Chit Chat Stocks - Auri Hughes | Ferrari & Etsy

Episode Date: February 23, 2021

This week Brett and Ryan welcome Auri Hughes onto the show. The three talk about COVID's effect on Etsy's business. They also discuss Ferrari and how the business might grow from here. After the interview, Brett and Ryan discuss this week's hot water, buy-sell-hold, and anecdotal evidence. Let's go! Follow Auri Hughes on Twitter: https://twitter.com/Auri_Invest?s=20 Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Subscribe to our YouTube channel: https://www.youtube.com/c/ChitChatMoney Follow us on Twitter: https://twitter.com/chitchatmoney Visit our website to see more from your hosts Ryan and Brett: https://www.chitchatmoney.com Email us: [e-mail] Timestamps Stories | (2:13) Fintwit | (19:40) Interview | (25:42) Hot Water | (1:08:00) Buy-Sell-Hold | (1:12:45) Anecdotal Evidence | (1:15:22) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. Today is Tuesday, February 23rd. Today we have an interview with Ari Hughes. Fun discussion. We talk Ferrari. We talk Etsy. I won't give too many spoilers because we'll talk about it in a little bit. But we also have our own stories for the week, which were voted on on Twitter. So I'm going to be talking Michael Burry's 13F. It's the company's Scion Capital Management, if I'm not mistaken. and it's always interesting because last year he had GameStop and we gave him a lot of slack for that

he did call GameStop oh yeah we did we were pretty bearish on that right so we're not going to talk about that but what's your story for the week I'm going to do a state of the SPAC market so it's all everyone can really talk about going to go through some numbers, who's investing

who's in it, what do we think about it and that's really it as always we have current state of Fintwit we have hot water buy, sell, hold, and our anecdotal evidence. Oh, but before we get started, word from our partners, our friends, 7invest. Use our code CCM. Less than 10 days till the new picks. March picks are coming out. March 1st. Also, we always get these emails whenever someone signs up and we're becoming much

better salesmen every time because we're getting more and more signups. Well, the 7investing team sells themselves because their performance is fantastic. It fails in and of itself. Yeah. So, 7investingguys, if you're listening, hope you laughed at that one. But, yeah, I don't know. Use code CCM, get $10 up. I mean, what else do you need?

No, that's it. All right. Here you go. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast.

Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now please enjoy this episode. All right, welcome in. I'm going to kick things off. We're talking Michael Burry's 13F. So little anecdote. know last year uh i think we did this uh basically the exact same thing we go through his 13f we talk

about the top 10 holdings and one of those was gamestop and we totally made fun of it we called it the blockbuster of gaming uh so shame on us so gabe plotkin you were listening sorry for running your phone but yeah uh but we all know how that went and so i'm gonna go through his top 10 holdings uh and this is excluding his call option value because he the top 10 holding like value uh for the nominal for whatever right so what's what he's averaging was like call options on city group call options on pfizer and call options on kraft heinz so he's kind of doing some smaller bets but just the actual shares that he's betting on because it's like multiplying by whatever um do you want to explain who he is though because i don't know if everyone knows

and kind of what he's yeah if you don't know he is like probably one of the most criticized at times but also he's been the most right uh fund managers uh maybe ever but he uh is most well known for the movie the big short he's played by christian bale um and he sort of called the real estate bubble and i think he may have did he invent the credit default swap potentially that could have been faked for the movie but that's that's potential um he called game stop he didn't called the bubble thing with the whole traders on robin hood um and now he's calling uh tesla for being a bear on that and he's also calling for hyperinflation which i guess we'll talk later in the show a bit although that's out of our expertise but yeah sorry yeah okay uh but he's

really a deep value guy so his number one holding is lumen technologies um just so you know we are in seattle and one of the stadiums the the seahawk stadium was just renamed lumen field and it used be called century link i didn't put the two together but lumen field is just century link rebranded yeah uh so it's a telecom um no that's their that's his number one holding the stadium the stadium name never gives me it kind of i'm always red flag yeah why are you spending that money yeah not to mention that feels like they always end up not doing that well um but second largest holding is distribution now um it's an energy and industrial solution so i think they operate oil rigs maybe in texas that could be yeah well they are headquartered in texas and

then rpt realty is third they are the owner of shopping centers um sort of just a real estate play like some of these will probably not be that interesting because they're deep value and he just thinks they're undervalued and he can get value for it but uh his first fourth is unity group another reach um fifth is western digital which is actually a hard drive manufacturer and then Sixth is Allstate. Most people know what they do, but their insurance. Seventh is Curate Retail. Shout out to Bill Brewster, our friend.

But they are the owner of seven leading retail brands. He's actually been selling Curate, if I'm not mistaken. Burry? Yeah. Yeah. It's done well. It's a weird special situation kind of, and it's done really well. Okay.

I think John Malone might be the CEO. I think it's part of his empire. But we are not experts on that little Liberty Media type thing. Okay. And then number eight is Wells Fargo. A little controversial because everyone knows they've had a rough go of it the last few years. A lot of value investors have tried their hand with Wells Fargo and it has not turned out well. And then ninth is Discovery, which is like Discovery Channel, Food Network, stuff like that.

They own a bunch of different TV channels and brands. they've also recently launched discovery plus which is sort of their smart tv app um and then geo group is the 10th one that's another reet that owns rehab centers for people in custody yeah this was the one that could really get the clickbait headlines going because they're like michael berry owns this prison or you know something like that that's not even the one that one's for people in custody but then he also owns core civic which was not in his top 10 holdings that is literally private prisons and detention centers ah well yeah he's really affecting how they do business but i have yeah and then another one is molson coors parent

company of coors beer and then ingalls markets which is a supermarket chain based in north carolina um such a boring portfolio but you gotta love it i guess this so he is uh a little outspoken politically as well uh on twitter at least and he's been somewhat controversial for that so do you think that his portfolio has any has any reflection of his political views because that's what a lot of people are sort of headlining with the private prisons and detention centers that is true but i i don't think so i don't think so either i mean the portfolio doesn't reflect that he's always been pretty much as unemotional of an investor as you can be yeah looking back though discovery looks pretty smart they launched discovery plus people are a little

wary on it but it's done really well um people thought netflix could just kill them but they kind of got those brands you know hgtv discovery all the all the other ones yeah i don't i don't mind watching a little discovery channel yeah i mean it's it's in my most ultra bored phases but yeah um do any of the companies interest you at all other than discovery i mean no no i gotta say no uh it seems like wells fargo i can understand what he's doing with wells fargo you understand Molson Coors. You can understand what he's doing there. I'm assuming these are both deep value plays.

