Chit Chat Stocks - 2025 Portfolio Shakedown: Analyzing Our Personal Stock Holdings (NNI, PM, RELY, PTLO, + More)

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Starting point is 00:01:28 Now, please enjoy this episode. Welcome in. This is another edition of the Chit Chat Stocks podcast. My name is Brett Schaefer, and as always, joined by my co-host, Ryan Henderson. As you may have seen in the title, we are doing a 2025 portfolio breakdown, or we might be calling it shakedown. We have a A and B test going on for ourselves right now. But essentially what this episode is, is we're going to spend the first half looking at my

Starting point is 00:02:04 personal portfolio, and Ryan's going to come up with discussion topics, any sort of questions about why I hold this, why I sold that, why I have a big position in this stock, why I have this cash position. We're going to discuss my portfolio and he's going to try to poke holes in it or, you know, try to help me out and get a fresh set of eyes on it. And then we're going to reverse it for the second half. Ryan's going to show his portfolio and then I'm going to have some questions for him. Before we get to it, I need to say for any housekeeping items, if you want to follow the show on our Substack newsletter and join the chat community that has further discussions and follow-ups on every episode. We have the link right there in all caps in the show

Starting point is 00:02:50 notes. You can join that for free. Give us a review on Spotify or Apple. And as a teaser for any upcoming episodes to start 2025, we have more stock analysis episodes coming your way, perhaps with some of the stocks that are in our portfolio today here. We have some interviews, I think one on nvidia which will be quite fun and some super investor overviews coming your way in the next few months ryan i guess we should bring you in here any thoughts or do you want to get right to it and start the first segment oh yeah we got a very full content slate coming out i'm excited for this portfolio breakdown because honestly we have talked like we'll talk about a company and you'll mention whether or not you own it or not, but I actually had no idea what your whole

Starting point is 00:03:41 portfolio looked like since we dissolved the fund. Because of course we knew when we had the fund together, we knew what the holdings were like at all times. I didn't actually know what your portfolio looked like and I imagine it's the same likewise for you. So I think this will allow us to do hopefully a little bit of reflection and maybe some sort of early spring cleaning in terms of the portfolio and see what changes could be done. But yeah, I'm excited to get into it. We're going to go through all of our holdings. We'll have some specific questions to kind of rattle ideas off of one another, but why don't you kick things off? I guess, give us a little bit of an overview of your portfolio. I know the cash looks a little heavy here, but you have some reasoning for that.

Starting point is 00:04:30 So go through it, go through all the holdings and I guess from largest to smallest. Yeah. And I don't think the chart that we made here is going to be usable on like a screen share, but I will say we used the fantastic pie chart builder over at our friends at FinShed. It's one of the nicest things you can use over there. You have a little portfolio watch list. You input your positions. You can also input your cash positions and they build a pie chart and the allocations

Starting point is 00:04:59 for you. You don't need Excel. You don't need Google Sheets. It'll do it right there for you and use our link in the show notes and get a nice discount there. So yes, in my portfolio, just for any context for when we talk about this, I have included the section of cash, which includes any cash and equivalents, bonds, and it excludes cash we have in the podcast business account. But we both treat that as a savings and maybe the listeners don't really care about that. I'm not going to be discussing the cash position and any reason for holding any high yield savings account or the bond account over a public, but I want to give context for what

Starting point is 00:05:34 may seem like a large cash position. This is, you know, including the emergency funds and any sort of savings I have that's not in the quote unquote perpetual portfolio, that would be my Roth IRA. And I want to say that because as someone in my late twenties, you know, I'm not aging into retirement anytime soon. I'm going to have more income coming into these equity portfolios and retirement accounts each year, I don't necessarily worry about being overly concentrated or worry about volatility. And the other context I have here is that my stock portfolio is entirely in a Roth IRA. So I don't worry about any capital gains taxes or dividend taxes. At least I think there are some little rules around that that I sometimes get wrong. I try to have a perpetual

Starting point is 00:06:24 time horizon for this portfolio. I don't care about being overly concentrated at any one time. If something becomes a big winner, that's okay with me. I don't care about volatility. I don't care about one quarter's gains. My aim is to maximize long-term returns while also giving myself the flexibility with the cash position I have. And as we'll go through it, we do have some dividend payers in the portfolio as well. I want to have the opportunity to strike aggressively if and when we ever get a market crash. But don't think of it as having a 36% cash position here as any sort of market timing thing. That's just some of my personal finances and how I look at it when building my stock portfolio and having any cash on the sidelines.

Starting point is 00:07:10 Yeah. My general approach is fairly similar. There's a personal finance element to it that's included there. I excluded that from my portfolio breakdown. So I imagine if you excluded yours, it'd probably look somewhat comparable if you're just talking about pure cash actually in your brokerage account type of thing. But let's go through your equity holdings, largest to smallest. Do you want to just rattle them off here? Yeah. And I'll put what the percentages of the largest one and then maybe of one of the smallest ones just for reference i'm not going to name the percentages for all of them but in descending order so first one is the largest position the last one is going to be listed as the smallest position we have first nelnet it's over

Starting point is 00:07:56 20 percent uh then remitly portillo's coupon nintendo philip morrison international gogo Bolsa, which is the Mexican stock exchange. And then Grupo Aeropuerto del Norte. I think it's also Encentro. It's a Mexican company. So apologies for my Spanish accent there. But the ticker is OMAB. I'll probably refer to it as that. Besides the micro cap that has weird markings and a lot of volatility. That one is the Mexican airport operator is 1.9% of the portfolio. So I have a large position in Nelnet. Remitly is also large at about 8.6%, but that's simply because it's done quite well in the second half of 2024. And most stuff is in the 5% to 10% range. Does that make sense, Ryan, or any other qualifying questions you think listeners would like to know?

