The Bull Case for 2026 — ft. Tom Lee | Prof G Markets

Episode Overview

• The episode opens with a deeply personal story from Scott Galloway about how a simple mistake caused him to miss Pacific Southwest Airlines Flight 1771, which crashed and killed everyone on board, highlighting the role of randomness in life.
• The conversation shifts to investing in emerging technologies like AI, using historical parallels such as the dot-com boom and the rise of wireless technology to frame the current market excitement and skepticism.
• Tom Lee argues that an investor's age and perspective heavily influence their view on new technology, emphasizing that younger generations are the key drivers of adoption and long-term success.
• The discussion includes a detailed technical analysis of the October 10th crypto market crash, which is attributed to a specific "glitch" that caused a cascade of automated deleveraging.
• The episode concludes by identifying the essential human qualities that make a great analyst irreplaceable in the age of AI and pointing to undervalued sectors like small caps and financials.

Key Concepts

• Randomness and Fate: The podcast begins with Scott Galloway's harrowing story of narrowly avoiding the 1987 crash of PSA Flight 1771 due to a wrong turn, illustrating how seemingly negative traits like inattention to detail can have unforeseen, life-saving consequences.
• Historical Parallels in Technology: The current excitement and skepticism around AI are compared to previous technological shifts, such as the dot-com era, the advent of wireless phones, and the introduction of frozen foods, to understand market cycles and adoption patterns.
• Generational Investing Perspectives: The discussion highlights that established, older investors often misjudge disruptive technologies by focusing on protecting existing wealth, while younger generations are the primary drivers of adoption and ultimately determine a technology's long-term success.
• Valuation Principles: The conversation touches on classic valuation methods, citing Benjamin Graham's P/E ratio formula from The Intelligent Investor to argue that value investing principles can accommodate growth stocks.
• Crypto Market Mechanics: A detailed breakdown of the October 10th crypto crash explains how an illiquid quote on an algorithmic stablecoin triggered a cascade of Automatic Deleveraging (ADL), leading to a significant market downturn.
• The Role of Human Judgment: In the age of AI, the irreplaceable quality of a top analyst is defined as the ability to exercise human judgment about the future and distinguish between conviction (holding a thesis through volatility) and stubbornness (refusing to change your mind when the facts change).
• Undervalued Market Sectors: The conversation identifies small-cap stocks and financials as sectors that are currently undervalued and may present investment opportunities.

Quotes

• At 1:21 - "...the plane we were, we missed, went down." - Scott Galloway reveals the dramatic twist in his story about missing a flight due to a wrong turn.
• At 2:23 - "I don't mind missing stuff and being a little bit late. It's worked out for me." - Scott Galloway's darkly humorous reflection on how his flaws have occasionally benefited him.
• At 28:49 - "They mostly thought cell phones was an expensive yuppie toy." - Tom Lee, recalling how established experts in the 1990s wrongly dismissed the potential of wireless technology, drawing a parallel to current skepticism around AI.
• At 30:09 - "Young people are the ones who change the world." - Tom Lee, emphasizing that the adoption habits of younger generations are the most important leading indicator for the long-term success of technologies like AI.
• At 33:07 - "Do you still believe we're going to be in a cycle of labor shortage even with AI?" - Scott Galloway, questioning whether the deflationary impact of AI on the labor market will override the demographic trend of labor shortages.
• At 46:47 - "You also need to know the difference between conviction and being stubborn." - Tom Lee, on the essential quality of a great analyst, defining stubbornness as adhering to a belief after the facts have changed.
• At 48:57 - "Crypto's had a rough year. It was actually having a great year until October 10th." - Tom Lee, pinpointing the specific moment the crypto market's trajectory changed in 2023 before explaining the technical reasons for the crash.
• At 50:58 - "Is the reason we don't know what's happening because of the anonymity of crypto? We don't know who owns which wallets and so it's harder to track what's actually happening?" - Ed Elson, asking for clarification on why the crypto market crash was so opaque and difficult to diagnose in real-time.
• At 54:14 - "So that to me was a glitch because... an illiquid quote that didn't represent the true VWAP triggered an ADL." - Tom Lee, providing a technical summary of how a single flawed price on an algorithmic stablecoin created a domino effect of forced liquidations.
• At 26:45 - "None of us is an expert on the future." - Tom Lee, explaining the inherent risk of any investment that relies entirely on predicting future growth.

Takeaways

• To better predict the success of new technologies, focus on adoption rates among younger demographics rather than the opinions of established incumbents.
• In investing and analysis, strive to differentiate between conviction—holding firm when your core thesis remains valid—and stubbornness, which is refusing to adapt after key facts have changed.
• Re-evaluate classic investment frameworks, like Benjamin Graham's, to see how they can be adapted to value high-growth technology companies instead of dismissing them outright.
• Be aware that the crypto market's structure makes it vulnerable to technical "glitches" and cascading liquidations, where a single illiquid price can trigger a domino effect.
• Acknowledge the significant role that luck, randomness, and even personal flaws can play in shaping life and career outcomes.
• Consider exploring potentially undervalued sectors, such as small caps and financials, for investment opportunities that the broader market may be overlooking.