People think that for whatever reason, the companies will not succeed in the future, and that's where some guys like him like to play. The top holdings, I don't know much about at all. I mean, Allstate seems steady. Curate, obviously he's done really well with that. I looked into the distribution now, was kind of interested, and then I realized I do not understand this business at all. We'll have some oil rigs and how they're affected by oil prices and all that stuff.

But it's also a supplier of like the equipment for it. And it did seem, I'm pretty sure like the average earnings multiple on his top 10 holdings was like six. I would not be surprised either. Yeah, if that were the case, it looks like a cheat. Yeah. I mean, it's just not the type of companies we like to invest in. I respect what he's doing. And it's kind of interesting to see what he's doing because it's always a thing.

Like last year with GameStop, we were like, why GameStop? It's trading at three times earnings. That doesn't make sense. But the company is totally failing. But the thing is they've really turned it around. Isn't that always how it goes though? It feels like every single time people are calling him an idiot, they're like – and I saw it this time around again as well.

People were like, Lumen Technologies is such a bad business. Why would you want to own that? and then he's constantly right and so i i don't know do you think he's still underappreciated as an investor yeah it looks it feels like deep value guys will always be under appreciated because the story doesn't it's not sexy so it's like yeah you're investing in lumen technologies you're making a lot of money or whatever game stop but it's still not a great business you're kind of like all right i mean cool like people don't get excited by that um And it really isn't, like, I feel like most people that invest don't have the psychological makeup to do this deep value stuff where, you know, you can make just as much money.

But if it doesn't fit kind of how you operate, then you're not going to appreciate it. Like, even for us, it really doesn't fit how we operate, at least right now. Deep value is a whole other world. There's valuation disciplined and then there's deep value. Yeah, it's a whole other thing. you're i mean it's really cigar butts it feels like you're not buying it because it's going to grow exponentially but what i can get around yeah that makes sense and what i can get around though is that people have been saying deep value is dead for years and it seems like it's totally

been buried everyone's quitting deep value and that probably means it's going to do quite well in aggregate but again you have to be good at it to do well and have that mindset and know when you're going to invest in that cigar butt and when you're going to sell because in reality with him he's a lot more active yeah and that sell discipline and philosophy it comes into play it's it's a lot more important to your um portfolio yeah what i mean i guess you don't know about ingles markets but that one was kind of interesting it feels i like i like retail so maybe we'll check that one out that one's in our circle of competence for sure that was definitely an interesting one i'll let you get to your story though we're talking spax which yes very

I was frustrated when you threw this out in the Twitter poll because I feel like we talk about SPACs every week. Well, the listeners wanted it, so we'll see. Okay. But I got some interesting things here. Everyone knows what SPACs are now, so I'm not going to go into the structure. But if you really thought the SPAC market couldn't get any bigger or weirder, it has. So last week, 16 blank check companies raised $3.4 billion. And you can really think when they're investing, they're not taking over a company.

So this $3.4 billion is probably going to go into market capitalizations of like $30 billion or $20 billion. And then when you tap on that, all the SPACs just double in value. That's just a lot of market value that people are getting. There was 45 SPACs submitted last week for filing. So we're at a rate of 45 SPACs committed a week. That is just insane. We're seeing Alex Rodriguez, Shaq, Colin Kaepernick all sponsoring and raising SPACs. people that are not really business.

I mean, you could argue that Shaq and A-Rod, yeah, they're great marketers for some of their businesses, but again, they're not investors. They're sponsoring these SPACs. We've even seen someone that is a really notable investor, Seth Klarman, has bought SPACs. I think he has six bets worth upwards of $200 billion, so not big for that portfolio, but still sizable.

Is he sponsoring those? He's not sponsoring them. He's investing in them. There are certain investors that are like arbitrage nut. Like there's like bad mispricings on some and they have funds kind of built around that. Is that Moore's Avenue? I do not talk with him and he's not very public. So as you knew, right?

But I guess that's what he's doing. I mean he's kind of the arbitrage king in a way. So it seems like that's what he's doing. But the thing is with these, like you have the high current upside where basically every SPAC deal that goes through now on the announcement, it goes to 20 and basically doubles in value. And then there's really low downside on the pre-merger part because you can always exchange your money and get it back. So it's, again, you could go through the acquisition and then the stock could totally collapse. That's a risk. But right now, I mean,

you are playing with fire and it's not a way we like to invest, but you can see where people are coming at it where you invest the money in you can always exchange it back if a deal doesn't go through but if it does go through and right now what happens you know you announce a deal with some ev company the stock price goes to 20 if it collapses before the deal goes through you can always exchange it for your ten dollars back okay so what if you throw ten dollars on a spack and you don't like the company that they choose to merge or sponsor you get the tent yeah you can exchange the ten dollars back i mean it's just opportunity cost you know but huh so it makes sense that people are doing this uh but it obviously there's too much money sloshing around

for so many of these pre-revenue companies there's only so many companies in the market uh i guess another discussion i wanted to have probably the second half of this is what do you think some potential outcomes and end to this back boom can be i kind of see it as some parts of it feel similar to the south sea bubble where there's just investors kind of tossing around like look we have this idea give us money what do you think yeah some of the well the first things first is the downsides of spax are becoming revealed which is the poor due diligence yeah um and we saw that with clover health we saw that with trevor milton i'm sure there's been some other ones um if i don't know i have hesitation with spax because it seems like private companies trying

to find their way out like like this is my release this is my exit i can basically dump my shares to the public and then i don't have to deal with it anymore yeah and i can understand the arbitrage stuff for short-term people that like to play with that there's probably a ton I mean, I know, gosh, I forget his name. I think it's Andrew Walker who has, he does another, yeah. So he was talking about the Pershing Square. So there are, Bill Ackman's fund is a publicly traded hedge fund, and they trade at a discount to NAV, but then there's a way you can play with options.

He explains it's a little complicated where the SPAC they have trades at a premium to NAV, So it's, or not naps to the, to the, you know, $10 or, or actually, no, they were, they were a $20 price on the SPAC for the merger, but it trades at a premium to that. There was a way that you could arbitrage that, that seemed very interesting. So you can see what people are doing there, but. And he was on Toby's podcast. Talking about that. Yeah.