Starting point is 00:08:55 No, I think that makes sense. So just to give some context here, Brett, you own 10 individual stocks overall. That's the whole portfolio. That is correct, yeah. Okay. And we've got the percentages, just to give a little extra context, most of them are kind of between the 8% and 3% to 4% range. And then the only real outlier here is Nelnet with that 23%.

Starting point is 00:09:22 I guess, glancing at this for, I don't know if this is the first time you've done it in a while, but looking at it in a pie chart, is there anything that stands out to you about your own portfolio? I think I didn't realize, maybe I should have realized this, but I didn't realize that the two Mexican stocks I own are actually a bit lower on the percentage basis. I think that might be because the peso declined in value versus the US dollar, and maybe I didn't see that when it's marked in your brokerage account. That was a surprise. I was surprised that Philip Morris was as small as it was. I did trim some of that to buy something else earlier this year, and I guess I got lucky on the timing there because that has gone through a bit of a drawdown.

Starting point is 00:10:10 besides that not too much of a surprise maybe remitly because at an 8.6 position i think i was slightly surprised to maybe realize like when a winner can happen pretty quickly and it's not like this has been a monstrous winner it's up about i think 50 or so in a short time period which is it was just quite good and i'm happy with but it's not like it's up 400 500 like a Rocket Lab or something like that. Even if you start something at a 5% position, it can turn into a big percentage of your portfolio if it is a big winner in a short period of time and it starts going up much faster than everything else. Okay. Let's get into some discussion questions here. Let's say you get new cash. Someone gives you a gift out of nowhere. You get a whole bunch

Starting point is 00:11:05 cash what's the first company you would buy if you had that cash coming in in your existing portfolio yeah of the existing portfolio only yes we can do we can do watch this in a second okay yeah and watch this is tough because yeah there's so many things out there it's it might change day by day and i will say i do have a decently sized cash position across my account is probably larger than it typically is. And there's probably room for me to buy a couple of things in the next month or so if I want to. And looking at this question, my first instinct was honestly Nelnet because it's gone into a bit of a drawdown. And I do like this to be quite a large position for my portfolio, but I know that it's already a big position.

Starting point is 00:11:56 The second one that came to mind was OMAB, the North and Central Mexican Airport Company. It's only 1.9% of the portfolio. As I've researched more and more of the company, I think it's actually going to be my next stock research episode. I've gotten more bullish on them. My thesis has been solidified. My conviction has grown as I've done my research. I know that's dangerous.

Starting point is 00:12:21 You can't do too much research, but just know I'm still in the early stages. I kind of went with a invest and then investigate approach where I like the overall thesis that people have had and that I wanted to confirm for myself. So at a 1.9% position, I wouldn't be surprised if I upped that to the 5% to 6% range. And I know one of your questions is on the airport, so we'll probably talk about that later. So that's one I would definitely add with some of the cash position I have right now. All right. Now on the flip side, well, I guess let's start with the concentration overall so you've got 10 companies here in total is that where you want to stay or is do you want to expand to kind of more companies over time do you have

Starting point is 00:13:04 certain concentration levels that you're looking for is that is it something you've done strategically or is it kind of just circumstance i think 10 is right around the middle ground i think it depends on what I'm looking at. If there's some sort of sector theme or any sort of, I've never done this before, but I've read a lot of famous investors like Buffett has done this in the past. If there's a country that's extremely cheap and you want to do a basket approach, I could up that. Or if there's a lot of micro caps or small caps in a certain sector that I think are extremely cheap might be net nets and on their own could be um very risky but i think as in a if you're taking a basket approach with them you might buy like five or six of them i could see my you know

Starting point is 00:13:50 percentage of companies or excuse me the number of companies i own rise to maybe 15 or so and then if we get to a period where some of the extremely high quality businesses that i follow one of the you know Nelnet's one I already own but if that develops over time or if we get to a market correction and some of that happens I wouldn't be surprised if it goes down a little bit but I think it all depends on what type of companies I'm looking at I try to be flexible but 10 is kind of the target I set for myself and when I get to 10 I try to look if I'm going to add a new company, I like to do the exercise. And it's something that we used to do every two weeks is basically force rank all of my positions and then compare the company I'm looking at or the

Starting point is 00:14:41 stock I'm looking at to add to the portfolio with the one I ranked last, which I'm kind of leaning you in here to your second question, which covers that. Yeah. What company, if any, here is on the chopping block what would be the closest to getting rid of for you yeah this is a hard one and i tried to go with my first instinct because usually that you know i've hopefully researched these companies adequately enough so i know them fairly well and the first one that came to mind was portillo's i know the company has a lot of upside if it's right and i'm still optimistic on them but numbers don't look that great right now comp sales are struggling we're seeing restaurants struggle with labor stuff and input costs. And compared to some other things,

Starting point is 00:15:30 I don't think it's rock solid, like compared to a Nintendo or a Philip Morris or something like that. I just think there's a lot more downside there. Then if I can cheat and have an honorable mention, GoGo just did a big merger with another competitor. And that adds a lot of uncertainty to that business. And I think the thesis has to change a little bit. Although I think the original thesis of the launching the 5g and the global lower earth orbit network hasn't changed and i think they're on track for that merging with a company like that it was a big merger and they've taken on a lot of debt that adds some uncertainty there and i think that would have fallen down the rankings for me as well so that probably would have been second okay gogo and portillo's and

Starting point is 00:16:18 And for example, let me mention one that's on my watch list, one that's on your watch list as well. I don't think you've bought it yet, but you mentioned, I think to me, or maybe even on the podcast, that's something that you would buy. It is, I'll say a group, the franchisor of fast food companies in Mexico, Latin America, a little bit of Europe. I kind of look at them and go, well, why would I own Portillo's over them? I know both have decent long, long runways, but it seems like I'll say it is much better

