NYU Professor of Marketing Scott Galloway joins Yahoo Finance to weigh in on Exxon Mobile's removal from the Dow, how he's wrong on Tesla, the 'education cartel', democratizing retail investing and more.

Video Transcript

JULIE HYMAN: We are joined by Scott Galloway, a frequent guest on the program, NYU professor of marketing. And also much more-- we're going to talk about part of what that "much more" is in just a few moments. Scott, it's great to see you.

And I wanted to ask you about the Dow, because you have talked to us a lot about this sort of importance of technology in the markets and in the US economy. When you look at these changes that the Dow has made, what's your reaction?

SCOTT GALLOWAY: Well, the changes are more spectacle than historic. To a certain extent, this is the Dow kind of taking profits and diversifying away from technology and selling some tech and taking their tech allocation from 28% down to 20%. It has impact on the specific individual companies, because there are a lot of passive and active funds that base buy and sell on whether or not these companies are included in the Dow or certain indices. But long-term, it doesn't-- I don't-- I don't think it has much of an impact on the companies themselves or the markets.

I think there's a larger issue here, and that is I would argue that the Dow is one of the most dangerous numbers ever manufactured, because it creates this delusion of prosperity and that all is fine. If you were to say how is the health of the commonwealth, the health of our populace, the health of the economy, you wouldn't guess that the Dow is at an all-time high. So unfortunately, I think this index has gone from something-- it represents America, which it does not, and people will portray it as, as something that's really just a proxy on the economic well-being of the top 10%. And spoiler alert-- they're killing it. But it is totally disarticulated from the underlying economy or the health of our nation.

JARED BLIKRE: Jared Blikre here. I want to shift over to the S&P 500, and specifically Tesla. You've been outspoken about the company before. Nicholas Colas of DataTrek was out with an analysis yesterday saying they might not join the S&P 500. It's not fit to complete, because their profits came from regulatory credits. Just wondering what your thoughts are on this matter.

SCOTT GALLOWAY: So Jared, first off, I would warn your viewers that anything I say on Tesla is likely wrong. I have gotten Tesla wrong. You're talking to someone who 14 months ago at South by Southwest said in front of 3,000 people that the stock would crash below $100. And I think it sits at $2,000. I mean, Tesla, to a certain extent, is this perfect example of how COVID-19 is an accelerant, bringing the future forward 10 years.

At the outset of the pandemic, Tesla was the fourth most valuable automobile company in the world. You had Toyota. You had Volkswagen and then Daimler. And then Tesla-- fast forward five months later, Tesla is number one and worth more than the other three combined. If Tesla sells every car in the world for the next 10 years, it would be hard to justify its valuation based on traditional automotive metrics.

It feels as if we're in this era where the narrative has become more important than the numbers. And everyone has accelerated their vision of a company and its narrative out 10 years. And people look at Tesla in 10 years and think they could be in space. They could be the largest power company in the world. This company continues to innovate, continues to perform.

But the valuation here is just extraordinary. And I know this goes to our next segment. I would argue that Tesla and some of these other names, including Apple, are being bid up by mostly young men, mostly spending their stimulus checks, mostly levering up these purchases and juicing these stocks. So I think there's some very unhealthy underlying dynamics. But again, reading the fine print here, I get Tesla wrong every time I talk about it.

BRIAN CHEUNG: Hey, it's Brian Cheung here. I want to shift gears to something you've been pretty vocal about on previous shows, is education and the shakeup that's been happening with this pandemic. Something interesting that has been going on, especially on the big tech side, is Google with this career certificates program. They're floating a six-month program that could get people jobs relatively quickly. I'm wondering, what is your view on whether or not big tech in education is a narrative that maybe is being overlooked with the antitrust conversations happening in DC?

SCOTT GALLOWAY: I thought that was the biggest story that people didn't talk about last week, Brian, and that is-- and I'm a critic of Google, but a $300 certificate that is very focused-- think about the internet in the early days and what it did to this monopoly called newspapers. It went piece by piece and unbundled it. First, they went into the classifieds with Craigslist.

Then they went into the movies-- the movie portion with 777-FILM. Remember them and Fandango? And then they destroyed news with Twitter and Google.

The same thing is going to start to happen in education. You're going to see startups and big tech debundle education. In this instance, micro certification at $300 over six months is just basically an opportunity to get a job for 95% less calorie burn.

And the most exciting thing about this isn't that they're offering training or education for $300. It's it that most aspirational employer in the world [AUDIO OUT]. More people around the world said that that is their dream job, is to go to work for Google, is saying that they will evaluate this or they will place a value equivalent to a four-year degree for people who finish this six-month course and give them the compensation and the role of a four-year degree.

That's what's not talked about enough. Until recruiters and people at Yahoo start using a four-year degree from a world-class university as the hurdle everyone has to get over before they get a job at the greatest wealth creator in the history of mankind, US corporations, education is still going to have this stranglehold or cartel on the economy. So the most exciting thing about that is Google has said we are going to hire these people and assume they have a BA.

This is a very exciting story, good for Google. Bring it on. We in education have stuck out our chin. And the fist of stone called COVID and big tech are coming for us. The reckoning is overdue.

JULIE HYMAN: Scott, I want to, if I can-- hopefully it's not to tortured-- bring it back to what you were talking about, about those young men spending their stimulus checks, because maybe they need a little more education in some cases when it comes to making financial decisions and making bets in the market. Although maybe on Tesla, you could argue they've been right.