The acquirer's podcast. The, uh, that, I mean, that stuff makes sense, but I think in aggregate, like the highest likelihood is that a lot of the high, the money here, a high percentage of the money that gets put into this is just returned because there's not enough deals out there. How long would you have to wait after a company? So if a company goes public through a SPAC, how long would you have to wait

before it would interest you in investing? Just get the 10K out. Yeah, give it a few years. Or not, sorry, not a, you know, get some filings out. Once there's a 10K out? Yeah, but that's the thing with the SPACs and pre-merger SPACs is when they do it, you can wait like two years

and never have a deal go through. so you might just be sitting on dead money you know what i mean yeah yeah and then what you just get your ten dollars back at no interest no uh you probably earn money market funds but yeah but i i mean you know the thing that concerns me is that okay there's a hundred percent outcome that these sponsors banks and chamath and i guess other people are going to be richer because of the sponsor fees they get and the warrants they get at a discount yeah but doesn't that incentivize the managers of the SPACs that are trying to do the deals doesn't that incentivize them to do deals even if it's not in the best interest of the shareholders because they're getting that money

they could say they're not they can say they're doing all the due digital diligence and they're you know coming at a good valuation it's a high growth company but the incentive is there to make deals happen it encourages activity for sure it's like brokers in the 80s you know brokers now if you're getting paid for activity it's usually a bad sign yeah okay last question on this how likely is it in aggregate that the 2020 2021 SPAC classes underperform the market it's a loaded question because i'm kind of telling you what to answer but i kind of know your answer but what do you think did someone mention this who mentions i felt like there was an investor that said something i think tom gardner from the molly fool on twitter he's like most of these SPACs will under 90% of

the spacks will do poorly yep yeah and you could say i'm not i am not a huge spac fan i'd say i'm in the exact same camp as him in aggregate we're a direct listing team yeah that's our preference that's why i respect roblox uh but yeah i don't know the yeah i mean it seems like an aggregate post deal whenever all things are said and done these are going to do pretty poorly doesn't mean some of them won't do well i know we talked with brad the other week about sofi that's interesting good i mean it seems like a solid company yeah but yeah and now i'm throwing a red flag on all things chamath though that's true no i agree because i mean that clover health stuff was damning like there's oh yeah i mean that seems like a bad business for sure but yeah just stay

careful out there everyone don't i mean some of these specs like we saw like lucid motors and that other cciv or whatever i mean it was just exploding in value just be patient you don't need to make all your money in one you don't need to have 100 returns in a week you know that's the other thing that i keep seeing is okay if you're i've had questions about like well are you like looking at evs and stuff like that and it's like no no if people are spacking just like if they're spacking just to get public money because there's money flowing towards evs that's a bad sign and it's good for the business raising capital it'll be good for the consumer because some of these companies will produce some good technology, but

it's bad for investors. I wonder how many of these EV companies were started after EV started selling. That's interesting. There's FOMO there on the EV side, but there's FOMO with investors too. You've got to resist that FOMO.

Current state of FinTwit. I've got some stuff from the GameStop hearing. I was going to ask the biggest takeaway, funniest moment, so go right ahead. I have a quote from the hearing. One of the members of the house committee of financial services which was basically all the people that were asking the questions asked keith gill um he said god okay keith gill is roaring kitty he said did you buy

game stock because you were not aware of payment for order flow so let me just here's what i'm picturing is that he got like a memo with everything that happened on like a one pager like 10 minutes before the hearing and he's like i'm gonna combine all this into one question yeah um you're talking with the senator yeah it's like it's not gonna make any sense but people it's gonna be pointed at him and he's like no i he's like could you ask that again he asked the same question he said he's like i don't know i bought the stock because of the fundamentals he's like yeah the payment for order flow stuff i mean you can read flashboys and kind of get like see how it's a little bit nefarious but i mean i've come around to it whatever dude

They're just making the market. I don't know. If you're not an active trader, that little tiny penny they take off, it's fine. I don't really care. The only thing that came away, my biggest takeaways were the incompetence of the people asking the questions, A. And I think everyone's takeaway. Maybe there was a few that did well, but I think that was pretty much everyone's takeaway. In aggregate, yeah.

And I just don't really like Vlad Tenev that much. Vlad. Also, my dad said, like, he's not into finance that much. Just kind of a, yeah, almost a little sideline. But he'll see the news and stuff. And he said, I thought the guy was wearing, like, a fake costume. He said he looked like that. The suit was weird.

Who's the guy? Gosh, who's, like, that common suit? I don't even know what it is. If it comes to me, I don't think about it. Vlad had a weird suit on, that's for sure. He was sitting there. Ken Griffin looked like the president from the Hunger Games, kind of like, you know. Gosh, I can't believe I'm blanking on this guy's name.

Yeah, I mean, Rory Kinney came out on top, for sure. Funniest thing, I think, was the Bloomberg How Do You Do Kids thing where they were explaining what the Reddit terms were. Oh, yeah. Where it was like, stonks, and then it was underlines only go up, they say. And then it was like, tendies, chicken tenders, a.k.a. profits. it's just laughing so hard uh the bloomberg the bloomberg is really uh our bloomberg is becoming wall street vets it was funny any uh any big current state of finch with thanks for you i

mean we we were asked to talk about michael berry's calling his shot tweet on hyperinflation if you don't know if you're not on twitter bury the same guy you know who's done all these calls in the past and i did like how he tweeted he was like i called it in 07 no one listened now everyone's hearing it you'll know that i called it this time yeah it was it was like he was really he was like babe ruth like pointed at the at the center field or like this is going to be a home run people yeah people were like i think his exact tweet was people said i didn't warn them and now right right this is proof that i'm warning you which got me you know gave me the chills yeah I guess people are asking about our takes on that, and I would say I don't have a take.

I would say I'm not qualified for a take. Yeah, on the hyperinflation stuff. I mean, my mindset is just expect some inflation. If it doesn't happen, sure. If it's a little more, sure. But expect it to pick up, you know? Did you read the Samper Augustus annual letter? Yes.

I'll say I skimmed some of the Berkshire stuff because I don't own Berkshire. I'm not reading 30 pages about it, and I read the biography. i'm not up to date on that but everything before that the 50 or 60 pages before that i did read did you read the chart of like the comparisons of the market now on like as a whole versus all the other peaks yeah i mean yeah it's there yeah i mean it's concerning that's why we hold cash i guess that's another thing to look at if you were interested in burry's takes which uh i mean i would i would say as a whole most of the investors that i look up to now are fearful yeah yeah oh uh yes yes yes yeah i would i would agree too yeah and it's tough to keep everything in your brain

because there's so many things going on where there's like the stimulus coming there's the reopening and everyone's gonna go crazy there's gonna be so many dollars sloshing around and That's going to do good for businesses, but there's a lot of negatives going on. So, yeah, I mean, just that's why you invest with the margin of safety. That's why you're just be patient. Yeah. All right. I don't have anything else for current.