Starting point is 00:16:48 run has much better profitability and is more rock solid from a downside perspective versus portals, which might have similar upside or maybe even more upside. But yeah, that's how I look at it. On that topic, because we're talking Alsea, what is at the top of your watch list that's not in your portfolio today that would be kind of number one, number two, next to get into the portfolio. I'll say is there. And after that, it's tough. There's so many things on my watch list that I feel are overvalued. The one that I regret not buying, and I know it's just looking hindsight 2020. I was so close in taking a small position in Rocket Lab before I went up 400 and 500%. And I'm kicking myself for that. Let me just take a look at my watch list right now and

Starting point is 00:17:44 Finchette. I do have, and if anyone wants to know, I basically just have a portfolio tab and then a watch list tab. And then I have actually different countries in there. So the first one I made was like Mexico, stuff like that. So just to divide it out, if I'm looking at it, Ally or Celsius, those are the ones that spring to mind as being cheap. Celsius, I think it needs to get a little cheaper before I'm interested, given some of the uncertainty on their growth going forward in the market share, snag nation ally i know that's what you want i think we're going to have a good discussion on that when we get to your section i like it here but i don't i don't love it yeah i have

Starting point is 00:18:27 this kind of leads me to like sort of a philosophical question but the i i have some competitive concerns with celsius that make it kind of hard for me to have any sense of what the company, what rate the company is going to grow out in the, I guess, future. So for example, we've talked about some of the new upstarts, making good headway, Alani new is one that particularly comes to mind. And I guess it leads me to ask this, like if we looked at Celsius a year ago, we probably would have said, ah, that's going to need a 50% haircut before we'd buy. It had a 50% haircut and I'm still sitting here saying, it's going to need a haircut before I buy. When do you just say no? When do you say,

Starting point is 00:19:17 this can't get cheap enough for me to feel comfortable? Well, I think it's when I have zero confidence or minimal confidence in my ability to predict their unit economics or profitability over a multi-year period now with celsius i don't i think the buy price is it's closer than 50 now for me maybe it's mid to low 20s like 23 to 25 versus i'd have to go look at the numbers again but given what um i remember from doing that episode a few months ago. That is what makes a lot of sense to me. And with them, I almost want a position where if they don't gain that much market share, we probably do okay. And it also comes down to what sector you're playing into. Is it a cyclical or a consumer durable? I think

Starting point is 00:20:18 the sector they're in matters a lot more compared to other stuff. And I know it's kind of a convoluted answer here, but I do have confidence that people are going to be drinking energy drinks and people are going to be drinking more sugar-free and quote-unquote healthier energy drinks going forward. There's just a lot that kind of comes into play of why I have conviction and that their earnings will be somewhat durable. It's just that growth prospects, like the beginning of this year, people thought they were going to grow 100% forever

Starting point is 00:20:55 and that was almost priced in. Now I think what's priced in is probably 10% revenue growth, maybe something like that, maybe a little bit less. I would like to get an opportunity where if we're wrong, if I'm wrong, I can still make money if they don't grow that much

Starting point is 00:21:13 from a market share perspective. Okay. You mentioned the Mexican airport, ticker OMAB. Can you just give us sort of a brief elevator pitch? Why did you end up deciding to buy it? And why did you choose that airport operator in particular? okay yeah so let's go into what the mexican airport operators are besides mexico city most of the airports are publicly traded companies in mexico it was some deal that they made where they privatized the business businesses in i think was 1999 then they went public on their own and this one is the central and north airport um you can try to read you know the name isn't in spanish but the reason that they've been successful and the reason that the stocks have done well since their ipos and i think the mid-2000s is because airports are good businesses

Starting point is 00:22:07 you're usually the only operator in town or one of the few operators in town and if they decide to add you know if the government or another business or whatever decides to add another airport it's usually because there is capacity constraints it's not like they're going to be competing for traffic. It's because they need additional traffic somewhere else. And for OMAM specifically, they're in the north and central part of the country. And this is the richest part of the country in general. If you look at Mexico's economy or Mexico's geography, the northern part is the richest, the wealthiest. The central part, which is like Mexico City, is maybe average. And And then the southern part, excluding the tourist zones, the southern part is the poorest.

Starting point is 00:22:59 So this is a place that has a lot of industrial capacity. It's where a lot of the manufacturing is done. And for them, half of their traffic is into the Monterey Airport. And that is probably the number one city that's going to benefit from the industrial build out and the nearshoring stuff. You have companies like Whirlpool, John Deere, automotive companies all working there. and all having factories there. It's a big metropolitan area, about 5.3 million people should keep growing. And we have the combination of population growth, demographics that are very

Starting point is 00:23:35 attractive of people that are going to be going from, you know, they have a lot of 20 people in their 20s and a lot of people in their young 30s, they're going to age up and they're going to hope, you know, hopefully get wealthier as the Mexican economy grows with this nearshoring stuff. more of them are going to be able to afford to fly on planes. So I think demand is going to grow. Now, what do the economics look like for them? Well, essentially they go work with the government and they have these long-term contracts. I forget what some of the names are, but they have a very long-term contract to operate the airport through 2049. And then they have these five-year development agreements that kind of set pricing and set all this stuff. There's a lot of

Starting point is 00:24:17 complications in there that we don't have to talk about in this episode, but hopefully I will cover correctly when we do that full episode sometime later this month. So when that happens, you know, they set these rates and they make money when a plane arrives and each person, if they arrive, they take a fee. Maybe it's $10. I don't know what exactly it is. They make money on that. So when volume grows, they make more money and their margins are quite attractive. It's about over 50% profit margins. They also make money on commercial activities. No need to go into the details there. But essentially, the thesis is they're trading at about 10 times earnings right now. The peso is depreciated versus the dollar, which I don't

Starting point is 00:25:02 think is going to be much of a headwind going forward. Famous last words, but I don't think it will be. And you have the opportunity for sustained demand growth, sustained volume growth in the Monterey airport over the next 10 to 20 years. I mean, if you look at what a price or what a flight costs from Monterey to Cancun or Cabo, and this is what like a lot of their traffic is gonna be, you know, you have someone who's emerging into the middle class in Monterey,

Starting point is 00:25:32 they have the ability to take a vacation. You can fly to those places nonstop for about $100 USD, maybe 150. The richer that area gets, the more people that are there there's going to be more and more people that can afford to fly into these routes. And then one thing in the short term is there was that engine recall, if you know what I'm talking about with the Pratt & Whitney engines that really hurt the low cost operators in Mexico.

