afreezer section in it. He'd have to have a delivery truck that needs to get itthere super fast. He'd have to be custom. He didn't start there. He didn'tstart with couches that are huge and really hard to move in. He started withbooks.
Brooker Belcourt:They never perish. You can stick them in your warehouse forever. There is ahuge breadth of supply. There is so many different types of books. So you can,you can, you can really compete with the book sellers who are only able tostore so many amounts of books. And so he chose books as the first one and, andmanaged to build from there a huge empire that now 20 years later is now reallystarting to get into grocery.
Brooker Belcourt: AndI. The person, the founder. And I know you have a lot of potential founders orexisting founders listening. I think the, the person who's really gonna solvecrypto is the one who finds out, like, what are the books for traditionalfinance that I can bring into the crypto world and, and has something that's sofundamentally better that can drive people to switch over.
Brooker Belcourt: Andonce they figure that out, it will slowly go after the next industry. Right?Think about online, travel, how that. So quickly over and it's all these littleindustries, these little pockets of traditional finance are gonna get chippedaway at and over time it will take it. But I think the share of cryptotransactions will be very varied across different sectors.
Brooker Belcourt: Andfor me, I've picked data as an area that will move toward. Crypto much quickerthan other datas. We can talk about why I believe that's kind of like the booksof the crypto world, but there's yeah. Tell me it's up for debate. Yeah. So I thinkthere's this problem out there where a lot of web two companies are saying,give us all your data and we're gonna go and monetize it and we'll give you afree experience, but we're not gonna give you back any of that money.
Brooker Belcourt:You're crazy. Like we're not gonna share this with you. and I think that workedfine for a while. And now I think people are waking up and saying, Hey, youhave a lot of our data. I kind of, I want some sort of value of that. You needto start giving it back. And so Facebook is doing new things where they'restarting to give, you know, billion dollars to creators.
Brooker Belcourt:YouTube is sharing their revenue 55% or so with their creators. And so moremoney is starting to go. And I think that a lot of this data that we contributeI think is, is one of those things where it's like, data is the next oil.You've heard that all the time. And so how do we actually price data is goingto be a crucial thing.
Brooker Belcourt: Inthis whole equation of returning value back to the people who contribute data,we need to come up with a price of that data. And the token is an amazing thingfor that. So you come to websites like co. And Covey, you give us data, whichis your trade ideas. Trade ideas are a very, very small string of data, super,super tiny, right?
Brooker Belcourt:It's just Facebook, 10% Google, 10%, Amazon, 10%. And you give us that stringof data. That's incredibly, incredibly valuable, especially if you're a reallygood stock picker. And then we save that data for you. And then we try tomonetize that data and exchange. If you do well on Cove, we give you token. foryour data.
Brooker Belcourt: Soyou're giving us data, we're giving you tokens, but tokens are kind of ourpromise to say, Hey, we know there's value for this, and we're gonna returnthat back to you. And I think that model of exchanging data for tokens is, isan incredible model. And, and the cool part of what it will do is I don't knowwhat the price of an idea is.
Brooker Belcourt: Andit's really, really hard, and this probably will require a big market to startpricing these ideas. So as our token becomes more. It will start to price theidea of a trade from a successful analyst. And so then you'll have an abilityfor people to go in and, and buy ideas from others using tokens.
Brooker Belcourt: Andso that, that's kind of our bet and I can see that being applied to a lot ofother industries.
Mike Townsend: It'scool. I like it a lot. Good description. Brooker, where are there certain booksor people that you've learned a lot from, or the most from over your path, yourjourney?
Brooker Belcourt:Yeah, I definitely, I love reading books.
Brooker Belcourt: Iread a lot of history books. Books that I'm reading these days? My favoriteones that I got from From Cotu from fleet LA font. Also one of his favoritebooks is Engines that Move Markets. That's an awesome book. We talked a lotabout how these trends appear super. We get super excited in the short term andthen we lose track of what's happened in the long term engines that movemarkets describes all the big trends over the last 150 years, railroads canalsthe, the internet, obviously like radio and goes through.
Brooker Belcourt:Actual articles from that time period and shows how people were so pessimistic,pessimistic about all these big trends. And it's fascinating to hear theLuddites and all these big trends. There's always haters. And so it'sfascinating to hear that and compare it to all the haters of crypto these days.
Brooker Belcourt:That's a, that's a great book. And then these days I read about price wars.That's awesome. There's huge inflation in, in. Food markets. And that has anincredibly negative impact to poorer C. Where food is a much higher percentageof their income. And what it's it talks about is what can happen in thosecountries after a huge inflationary period of food prices, which is what we'regoing through now.
Brooker Belcourt: Andit talks about all the chaos that will issue. And so that's, that's fascinatingon the investing side. And then just one of my favorite books is non zero. It'sa great book. One of those directions of humanity type books Yeah, those are mytop three. I don't read that many business books.
Mike Townsend: Thoseare good ones. Those are good ones. I'm, I'm, I'm really interested to checkthose out Engines that Move Markets, Price Wars, and Non-zero. Brooker, are youwriting, tweeting anything you wanna throw out personally?
Brooker Belcourt:Yeah, I am all of Covey. I talk a lot. All the stuff that we're doing at Coveyit's, it's a big, big project we're on, we're building a community to find andreward the best analysts so that we can all benefit and it takes it truly willtake an entire community.
Brooker Belcourt: Socheck it out @Covey.io. We're also on Twitter and Covey underscore IO. We writea lot about what we're doing and share that on our website and on our Twitter.
Mike Townsend: We'llhave, we'll have all those links too, in the show notes. But how about you? Areyou writing or are you tweeting personally?
Brooker Belcourt:I'll I write and tweet all about Covey under the under the banner of Covey.It's everything I write is, is through there. And it takes up all my time.There's there's no like personal accounts. It's pretty much everything I do isCovey these days.
Mike Townsend: Nice.Congrats on all the progress, man. And hope to have you back on one day. Iappreciate you coming on.
Brooker Belcourt:Yeah. Thanks so much for the time you had great questions. All right, buddy.See ya.