Oh, I had some funny ish. According to Barry Ritholtz, he had a tweet that said that now 70% of professional investors use blogs for research and 30% use podcasts for research. So professional investors, you're welcome. Yeah. Well, that's funny that the individual stuff, the kind of stuff that we're in, a lot of people actually use it. Okay. I think we're going to hit a quick break,

and then we have our interview with Ari Hughes. Any highlights for you? Yeah. I mean, he's from the Motley Fool, so that's kind of the mind. You should expect that Motley Fool mindset going in. It's definitely not a deep value play, but Ferrari is interesting, very permanent. Interesting thesis.

You know, Ryan always tries to convince me about Ferrari all the time. Or not all the time, but sometimes. And then Etsy has been phenomenal. Gosh, I mean, the marketplace has just taken off. It's interesting. Yeah, Ari's had a good track record. I met him. I think I mentioned this on there, but I met him in my internship.

And I really liked his strategy, so you guys probably will, too. Fun discussion overall. Here you go. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real-time alerts. Oh, like this one. So you don't have to worry about malware or when your kid downloads a song from a shady link. And now all your computer can play is red color, red color, where are you?

All blocked thanks to advanced security included with Cox Panoramic Wi-Fi. Advanced security must be enabled in the Panoramic Wi-Fi app. Restrictions apply. All right, today we are welcomed by Ari Hughes. Ari is an analyst at The Motley Fool. I met him this summer. during my time there. But why don't you give us a little background? So how did you end up at The Fool to begin with? Yeah, sure. Thank you for having me on. Basically, I got to The Fool

because I just had this burning desire to be in finance or an investment-related field. And I was reading a lot of finance books and starting to practice on my own. And before that, I basically had a career as a financial analyst in a business setting where you do some similar things, looking at numbers and planning, but not necessarily picking stocks or looking at businesses to own. And that's where I found my passions leading me. So I'd been looking for positions, hunting, and wasn't finding anything. And then finally there was an opening at The Fool and I said, these folks are open to career switchers or people that are passionate. it. So I just made it a point to put together the best application I could and got the opportunity

that way. And it's been there ever since. Nice. And how long, how long have you been there now? So it's coming up about, it's been two years so far. Awesome. All right. And then today we're going to be talking Etsy and Ferrari, two companies that I believe that you like. I know Etsy, you had a write-up on them recently, but yeah, to just start out, can you talk about, you know, explain what Etsy is and then talk about its business model a little bit? Sure. So Etsy is a marketplace for craft or unique goods and they connect the buyers and sellers of these goods. So if you want some type of odd thing, you would usually find at a craft fair. You could most likely find it on Etsy.

And the way Etsy makes money from this is it takes a percentage of the sale or the transaction a little bit from the buyer and a little bit from the seller. So when that good is sold, they take a percentage of that. And they also charge for a transaction, the payment transaction. So I think the total rate take right now is like 17%, which is really good. And then they also charge for some servicing fees. So if you're a seller on Etsy and you want better placement, you can pay for marketing to have better placement and some things like that to generally make your business a little bit better. And the way it makes money is a marketplace makes money from what's called GMS or gross merchandise sales. And that is the value of the sales being sold

over your marketplace. So when you think about eBay, Amazon, the similar business model where there's transactions being done over the marketplace and they're taking a percentage of that transaction? So I'm trying to get it from the seller's perspective. If I were like artsy or something like that, I was, I don't know, crafting some masks or something like that for COVID. Would I be sort of independent to Etsy or do a lot of these sellers kind of use a bunch of different services and Etsy is just one of them? Yeah. So if you're a seller, you're an independent business owner and you create, it could be paintings, jewelry, T-shirt, any number of things. And the way you're using Etsy, the way I consider it is you're using Etsy as a tool,

right? And this is the reason I think this is a really exceptional business is because if you think about the model before Etsy, this is the way it worked, is you have a unique good or something you create and you would go to a local craft fair, or that's the way I think of it, right? And maybe that craft fair is just in your town or your zip code, right? So who are the people you can sell to? You're going to be able to sell to just the people in your town and just the people that attended that fair that day. When you sell on Etsy, your market automatically becomes the entire United States and other countries, it becomes anyone that visits Etsy and types in something or has interest in a similar product, you now have access to that market. So the way

I think of it, it gives you massive leverage to expand your small business. Does Etsy help at all with logistics? So if the artist or whatever sells something, do they have to, is Etsy a part of that process of getting it from the seller to the buyer at all? So the seller still is responsible for mailing it, but they do have some incentives for shipping now and they're getting better. And that was one of the, I don't want to call it the weaknesses, but one of the opportunities for the website before. So they're doing some things to incentivize shipping because in this day and age, people want things rather quickly. So they don't necessarily help with logistics in a way that you may see Amazon or like Shopify starting to do where they have

infrastructure for shipping, but they are getting better about it. All right. And then you talked about this a bit, but what is your thesis on Etsy? Why do you think it's a good investment? I know you wrote something in December and I don't know, what was your thesis back then? I guess that's pretty close, but. Yeah, yeah, sure. So this thesis is pretty much the same, but the reason I like it is for two facets, or I'll just name all the reasons. I think it's a good company. So you have e-commerce tailwinds in general. Etsy will benefit from that as will a lot of e-commerce businesses or anyone doing business online, because that's a destination where people desire to get things. It's a niche offering. So I believe it currently

dominates those creative products and it will continue to dominate that creative product niche. And so much to the point of when someone has the idea of, oh, I'm looking for something unique, they're going to go to Etsy. Or if you want to sell something unique, you're going to go to Etsy. So that kind of creates a flywheel where there's a network effect where you start attracting more buyers and more sellers because you're kind of the only game in town. So there's that. And then also, like I mentioned earlier, I just think it's a good source of leverage for an independent seller because it broadens your market geographically as opposed to locally. Do they operate internationally or is it just US?

No. So they do operate internationally in some developed European countries. So I think Germany and France is two of the ones I know off the top of my head. So it's mostly the US and some parts of Europe. Okay. And I assume their big competitors are like Shopify. Are there any other ones? Amazon, I guess. So Amazon tried to do something similar. And this is one of the reasons I like Etsy as well. So Amazon had a similar segment called Amazon Handmade, but it failed and it didn't work. And it was because Amazon's infrastructure is not made for unique creative goods. Amazon's infrastructure and the way their business profits is made for selling large units, like 10,000 units of the same thing, like kind of commodity products. So it just wasn't a natural

fit so i think that's one of the reasons i i still like etsy and i continue to like etsy and what uh you know shopify kind of fits into there i know that's one of the popular companies that everyone knows about and they have something called the shop app uh which i think kind of tries to bring something maybe similar to etsy do you see that as a threat at all from the competition and then how does ebay fit in as well yes so ebay uh ebay is interesting i i think eBay still kind of goes for the idea of an auction website. And it's not growing or it doesn't have the adoption. And it's near, I don't want to say it's near the end of its life. It's still a good business. But Etsy, if you look at the financials, it's still emerging. It's still growing. It's