Starting point is 00:26:01 So that suppressed volume in the near term, which, you know, hurts their revenue and it's depressing earnings. And I think in 2025, 2026 and beyond, we'll see a recovery of that. and earnings will keep growing. Okay. I like the pitch. Is this one that you, well, I guess you kind of addressed this a little bit earlier,

Starting point is 00:26:24 but is this one that you expect to add more to over time? Yeah, I would expect to add some this quarter for sure. I'm a little bit lazy about depositing into the account, but eventually I'll do it. And yeah, should buy some more.

Starting point is 00:26:42 Okay. Looking out five years, which company in your portfolio do you think could have the highest return? All right, listeners, we've got a new sponsor here at Chit Chat Stocks, and their name is Blue Chippers Club. Blue Chippers Club was recently started by two friends of ours with the goal of building a tight-knit community of stock-focused investors. Inside this community, everyone gets to share and break down their portfolios, pitch stocks, receive feedback, and participate in weekly calls.

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Starting point is 00:27:31 The link is in the description. My gut says Portillo's or the Mexican Stock Exchange, Bolsa. Tigger there is B-O-L-S-A-A. Yeah, those are going to be mine. I think Bolsa, the upside there, we just did an episode on them. And Ryan, you probably remember, I think there is a low downside and there's a small chance that it's a huge home run if they kind of get the momentum going with the equity markets

Starting point is 00:27:56 there. But yeah, so that could be, I think, a home run investment. But Portillo's probably has the highest upside. Even though I said that I would sell that, I think it's important for listeners to understand that just because something has high upside doesn't mean you should own it because you have to weigh the upside potential, what the potential, you know, what percentage you assign to that and what the downside is. And with Bartillos, I think there is a chance investors lose a lot of money.

Starting point is 00:28:26 So I wouldn't size this up much anywhere from here, but I also think if they're successful and this can become a national chain there's a hundred beggar potential or at least 10 beggar potential all right i like it we've covered a couple of the companies here but maybe we can just go through a couple more um i guess philip morris through nintendo here they're kind of close in your portfolio pie chart coupon nintendo philip morris which of those three do you feel the most optimistic about on a three to five year time horizon that's a good question and i feel like i'm doing these pitches uh and injustice and that when we do the full episodes on them they're much more refined uh so watch out for those if if i missed anything or if i got something

Starting point is 00:29:16 wrong i'm like talking about the airport don't shoot me but with those three i think it's really close and i would have to go you said three to five years yeah i think i'd have to go coupon given that given the growth right there but i still think nintendo is dirt cheap and we're seeing a lot of confirmation on this switch to kind of being what we expect from an investor perspective philip morris probably has the least upside but also the least the lowest downside i think it's going to be very very hard to lose money in philip morris over the next five years i like that which do you think which the companies in your portfolio do you think has the highest likelihood of positive returns

Starting point is 00:30:10 so last time we did highest potential return this time mixing it up kind of highest margin of safety i'd say nelnet or philip morris i think probably nelnet though because the diversification of all their assets and the fact that given the drawdown and maybe i should confirm this here i think they're trading at or below book value again and their book value is understating a lot of the values of their assets oh yeah it's about 1.1 times book value but either way the true quote-unquote asset value of them is much higher than what it stated there and yeah i think that with them i know that they dabble in perhaps some financial stuff that is opaque for us investors on the outside but not misleading just to be clear not not misleading it's not like

Starting point is 00:31:07 meant to be deceiving accounting it's just complex and difficult to understand Yeah, I'm saying opaque to investors on the outside, which add risks that we may not be aware of. Even with that, I'm pretty optimistic that it's going to be hard to lose money owning this stock over the next five years. Okay. I think that's most of the questions I have. I guess we kind of led with this question, but what – having now talked through it, what stands out to you the most about your portfolio? What going in – what surprised you? I think the biggest surprise is the fact that – I don't know.

Starting point is 00:31:53 I just need to buy – make the Mexican stocks into full positions, the two ones I have. I didn't realize the position sizing on them. yeah a foreign currency maybe i should have checked more i don't know but it's good it's good to use the visualizer to hit our advertiser again visualizer on finchat because it helps you really show oh okay it's actually not that big of a position and maybe i'm just scared because it's a foreign market or something like that but yeah that's probably the biggest surprise nothing too surprising though because i usually unless it's a risky micro cap or something a high risk position i usually just start something at about five percent five percent is kind of your

Starting point is 00:32:36 typical cost yeah i think that makes sense especially if nell net and some other stuff that have been winners are going to be a larger percentage and then you're going to have that residual cash position yeah yeah at a time like this what is your largest winner i think we have this year or we did this like two weeks ago i think we talked about this but in general in this portfolio what has been your best performer do you know it might have been philip morris but that's been through a large correction i mean if of this portfolio either now net or remitly but now that's gone through a sharp drawdown it could have been now net over a longer time horizon um i have sold some things trying to think what's come to mind but probably remitly