SCOTT GALLOWAY: Yeah, they've been right.

JULIE HYMAN: But you have made an investment in a relatively new app that is a challenger to Robinhood. It's called Public. It has a social aspect, where people can kind of chat about the investments that they're making.

But it seems to me-- if you're looking at the Robinhood situation, for every person who's made a lot of money on Tesla, there's somebody who's lost a lot of money on, say, Hertz. So is that what you're trying to address with an app like Public? Or what is sort of the distinguisher here?

SCOTT GALLOWAY: So let me start off. I think that there's a metaphor here for all of big tech, in that connecting people, organizing the world's information are really good things. What I think has happened in big tech is that their focus on scale, their focus on shareholders above and beyond every other stakeholder has resulted in some very negative externalities, whether it's these platforms being weaponized, whether it's teen depression. So what if we could go back to the beginning and say, all right, let's create shareholder value, but let's focus on some of the externalities? And I think we're at that point with online trading.

And I was-- I was-- like a lot of parents with young boys, was rattled by the suicide of Alex Kearns, who mistakenly believed that he was down tens of thousands of dollars, and then, to be blunt, threw himself in front of a train. And since then, Robinhood has taken the extraordinary steps of giving $250,000 of their billion dollars they have raised and committed to hiring an options specialist. In other words, they haven't done anything-- anything to deprogram some of the addictive features built into this app, taking a page out of the endless scrawl, taking a page out of the random rewards that Facebook and Instagram offer.

So at the same time, I think online investing is a great thing. You learn about the markets. My first investments in stock were when I was 13 and my mom's boyfriend gave me $200. So how do we get the great taste without some of the calories? I found Public-- no options, no margin trading, 40% female investors who tend to be more long-term.

So I think online trading is a wonderful thing. I think big tech is a wonderful thing. But I think with online trading, we have an opportunity to go in very early and say how do we ensure that young men do not become addicted and lead to mental health issues? And I think Public is addressing, or at least trying to be the good guy, in this space.

I tracked down the CEO. I invested. It's going to be a focus on education. I'm going to be doing seminars there. So hopefully, this is an opportunity to be what big tech should be, and that is 90%, 95% focused on all stakeholders, instead of 110% focused solely on shareholders, despite the damage it does to our commonwealth.

JARED BLIKRE: Scott, I hear you on the options and margin and leverage side of the business. I want to ask you about zero commissions, because we saw this really begin with Robinhood and now just about all the other retail brokers have followed suit. But they make their money by selling order flow.

And the wider the spreads, in order-- in other words, the more illiquid the stock, the more money the firm makes by selling that order flow. Do you see that as a conflict of interest? Is there any way around that?

SCOTT GALLOWAY: It is. And not only that, if you examine the order flows, Robinhood, my understanding is, is getting much greater fees for that order flow, because the person on the other side of the trade assumes and has found that the people making those orders on Robinhood, quite frankly, are inclined to make bad purchases. And so the order flow-- one order flow is not worth what another order flow is. But you're right, that could be-- that could be an issue.

What I think it comes down to, though, is a basic tenet of investing, and that is diversification. And also, don't trade too much, that fees can eat you up. So the bottom line is every consumer needs to understand when something's offered for free, that means you are the product.

In this instance, your order [AUDIO OUT]. Understand, what about that order flow is producing profits from someone else? Because it must be coming somewhere out of my expenditures. And that inefficiency, that dislocation you're talking about is the fee. But what's most telling is that certain order flows are worth more to people on the other side of the trade than others, which indicates they believe those people don't know what they're doing.

JULIE HYMAN: Scott, finally, I want to make another turn, if I may. When we have you on, we like to get your perspective on a lot of different things. You are really good at messaging. And so I want to ask you about the messaging that we are hearing out of the Republican National Convention.

There is a lot of fear mongering. I don't think there's any other word for it, which at times is very effective. Is it going to be effective this time?

SCOTT GALLOWAY: Well, that's the correct question. And Julie, you know my politics. I'm biased here. But I think it's probably-- I mean, this is what you have. You view it from a marketing perspective, you have the mother of all pivots from the Democrats going to the center, saying don't be scared of us.

And then you have the Republicans saying you should be scared of them, that it's going to be-- it's going to be bedlam. It's going to be chaos. It's going to be crime. It's going to be socialism. It's going to be San Francisco turned into a nation, right?

And I think that's probably, quite frankly, the right message. I don't think that at this point they have credibility offering a message of hope. I think fear is probably their go-to right now.

I would describe the Republican strategy as two-fold-- turn out the base and suppress the vote on the other side. And it may be effective. I think that's the right playbook.

They got a lot of criticism because liberal tends to be-- the media tends to be a little bit more liberal. I actually thought they did a pretty good job last night. I thought both parties did a good job of leveraging this new medium. I do not think we are going back to stadiums full of people with bumper stickers and red, white, and blue hats.

I thought both parties were on message and did what they did. But one is like don't be afraid. And the others be very afraid. We'll see which works. I think the RNC, from a strategy perspective, is doing the only thing they can do and try and motivate people with fear.

JULIE HYMAN: Scott Galloway is NYU professor of marketing. Thanks so much, Scott. Good to see you. Be well.

SCOTT GALLOWAY: Thanks, Julie.