still being adopted. It's still winning. And Amazon, I think their specialty is kind of auction. So if you want something, if you want someone to bid on your product, and it's a little bit of everything. And I remember when I'm a little bit older than you guys, but I remember when Amazon emerged and when it was like kind of the new thing, when it was the Etsy of its day, if you will. But I think it's near mid-life cycle or coming near the end. So that's auctions. And then they sell a little bit of everything, but it doesn't have that specialization. uh shopify the way i understand shopify um where it's value add and someone helped me appreciate this and i thought about it and this is why i like it too is it's kind of the anti amazon where if you have a product that you need it branded and you're saying my product is special i i want to go through shopify because amazon's gotten to the point where the fees you just for getting the privilege or the luxury to sell on Amazon, they take a huge portion of fees. I worked a little bit with a small business and it wasn't realistic for them to sell on Amazon because Amazon's going

to take so much fees. You need to be doing a certain amount of volume for it to even be a worthwhile channel. Shopify's model is a little bit more made from my understanding. It's a little bit more win-win where they're taking a little percentage based on your sales and it's not as intrusive and dominating as Amazon. So you've got the ability to simply set up your e-commerce website and it's made so anyone can do it. And I think they're charging a little bit more fair of a rate in that regard okay do you think that i mean obviously uh the the pandemic kind of accelerated the e-commerce adoption because so many people were forced to buy stuff uh online do you think that that might be temporary and there could be some sort of like reversion like

maybe people go back to brick and mortar as uh stuff opens back up or do you think this is more just an acceleration? Yeah. So one of my major takeaways from COVID was that the businesses that were winning accelerated and even more so than we would have thought because they were already well-positioned. So to answer your question, I think it's more long-term and I'll give you an example of that. And this is why it surprised me. There's a business called Carvana and there's a business called Vroom. And I'm a millennial. I like to buy stuff online, etc., etc. That's no surprise. But I would have never thought people would have liked to buy cars online. And the fact that these businesses came out and they're succeeding and that people are buying cars

online, besides a house, a car is one of the most biggest purchases you can have. And for people to feel comfortable buying a car online, I was surprised. So if that tells me anything, I think that that's a sign that e-commerce is here to stay. And it's going to be a major way of transacting and doing business in the future. Because if someone can find comfort in buying a $15,000, $20,000 purchase that's going to be financed and having that transaction be fully online and not going to the dealership to test drive the car and do all these things um that i think that's a major sign that we're going to be doing business online um maybe indefinitely or at least it will be trending upward in the future okay i was gonna say that's uh i think for a lot

of people there's like that hurdle of like you've been thinking about buying it but you typically shop in person. And I think that COVID kind of forced people to get over that hurdle. And then once you have one successful experience shopping online, then you feel a little more comfortable. So yeah, I think you're right. Maybe that just pushed a lot of people over the hurdle. Yeah. I mean, it was like, even if you weren't shopping online, it was the best alternative to your normal schedule and then think about and then someone else framed it this way um think about the habits that you develop like once you start doing it because we were a lot in lockdown for maybe like three to six months so if you started shopping online you you're and you like

it and it's a good transaction and you feel comfortable with it you're most likely gonna keep making transactions online i would imagine right okay and then one concern that i've read about with Etsy is that, you know, they got maybe an artificial bump from COVID due to the masks. Now we can see that general e-commerce tailwind, but there were a lot of mass sellers on Etsy, you know, the handmade ones, all that stuff. How do you think that impacts the business in the longterm? Does that affect, is it just, you know, something that was happening in 2020, you know, how, how big of a part of the business is it? Yeah. So, so I don't have the exact numbers, but they broke it out. They do break it out in their reporting. I remember the

major takeaways from everything I read, but not maybe the exact numbers. So I was comfortable with it because they broke it out in their numbers. And from my opinion, the growth rate was still attractive, even when you exclude the mass. Now, even if we look at the growth rate before the mass sub 2020, they were growing north of 30%. So that's revenue and free cash flow, which in my opinion is very attractive. So I'm very comfortable with the mass sales. And then I look at it this way. Let's say you discover Etsy from buying a mask and you stick around because now you discovered it. So I think it's still a net win and it's more business that they're going to do. So even if, um, so even if it was, so even let's say it's not going to

level out to 80% and it comes back to 30 to 40% range, I'm still very comfortable with that. Right. Right. And then you mentioned in your write-up that there, you know, there's significant operating leverage embedded into this business. Um, how can they increase their margins over time? What are the opportunities ahead of them to, you know, increase that operating leverage? Yeah, sure. So I know you guys are on Twitter and I know a lot of people on Twitter follow Naval. He's very popular. And Naval has a saying, one of the things he kind of talks about are that computers and coding and anything digital gives you massive leverage because it just produces so much work for you. And you have to think about this in a

common sense way is that it doesn't... Each additional business or besides the marketing spend, Etsy is spending a little bit on marketing. Each additional customer does not cost you that much. So it's a platform and it's going to grow because of its popularity. And any digital-based business or software, the reason people like software is because it's very profitable. So when you get those high gross margins, that's usually a good sign of operating leverage. So when you see gross margins in the 70% range or higher, not even that, it's still a really good business to run, right? And you don't need a lot of infrastructure to run a business like Etsy because everything's

being stored digitally. So the reason I like the operating leverage is because expenses are not going to keep up with revenue. So the revenue is going to grow and then the bottom line is going to grow faster because everything's digital. It's not costing you that much for each additional customer, like each incremental customer. You don't have to spend a lot of money because it's all online. So it's the same thing with software. It's the same thing with like another fintech company. i'm seeing and if you look at um if you look at the ebitda margins or ebit margins whatever you prefer um over the last few years for etsy they've consistently been trending upward and i believe

that's due to that operating leverage um you know i'm mentioning so it's one of the things i kind of like to look for um and better understand do you think they can raise the take rate over time like you said it's they almost get what like 17 percent on transactions yeah so personally i think uh i don't want to see them raise the take rate anymore um i think it's pretty i think 17 percent is pretty steep personally um and i'm i'm starting to look at fiverr a little bit i think fiverr is somewhere in the same neighborhood um so i think i'd be careful with raising it too much because then that invites room for disruption or for someone to do something else. So I think just alone, the volume, the more volume they could get alone, I would be happy

with that. I personally don't want to see them raise the take rate anymore. And are there any other growth opportunities for them that they may be highlighted or any you think that they can go after? Because I guess another concern maybe looking at from the outside for someone that's not an expert on the business, you kind of look and you say, all right, the marketplace for arts and crafts and maybe individual handmade goods um it's not a giant market is that you know are there any other future growth opportunities for them or is it just in this