Starting point is 00:33:25 And that's just because it's done so well in the last few months. All right. Do we want to shift gears to my portfolio? Let's do it. All right. Any intro stuff that you want to give context for as we discuss this? Yeah, a couple caveats. I have, like Brett, some personal finance stuff here that would add cash to the portfolio that

Starting point is 00:33:54 I haven't included. So I have a high yield savings account with public. I have a decent amount of cash in my local decent, meaning relative to my stock portfolio, amount of cash in my checking account with a local bank. So those are not going to be encapsulated here. theoretically, if stocks went, I don't know, if the market dropped 50%, I could put some of that to work, shift it over. But yeah, this, my portfolio pie chart with which Brett, maybe you could share later as we start working through this. This is just everything that's actually in my brokerage accounts. So cash sitting in there, equity holdings. And I think that's pretty much it i'm going to go through i will say we didn't talk about this during your portfolio part

Starting point is 00:34:42 but one of my holdings here is harbor diversified which is a very illiquid small cap that recently had a transaction for it was trading around one dollar a share and i don't know if someone accidentally fat fingered it but sold sold some shares for one cent a share and so that's the latest marking on the stock, which makes the position look a lot smaller than it is. It basically makes it look like a 99% drawdown when that's just not really the actual latest mark. So that would be included there as well. But let's go through the rest of them here in order of size. Number one, largest position is Philip Morris at 23% of the portfolio. Number two is Coupang, 18%. Nelnet, 7.6%. Ally Financial, 6.4%. And then we've got a whole bunch

Starting point is 00:35:39 here that are kind of close in sizing, so I'm just going to fly through them. D.R. Horton, home builder, one of the largest home builders in America. Wise, O'Reilly, Remitly, Amazon, Cash. I have 4% roughly in Cash in the brokerage accounts. Autodesk, 4%. Paycom, semrush british american tobacco adobe and then nerdy which i haven't really talked that much about on the show but uh it's this another small cap that is kind of not really a company i believe in for the long term but has actually worked out all right so um i guess i'll leave it there and let you uh follow up with any questions yeah now my turn to grill you uh it is hard to sometimes talk on the spot here. So for anyone, listeners, they're not going to be as fully

Starting point is 00:36:30 fleshed out as the thesis we have or analysis we do on a full stock episode. This is more of our gut instinct and like, oh, maybe I don't like that that much. I'm going to research further later. So this is not like solidifying any opinions. And again, we should reiterate on this episode, none of this is investment advice. We're just going through our portfolio. We're not recommending anyone follow us you have your own personal situation i forgot here i didn't even write a question here but i should have realized that british american tobacco might be a new position for you is that true it is i was convinced after we did our episode on stocks we would hide in during a market crash so i convinced you nice i thought it was just a simple buy this is more

Starting point is 00:37:14 another one of those invest then investigates um which i've been doing more and more lately which concerns me that maybe i'm getting sort of lazy research lazy um well you can start with a starter position and then you know say oh fine if i if i like it then i make it a full position it's a small position 2.4 of the portfolio it's quite durable like there isn't too much product like business risk there's some margin of safety in the fact that like people have been smoking their cigarettes for quite a long time and they will continue to do so there is a little more risk i guess in their new age products but that's also i think quite good upside for them um and it was trading out a very attractive uh shareholder yield between dividends and buyback so

Starting point is 00:38:02 i figured it was timely um kind of do a little invest then investigate there's two new positions here british american tobacco and adobe um adobe okay yeah both of those were kind of similar invest, then investigate. And that's what I've done. Kind of my process lately, I guess, since we've closed the fund, well, there were companies that I already had in mind from the fund that I wanted to own, but I basically have done startup positions, uh, kind of on either someone else's work, or maybe I took just like a brief look at it, thought it was interesting, did a startup position, then I'll typically try to do a research episode and figure out whether or not this is something I want to dig into more and more. And if I don't do a research episode, typically I'll

Starting point is 00:38:55 let it kind of stay a starter position for a while, but yeah, kind of build up conviction while I own it. You're probably a little more disciplined with researching the stocks that on your watch list. But for me to have, to motivate me to do the real work, I kind of need some skin in the game. And so buying a share or two forces me to actually do some research on the company. So that was part of the motivation between Adobe and British American Tobacco. Yeah. It's one difference we have in our investing philosophies and it's really portfolio management. You're a starter position person. I'm not. It's really what you're comfortable with and what makes you a better investor. My first question here is I count 17 stocks in the

Starting point is 00:39:45 portfolio if I'm putting it incorrectly. I think I subtracted out the cash position. Is it the amount of positions you are targeting? Are you looking to trim any of the weeds? Do you have any set goals for the number of stocks? Kind of the first question you asked me as well. I would say no. Like I'm not – well, sorry. This is not the amount of positions I'm targeting. I'm willing to go higher and kind of continue to roll out this startup position strategy. Some of them will remain startup positions for good.

Starting point is 00:40:18 It's not like an uber-diversified portfolio. Like it looks like the top five or six positions account for probably 60% to 70% of the portfolio. So there is some concentration kind of at the top, but I'm happy to kind of buy a share, buy two shares, buy whatever, however much to create a starter position and then follow it that way. So I think where I'd probably max out is probably around 30 positions. I haven't been running kind of the starter position strategy long enough to feel like I need to trim the weeds necessarily. If I've done this for three or four years and there's been one that's just been a starter position for no reason, like the valuation has gotten cheaper and I've still just kept

Starting point is 00:41:10 it a starter position, maybe that's one that I would feel inclined to sell. But I haven't really experienced much of those yet. In fact, a lot of the startup positions have worked out better for me than my largest holdings, which is kind of – Hey, Coupang and Philip Morris have done well. Yeah. I'm thinking more towards Nelnet, which was big at cost. Harbor Diversified was big at cost, although you can't really see it encapsulated in the pie chart there. But Amazon was a startup position.