you know one marketplace uh so we uh we saw an acquisition of reverb which is a marketplace for uh so they bought a company called reverb which in reverb is a marketplace for i think uh, instruments. So like guitars and stuff like that. And, um, so, I mean, I think they may look into other niche marketplaces. I don't know how many of them they're out there, but I think, uh, Josh Silverman, the CEO, I kind of like him. I think he's really proved himself, even though he's not like a founder, like we like typically like to see. Um, and I think he's smart. And I think i i um i'll think about what you're saying a little bit more i think but i think there is a significant marketplace for what etsy provides even though you would think not that many people

want to create stuff that category is fairly broad so when every time i go on there there's everything from t-shirts, jewelry. One, they can make animated pictures of yourself. So I think there's so many creative things people may not even know they want. I think it's fairly broad personally, but we'll see if there's more marketplaces out there. But I don't know. I think if you look at the consecutive revenue growth, it's been pretty promising. That's one of the things uh i like about it okay that makes sense should we talk ferrari yeah next up okay the exciting uh the glamorous yeah i i pitched i pitched ferrari um internally uh yeah or at the mother full this summer yeah um and so we have some convincing to do with brett because brett

isn't as sold as either ari or i so why don't you just kind of talk about the basic thesis behind Ferrari? What is it for you? Here's the basic thesis on Ferrari for me. And so I will say this, a lot of people aren't crazy about this company. And when I pitched it, it was not, in my opinion, it was not particularly received well, but I have a reason why and we can talk through that. Here's my thesis on Ferrari is that even though we think about in finance or whatever theory you're taught. We are taught businesses, they are priced and valued to last forever indefinitely. The price that is calculated of the business is based on cash flows going out into the future forever. But the truth behind capitalism, and even if we look in the S&P 500, the average life of a business

is maybe 10 to 15 years. So even though the S&P 500 has 500 companies in there that are all market weighted or weighted to some degree, companies are coming in and out of that index continuously because they don't meet certain requirements or maybe they go bankrupt. Look at Kodak, look at Sears, look at all these great companies that aren't what they were before. Look at, you know, there's really rare, there's really only a few enduring companies. Now, let's look at Ferrari. Obviously, we don't need to go into too much detail. It's simple.

Ferrari makes luxury performance vehicles and they have a brand and their heritage is in racing and they use the technology from racing. I'm actually a Formula One nerd a little bit. It's one of my favorite sports to watch. So I think I understand this pretty well. And they use that technology and they put it in the cars, right? Ferrari started, Enzo Ferrari, he was a founder-led business in the 50s or 60s, guy loves racing, started this company. And this company has lasted a long time, right? So this is an enduring brand. It goes back to the 1960s. There will always be high net worth individuals who have discretionary income and who have hobbies and that like these things and that will spend $250,000 on a car. I don't think that's going away anytime soon. And if you don't believe me, let's just look back at the last 50 years. Now, when I pitched Ferrari at the full, it wasn't well-received. And this is why

our culture, our company, we like innovative, high growth companies. Most of our picks are going to have some level of high revenue growth and some level of innovation. And that's fine for huge returns over a short period of time, right? So you're going to get that multi-bagger or whatever, but Ferrari is the type of business where I see it gives you maybe a 10% to 12% return over a lifetime or over a very long period of time. So maybe you're not going to get, in my opinion, maybe you're not going to get the 20% or 30% return over five years, which our culture and our stock picks are based on, but this is an enduring business that maybe you guys, if you're young and your whole goal is capital appreciation,

it's not going to be the one you necessarily go for. But this is, in my opinion, this is going to be an enduring brand that's going to be around for a long time. And maybe it's not going to have high growth because as a luxury brand, you can only make a few cars, but the money it prints is going to be high return on capital, right? When you can sell a car for $250,000, a million dollars, $2 million, and you have people literally waiting to buy a car to be in this exclusive club, I think that's an enduring business that's going to be around for decades. So that's kind of the way I see Ferrari. Okay. No, that's a great overview. Ryan has been making the same points to me but uh are there any businesses that can copy their model at all because when you know

when the thesis is the permanence uh you kind of think all right that moat uh or competitive advantage has to be really strong yeah yeah so i don't so i think like well someone said to me i was like when i was saying you know ferrari has this moat ferrari has this moat he's like oh well what about lamborghini and aston martin and all these other yes there's there's lots of other luxury vehicles. But think about this. If you have the net worth or discretionary income to even consider to be able to afford a Ferrari or a Lamborghini or Aston Martin or whatever car it is, at that point, you're not buying it because you think it's affordable. You're buying it because that brand or something about that culture resonates with you, or you want to be a part of

that club and you want to have that luxury to be a part of it right so i i guarantee you if we talk to 50 supercar owners i rare i bet rarely any of them are going to say oh well i went with the ferrari because the lambo is too expensive they're going to say they're going to say oh no i like the way ferrari's looks or i like the this model they had or the engine does this or or um or i like the brand or or f1 they've had the most dominant f1 team in history like i think all of those things tied together kind of um indicate you know what ferrari is and i think because a lot of people uh aren't necessarily high net worth individuals i think it's hard for them to understand or maybe yet right i hope we all get there uh all right

one day one day yeah yeah so uh you know i think maybe yet it's hard for him to understand why someone would spend 250 000 on a um you know on a vehicle like that right and what how in part important is the club aspect where it's kind of like all right well all the i guess you call the billionaires club or the centimillionaires club all are with ferrari currently where you know one person could leave and they're like, all right, I'm going to buy some Lamborghini or something like that. But you're kind of left out of the club where it's almost, you want to all be a part of this Ferrari team almost. Is that part of the thesis or? So I think it's like a collection of people that are passionate about the brand and like those cars. So my wife's a consultant

And she's working with a business that restores old classic cars. So maybe not, they don't necessarily work with the newer ones, but they have some Ferraris like from the 60s and 70s. And these are really expensive cars and the labor that goes into it is pretty expensive. And it's like you're saying, it's a club aspect and they just like the way the vehicles look and to collect them. So it's like a little bit of having a collector's item. You can think about it that way. And I think as long as they keep the brand and don't deter people, I'm not sure. I think if one person or a few people leave, I don't think it necessarily hurts the brand. But if they keep the prestige behind it, I think it'll last, right? So like the, the, you would never want to discount a product like that or put a Ferrari

or a new Ferrari on sale or something like that. I think those are the type of things that could hurt, you know, hurt the brand, right? Let's say they, like, I would never want to see a Ferrari sold for like $50,000, right? It just doesn't make sense. And one of my coworkers was there, their argument was, well, what about Tesla? And I don't think Tesla is in the same range. I don't view Tesla as a competitor, even though they have a performance car. There's still a luxury aspect to Ferrari, and they only operate in that niche. So Tesla, they're a little bit all over the place. So I think the entry-level Tesla car is about like $30,000. So that's pretty accessible for most middle-class Americans, where $250,000 a million is not accessible for most individuals. So I think, you know, as long as they kind of keep the price point high, keep delivering the quality, you know, and I think people will stay and maybe not, you know, leave the club, if you will.