Starting point is 00:41:40 And even though I knew the business, I just kind of wanted to – I thought it was like potentially cheap after there was a big earnings drop. And it's one of those where I read their earnings calls every quarter. I love the business. I admire management. I think they do a tremendous job of executing and allocating capital even though they have their kind of moonshots-type divisions. And they've done a really good job kind of getting leaner. But – But just like for some reason, there's always a barrier to getting in to owning the company with big tech.

Starting point is 00:42:17 Like it's the same with Google. I would love to own Google right now. But for some reason, I can't get over the fence of buying it right now. I think we're just greedy on valuation. I think that's what it is. What's weird though, and I think I contradict myself with this prediction I made. I know it was just kind of our hot stock market prediction for 2025. I think Amazon might finish the year as the largest company in the world, but I don't own it.

Starting point is 00:42:43 I said that. But I also think, well, part of the reason I don't is because what do we have the year to date market correction here? I worry about valuations for the S&P 500. And that's a derail your conversation. But when people stop talking about valuations and kind of the narrative around today, well, 30 times earnings, that's fine. for the S&P 500, that's exactly when the market starts topping. But let's go to the next question. Your position sizing has a large skew. Do you have different levels for what you size a position? Do you have a starter, regular, and sized up position? Do you have different criteria like,

Starting point is 00:43:27 oh, it's 1%, 2%, or 1%, and then 5%, and then 10% to 15%, or do you just go case by case by case? I've kind of developed the same approach to you, which is I try to make the highest percentage of the portfolio at cost around 5%. Lately, it's been mostly startup positions, and I guess Remitly is a good example here, which it started as a startup position. I would say within a quarter, the stock had jumped a lot, but I was very impressed by the earnings, and I added to it. That's probably the way I'd like to continue building out larger positions in the future. Now, when we kind of set the portfolio from the jump, which I think was just over a year ago now, well, I guess probably a year and a half, I made a couple kind of larger at cost. And I've actually gotten hurt by it. Harbor Diversified was an example where I made it too large.

Starting point is 00:44:30 So I think adding over time, starting in kind of the 2% to 4% range and just when you feel the business development has been impressive or you feel that the valuation has gotten too cheap, like British American Tobacco, for example. Well, if I feel like the business results remain solid and the stock continues to drop, I'm going to feel very comfortable adding to that because there's such a commitment to returning capital to shareholders. So those are the kind of ones – there's kind of two reasons that I add to something over time, either really strong business development. So Rivetly is the example there, or multiple contraction on seemingly fine results. Yeah, unstable businesses. Yeah, and he can get dangerous to double down. He's not saying double down on something that keeps going down and down and down as a value trap.

Starting point is 00:45:28 I think this is the advantage. I'm not sure. I think it's mostly non-taxable here, but you can correct me if I'm wrong. It's the advantage of a non-taxable account where you could look at something like Philip Morris, which I guess, except for the last few weeks, was trading in a more premium valuation compared to the other tobacco names. And you have British American tobacco here, which seems extremely cheap.

Starting point is 00:45:47 It could be value-trapped. We're saying no recommendation or anything here. But you have a 2.5%, and then Philip Morris is your largest one. You could even that out a bit, and you don't have to worry about taxes. Yeah, that's true. The one thing that I see often

Starting point is 00:46:03 that I kind of have tried to refrain from is people say, oh, British American, Sorry, Philip Morris International, which is my largest position, trades at a premium relative to other tobacco companies, which is true. And there are a lot of – most of the tobacco companies trade at a discount relative to the market overall. But if you look at Philip Morris and what I project they can earn in the future, kind of the growth rate, the earnings growth assumptions, their valuation relative to most companies – like if we're playing the relative valuation game, if you're looking at it relative to tobacco, sure, it looks expensive. If you're looking at it relative to companies that are going to grow at the same rate, it looks really cheap. So I try to look at it on its own and I project they can grow earnings on a per share basis at a healthy double digit rate probably for many years into the future because the new age products seem to have so much momentum and are beginning to drive a higher and higher percentage of the portfolio.

Starting point is 00:47:17 So, yeah, I try to look at it independently if I can. I know tobacco investors love to group them all into one, and maybe I could even them out a bit. But just in terms of when I look at this portfolio overall, the businesses that I am the most confident in, and I'm talking about the actual businesses themselves, their operations, Philip Morris is probably at the top of the list. I agree with that. I mean, I have the same sentiment for my portfolio. it's one we overlap with. I don't know if I would be doing that evening out as we were describing it today, but if there's a case where Philip Morris gets a little more extreme, that is the advantage, as I guess I'm saying it twice, of the non-taxable account. All right. Third question,

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Starting point is 00:49:35 Not really. I don't think so. And it's nothing against Nelnet necessarily. They've made some missteps, and management has been pretty forthright about it, that they made some mistakes, like their investments with the solar construction and their – what was it? And the loan – not the loan portfolio, but the loan servicing division has had some – sort of a tough go of it. Not necessarily their fault, but I guess when you have one customer, which is really the government, your business is at risk. So there's been sort of a material decline in the business a bit. That doesn't mean I'm selling shares, but when I look at the opportunity cost and I look at some of the other companies in my portfolio, I feel more optimistic about some of the other positions, which just makes me reluctant to add to Nelnet here when I feel confident about adding to some of the other things first. That's fair. I think maybe I'm more optimistic on them than you. I wouldn't be surprised if they're a larger percentage of my portfolio.

Starting point is 00:50:49 and that I buy some this year or in Q1. But I get that. I mean, it's still your third largest position. Now, what's the one right below it is Ally. I know you purchased lower than here, but there has been some concerns with them. Do you think it's too – I guess it's not an outsized position, but do you worry about that position at all?