right with the luxury good um with that comparison you know with the uprise of some of these electric vehicle companies if everyone starts having the car well then it's not a luxury good anymore so it's kind of like that catch point too right all right exactly you don't have to do any convincing for me but i will try to do uh i'll try to poke some holes and it's kind of since i like ferrari it's a lot of the questions that i'm kind of asking myself and so i guess to start the electric vehicle

market so uh let's say that evs are kind of normalized that becomes a norm in the future do you think some of these gas powered vehicle because part of a big part of the thesis is that these these cars carry their value over time um like the classic ferraris and stuff like that so do you think that would like kind of fall apart in an ev future if a lot of these are sort of the gas-powered classic cars? This is a really good question, and that's one I've given more thought to. When I first pitched this, I really wasn't prepared for this question, but I've since given it thought. This is the way I think about it. I do think we are going to go into the future where there's going to be electric vehicles. I see that trend happening. I think it

will continue to happen. Now the Ferrari brand, it is somewhat built on like V8 engines and revving engines and loud sounds and performance and all those things. So that, that is a, I think that is a very real risk, but I do believe part of the brand is built on cutting edge performance, no matter what that performance is. And before it was got in the fifties and sixties, it was gasoline powered engines. And we're going into an era where I think we're going to see that transition. And I do believe Ferrari will make that transition. Now, if we look at formula one racing, I know now not a lot of Americans follow this, but formula one racing has converted to hybrid engines. So a portion of, you know, it's part gas, part electric. So they're already

starting to make that transition and what's considered world-class car racing. And I think that transition is going to continue in racing. And I think it will continue for their products themselves. Their last supercar was a hybrid. And I do believe as they're now, I don't know how quickly this will happen but i do believe as we go into the future i think they'll make that transition into electric vehicles and it may be it may be tough for some of the boomers that are associate the brand with with gasoline engines and revving and all that stuff but if they can win the high net worth people that will be millennials and sell them on here's you know we still have the same performance or we still have high quality performance you're getting the

brand the luxury i think they'll be able to transition it is a risk but i think they'll do it i think they've already started to do it i think it'll happen slowly though what about you said that i mean a lot of the heritage is tied to racing right from enzo's kind of um roots to even now with formula one do you think there's any risk that uh if they become less of a dominant player in race i think mercedes has won a few of the big tournaments over the last year or the last years um does that tarnish the brand at all that's a good one uh that's a really good question and it's it's tough because uh right now mercedes is the dominant brand um and racing and they've been consecutively winning and um ferrari has uh good drivers but their

their technology is in a weird period and and the way formula one works is it's a combination it's not just so it's like budgets how big is your company how how good of the technology can you afford to put in the car uh can you hire the best drivers and ferrari has a pretty large budget and they haven't been winning and they're in a little bit of a transition period. But I think they'll eventually get it together and come back to maybe win or at least start placing in the second or third realm. It doesn't look like their racing has affected the sales of the business personally. I think the brand, I think people still like the brand regardless whether they're one or two or one two or three i think the brand is still enduring and i think as long as the technology

is there and it's competitive um i think they'll still uh now racing heads now if you're pure just racing i think a lot of people that purely like racing are a little disappointed with ferrari as a brand um because ferrari would be like the equivalent would be like what the new england patriots have been for the to football over the last decade that's kind of what ferrari is to racing um but i think the brand will still do well even if they're not necessarily coming in first every year right it's kind of like yankees they can still sell hats exactly like yeah like you're not people you know people are still going to support the yankees and and i love the yankees even if they're not necessarily winning every year.

Right, right. Okay, the last question we have with Ferrari, another thing that, you know, people that get concerned about the business is pricing power. So do you think there's any cap to pricing power? And can they go from like $2 million to, you know, $5 million selling a car?

This is the, it kind of, you know, everyone talks about the permanence of the business and it's like, well, they can always raise prices because people like the prestige and they don't mind paying more because they think the car is more valuable. But I guess to touch on Brett's question, do you think there's any cap to that? Do you think that stops at some point? I think if they do it modestly, I think there's no stop. If they do it in a way to keep up with

inflation, maybe like 3%, 4%, I think it's very realistic and I think they can keep doing it. Now, when we look at the range of the price of their vehicles, some of the vehicles, the vehicles range from about like $250,000 to up to like $2 million or a million per vehicle. But the cars that are selling for $2 and $1 million are very rare, or it's like a limited edition or something like that. So they're selling it on scarcity or something to that degree. So when you think about that, when you're, when you're ranging your vehicles in that price point, you've got a lot of flexibility and let's say, let's say, oh, I mean, they could say, we're going to make only two of these vehicles ever. Right. Like think about the price you could get for your only making two of these vehicles, or even like, let's say they said, we're only going to make 7,000 Ferraris per year for the rest of time or the vehicles. Right. So I think you've got a lot of flexibility there. So I think as long as the pricing power is reasonable and high net worth people can still afford it, I think it's very possible. Now, compare that to iPhone, right? iPhone or Apple is like a cool brand, but it's weird because it's not at the super high end of the market where you just can't afford it. most people have iPhones and Apple's been kind of exercising their pricing power, but those phones

are going up to like a thousand, 1100, 1200. I don't know if, I think that's going to price a lot of people out of the market. And that's like getting, that's literally almost the price of some computers. So I think for the end of the market they're playing in, I think it's very likely if they're reasonable price increases, they can keep going on. Okay. That was a good pitch. Yeah. Let's, uh, to wrap up questions, I'll go first. Uh, what is one financial saying that you disagree with? Yeah. So I don't know. I thought about this question. I don't have a saying, but right now, the way I feel is I don't, and this is one of the reasons I can still like Ferrari and still like a company like Etsy is because I don't want to pigeonhole myself into saying