Starting point is 00:51:12 Maybe this is part of the other question I had, but, yeah, specifically on Ally, do you worry about them? A bit. Yeah. Now, I will say this is one that was a smaller position to start. Ally has been – I bought them pretty – I bought them cheaper kind of early when we dissolved Arch Capital. We ended up – this probably was one of the first ones I purchased, and it's been a big interest rate beneficiary just, I guess, over the last year. last two years, I should say, banks have kind of re-rated a bit. They've been in that camp as well. But my worry is less so on the loan book. I mean, they've been writing auto loans for quite a long time. And really, their entire loan portfolio is something that they are very familiar with. I don't know if they are necessarily – I don't know if they've navigated the interest rate cycle

Starting point is 00:52:10 perfectly like maybe some other banks have but the part that does concern me is the depositors growth has come down quite a bit so i think a lot of that is just because companies like sofi companies like public even um have really great high yield savings accounts publics i mean i put my rate so it's better than i actually looked this up public's 4.1 percent and then And their treasury account is higher. Ally is 3.8% at the moment. Yeah. I looked that up as I was putting money to work.

Starting point is 00:52:48 I was like, I want a high-yield savings account. Let's see what Publix is. I looked at it relative to Ally. And I said, all right, I'm sticking with Publix. I think that competition from some of these neobanks is raising the cost of capital for them potentially. They used to have a smaller percentage of their deposits came from individuals. That's grown a ton over the last decade. Now with all the heightened competition, I don't know if it's going to grow as fast as it has over the last 10 years. So that would be probably my bigger concern. And then there's always going to be some variability in the net income just because it's so interest rate sensitive.

Starting point is 00:53:34 But I would imagine that the loan portfolio works itself out over time. So you're holding. Put this one not as a buy, not as a sell, but as a hold. Yeah. It would probably be close to the top of the list for which stocks in the portfolio I would trim or sell. be honest because maybe maybe it ends up being a good performer because net margins expand or whatever and like the num the financials just look a little better but if i feel like the moat is going away and their advantage as a low-cost bank because they don't have to have the branches like

Starting point is 00:54:16 the legacy banks do if i feel like that's going away it's kind of a thesis buster for me Makes sense. Okay. Question four. I'm going to cheat like a banking analyst and make this a two-parter. If forced to eliminate one of your positions, what would it be? Okay. I'm just going through this now. Totally eliminate or trim? I'd say totally eliminate. I'll go because it overlaps a little bit with mine. The one I would do is Autodesk. That's the one that strikes to mind for me. I bought Autodesk in this portfolio in my Roth like five years ago.

Starting point is 00:55:03 And on a percentage basis, it's been pretty good. I despise the management team, to be honest. I don't like them. I don't like the way they talk about the rule of 40. when they could just have 40% margins. But this is one of those where after kind of reading about David Gardner and doing that research episode,

Starting point is 00:55:27 if the product disappeared tomorrow, it would impact a lot of people. And I think that's going to make the biggest difference in 10 years, not some bad capital allocator at the helm because they can fix that. The product is great and a lot of people rely on it. I think that's – I kind of want to shut my eyes and just keep it in the portfolio just in case they do get the whole management issues fixed.

Starting point is 00:55:58 If I were to get rid of one, it would probably be SEMrush if I had to get rid of one entirely. Maybe O'Reilly just because it's a little boring. But SEMrush, it seems like it's been – I maybe didn't understand. This was a startup position for me, and they help with – companies basically improve their SEO. Like marketing a little bit, right? Yeah. A little bit like Salesforce, but not the exact same. Yeah.

Starting point is 00:56:28 Like if I'm writing a blog for Chit Chat Stocks, let's say I wanted to write a blog post, and I wanted to know kind of what does well, what's performed well for me in the past, what kind of articles perform well for our competitors um all that good kind of seo juice um semrush presents it in a very easy to digest format however i did not have a probably a strong enough appreciation for the competitive landscape here there are a lot of companies that have something similar um so we'll see i'm kind of letting it ride i have my i have a hard rule now that anything i buy has to stay in the portfolio for three years so that's been in there for about a year i'm sticking with it okay and it looks like o'reilly yeah for a low grower looks a little expensive it always does there well that's i've heard that a lot in the past

Starting point is 00:57:33 two quarters and i think that's a sign that it usually associates with close to the top of the cycle if i'm not mistaken i did not this is one that's grown a bit since i bought it so the multiples expanded quite a bit there was a point there when the stock was down a ways now it is so kind of predictable that it doesn't seem to ever have like insane drawdowns like you find with like a netflix or something like that but um it's one i've wanted to own just because i think it has like really good economies of scale very durable industry people have to basically go to them or auto zone um and the advanced auto parts but that's actually they're they're struggling so much that it's helping those other two right yeah the returns on invested capital for o'reilly are

Starting point is 00:58:30 phenomenal and happened for two decades so i don't really see that changing even if evs continue to make up a larger and larger chunk of the overall car market well the concern is the reinvestment runway from here that's i would say right probably yeah the rock solid business though yeah store count it's not gonna grow quickly uh cars on the road grows basically one to two percent a year every year for the last, I think, 40 years. I don't think that'll change. So the customers will probably be pretty stable in terms of growth, but yeah, they can't, they're probably somewhat close to saturation. Okay. Here's my 4B. If forced to double your position size in one position what would it be remittly i think would be the one for me now what is it right now four

Starting point is 00:59:28 percent yeah and i've actually added to this i'm working on trying to add to my winners um so i i thought remittly had a really strong quarter i added to it a bit now the stock jumped a lot so it's gonna kind of hurt my uh aggregate returns which always sucks but this is i think the future is really bright for them i probably would have them um similarly sized to wise right now it's a little bit smaller this is kind of like for you the position you took with the airport it feels similar where i bought some but i didn't really realize how little i was buying um and i wish i kind of sized it up more than i had so if i had to double one i'd probably go remitly the other one that i could potentially double are the startup positions in adobe or british american

Starting point is 01:00:18 tobacco because they're so small that you know any sort of positive development that makes me feel compelled to buy shares will probably end up doubling the position so uh yeah i'd say those are kind of the first three that come to mind remitly british american tobacco or adobe man remitly doesn't look overly expensive now and if you have any projection on the growth it it's hard to fight when something's up 50% if it's still cheap, but you have to think about just what the earnings power could be over the next three to five years. Yeah, it's kind of foreign to me to have investments where growth is actually accelerating. It's a good place to be. Typically, the valuations are so stretched that I can't feel compelled to buy, but remotely,

Starting point is 01:01:06 the growth is accelerating, looks really good. It seems like they're generating great returns on their marketing spend um and they kind of have that booking holdings advantage that we talked about on our remittance episode um yeah it seems like a pretty straightforward playbook for them to succeed it's it's not necessarily a huge moat but once people are using you as their kind of remittance service it's pretty sticky i agree i agree uh which i own them as well i think that Remitley-Wise combo could be a good one, although maybe I should have bought Wise, but they look expensive at this moment, but it's done so well over the last few months. Yeah. I kind of think of this as just a basket approach bet to the demise of Western Union because it seems like they're just shedding volume, especially in North America, and Remitley and Wise continue to gain volume. And you can actually make on FinChat, which is, we've talked about them all day to day,

Starting point is 01:02:17 but it's the stock research terminal that we use for pretty much all our data. You can do like a pretty chart of Wise and Remitley's volume compared to Western Union's. And it's just like total innovator's dilemma where Western Union is just crumbling kind of on the transfer volume basis. Yeah, Western Union stock down 63% in the last five years. Current dividend yield, Ryan, 9%. So if anyone wants to fade us, I think it's a value trap, but yeah. It's, yeah, don't fall for the yield. Yeah, exactly, exactly.

Starting point is 01:03:01 Question five. It looks like you sold DreamFinders homes. correct me if i'm wrong on that and are you still optimistic on the home builders let me double check i might have accidentally just not included them i think i did sell them to kind of help finance the british american tobacco and adobe ones uh purchases the dreamfinders homes i kind of fell in love with the growth a bit um and i guess i broke my rule of not selling before holding it for three years but there were some kind of serious management red flags that i started to have after i purchased shares stadium sponsorship

Starting point is 01:03:45 where jacksonville jaguars i didn't know that yeah that's you know um yeah there were some other red flags so just feels like they're a really fast growing home builder that's cutting a ton of corners in the process and if you look up dream finders home reviews they are not great that doesn't necessarily make or break the thesis but i won't get into some of the red flags that i experienced with management but it just i i kind of lost some trust um so yeah home builders in general i like them i think we're going to build more and more homes that is i am pretty confident in that and i don't think that's a hot take like it might not be more than the last decade maybe it will be who knows um but there does seem to be a home shortage um maybe supply comes online

Starting point is 01:04:44 but ultimately one way or another i think the the really advantaged home builders the capital light um land option model where you've got um you basically they've become very very good manufacturing businesses like dr horton and nvr and they're able to just basically prototype these homes and just do them one after another really quickly and they get like like massive economies of scale advantages and you can just see that in the gross margins where like whirlpool if whirlpool sells the average home builder a dishwasher they're going to do it at full price dr horton's buying 90 000 of them a year they're going to get a discount so being able to build homes at scale i think they're going to it's kind of a self-reinforcing

Starting point is 01:05:36 uh competitive advantage that's going to allow them to generate good returns but dr but dfh i've scrapped yeah and given even if the macro headwinds do materialize which those are something that i think has kept me out of them um and i'm more worried about than ryan the stock should still do fine as long as the balance sheet is clean and given where the starting multiples are, I would say. It's just kind of the, whether you're more optimistic on the home building landscape or not. All right. I think that's all of my questions, Ryan. Gone about a full hour here. Anything else you want to talk about with your portfolio? I'm trying to remember the last question you asked me, like any surprises, what is the big takeaway,

Starting point is 01:06:26 closing thoughts as we do the 2025 portfolio shakedown. And we hopefully, for any listeners, we'll do this about once a year at the start of each year. I was a little surprised by how big Ally and Nelnet were as a percentage of the portfolio, Ally especially. I thought I kind of put them as a starter position and just didn't track them that closely. And on the flip side, I thought I kind of wish Amazon and Remitly had been bigger purchases um but it's always hindsight i guess the one i the part i didn't talk about was the watch list um the companies that are probably at the top of my watch list that would potentially make it in are one of them's the same as you i'll say i i really think

Starting point is 01:07:16 they're well positioned to benefit from improved consumer spending across mexico and they're really cheap, and they've sold off a ton because of tariff concerns, which don't really affect them. So they're up there, probably either the Mexican airports or the stock exchange as well. It's just a matter of making the purchase. I feel very comfortable investing in Mexico, especially those businesses, just because they feel incredibly durable, and they have a proven track record of good returns for investors. True. All right. I think that's going to do it. Remember, for anyone listening to this full episode that wants any context on the episode, we're going to have a free newsletter associated with that. The link is in the show notes for the

Starting point is 01:08:05 Substack link there. That's also where you can join the chat community, give us a five-star review on Spotify or Apple Podcasts, and hopefully keep following the show. We'll have some really fantastic stuff for investors of all types. We'll have interviews on stuff, stock analysis shows, philosophy stuff with super investors, studying them, just hopefully learning more and more and getting better in 2025. Let's hit our disclosure. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast, may have held them in the past and may buy, sell, or hold them in the future. Thank you everyone for tuning in and we'll see you next time.

Chit Chat Stocks - 2025 Portfolio Shakedown: Analyzing Our Personal Stock Holdings (NNI, PM, RELY, PTLO, + More)

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