I specialize in the healthcare tech stocks and this is all I look at, or I specialize in high growth. So right now I have certain things I like and I kind of play, I think unless you're managing money or you told your clients, you're going to do something specific. I think you should be willing to look at different types of businesses and be comfortable because right now I like SaaS businesses. I like software businesses just like the next person, but we got to question some of the valuations and you just have to be careful. And I think there's a lot of great businesses that may be not appealing or quote unquote sexy on the surface, but are really great businesses when you peel back the layers. So I think just not pigeonholing yourself

where I see some folks saying, I specialize in this, or I only look at these type of companies. I disagree with that a little bit. Yeah. I mean, sometimes you got to stick with what you know, but if you're just going to take out half the market for no reason, well, you're just limiting the amount of investments you have out there. But last question we always ask is what's one piece of advice you'd have for anyone considering a career in investing? I would say do a combination of practice and theory and start, if you're uncomfortable investing your own money, start with a little bit and gradually grow that. And the amazing thing about this business is that the best investors in the world are writing, they're sharing information, they're literally

telling you what they're doing. And you can accelerate your learning so much by just understanding what someone else is doing and copying that. And I think a combination of practice and reading, learning about theory and what other investors are doing is a great combination of things to do for someone looking to advance and investing and improve every day. Okay. All right. I think that answers all our questions. Thank you for coming on. Where can people find you uh you yeah you can find me on twitter right now uh at ari underscore invest a uri underscore invest um you know i see a lot of people at substacks and blogs i need to figure out if i'm going to do something with that or if i'll have money yeah oh is that is that what

it is you can charge like a subscription yeah you can charge well most of them are free i guess for our investors, but yeah, 10 bucks a month, you know, very scalable. Yeah. I mean, it's like, you gotta have a lot of people that want to come read your stuff. So, I mean, we'll see. Uh, and then I don't know if I still want to take, if I do try to study for CFA again, I probably won't have time for that, but, um, but yeah, Ari underscore investing. I'll share my thoughts, uh, research things I find interesting. Um, but thank you so much for having me on guys. Best of luck with everything you're doing. All right. There it goes. Thanks. Good luck to you. yeah thank you yeah have a good one guys bye-bye

welcome back in thanks again to ari hughes for coming on the show uh if you were listening to the first part i blanked on the name of what vlad tenev looked like uh it's john wick or kylo ren i thought he looked identical to both um and yeah so well he is an action hero sorry i've just been thinking about that his suit his suit didn't his suit was so ill-fitting it was just i don't know It looked like it was like something from a bar mitzvah. You could really go without the middle part. But, okay. Hot water.

I think I only have two. Yeah, I only have two. I have another one in my mind, but I didn't write it down. Go ahead. Financial goals are in hot water. This week, someone who works in San Francisco, I'm not going to say who, said $10 million is not enough to retire unless you're about to die. That's weird.

That seems like you maybe grew up in San Francisco your whole time. But $10 million is a lot of money. San Francisco didn't get expensive until like two decades. The last two decades, but yeah. What would be the right amount of money for you to retire right now? Right now? Quit this? I don't know.

I like this. So I'd do this not for free. All right. Let's say you weren't doing this. Weren't doing this? And I just had a regular office job? Yeah. What's the right number?

Where I live on myself. Well, assuming I can get that, you know, 30% IRR. No, just assuming a 10% IRR or something like that. I'd probably need like 1.5 million, something like that. In what world is 10 million not enough? It's lifestyle creep. You've got to stop that lifestyle creep. Okay, Boeing's in hot water.

A huge piece of a plane engine fell off mid-flight. It was a 777 plane. The flight was from Denver to Honolulu. i'm sure people saw pictures of this boeing grounded some of that fleet or some of those planes i think it was like a few dozen planes um and i believe the guy tried to sell it on ebay uh the engine part instantly after would you do the same thing yeah yeah why not you don't need it you might want it that's kind of a tough item to ship though tough shipping uh ups has it they got it yeah amazon can do anything uh those were the only

two i had yeah boeing tough tough look is that like only company that makes planes in the u.s we used to say it's the easiest company to own because they were you know the only company a monopoly almost yeah um well in the u.s sure but uh is it the hardest company to own right now for the long term because there's so many like newsy things that could really damage yeah yeah it's true i wouldn't own it but brad gave a good pitch last week or two weeks ago so uh i mean it's i mean it's got to be a hell of it's got to be a hell of a lot harder to own right now yeah and the sentiment is just terrible okay what do you have uh i was gonna have that so i have two first one ackman haters are in hot water because pershing square was up 70 in 2020 remember

everyone making fun of him in march well he really i mean he's not showing them because he doesn't know who they are yeah but i've come around to bill i like bill he's good he's good i hope he hears that yeah he's obviously listening uh he's i mean he's got a pretty good life done well uh but the other one is those videos on fin talk or the you know they're getting worse and worse by the day so there was this one that looked totally most of them it's like a kid our age that is spending 50 bucks and he's like you know they're learning they're making some mistakes like we all do but this one was a lady probably i don't know where they were but they were like we're selling our house and we're buying stock and they're going

to rent during this time and it was like a 350 000 house and they're like all right we're going to rent for a year and then once we get a million bucks we're gonna go back and buy a house it's can i buy a put option on them but the no i hope they don't do i hope they don't do bad but that's worrying i mean how weird can this get i mean what does another stimulus do to this too like this that might just throw some just tons of gasoline on this fire yeah there was another one where the guy the guy was like i just quit my job going all in on bitcoin i was like you could have gone all in on bitcoin while keeping your job like why do you have to quit your job it uh yeah those are concerning i've seen a lot of those recently but i will say finn twit is also

getting played because some of those are like fake videos and finn twit doesn't know it that's true you always gotta take them with a grain of salt some of them make them up and they're doing it as humor like sarcastically and finn twit doesn't know it so you know it could be we could be the one these might be sarcastic yeah we could be the ones getting played but i just like how they're like we're selling our house to buy stock not even stock stock just on they're buying stock they're buying they're just one stock i wonder what stock that's gonna be they're stocking shelves okay um what else no do you have any more hot water no buy sell hold the theme this week is companies we used to own so this was in like our old what was it called hypothetical capital

we didn't want to call it hypothetical it was hypothetical our personal holdings we used to own all these Square, Roku, and MongoDB if you had to go back today buy sell hold buy sell hold right now

gosh all those valuations are insane all of them are insane we might have some Roku and Square well if you trigger warning yeah now if you are holding Square and Roku right now all power too you probably 10 bagged your holdings honestly and if you're doing the same

if it was a yeah and maybe maybe never said never not investment advice but square i mean yeah i mean you're done phenomenal with your holdings you don't want to take that tax loss i mean maybe it's overvalued right now you're sure you're fine you know whatever you might get a 30 haircut you might not but i'd probably say square cash up's a beast um you'd buy square or you'd buy yeah I'd probably be out of these three. I wouldn't touch all three just on evaluation concerns, but probably Square, then Roku, then MongoDB. MongoDB's valuation's kind of insane.

I think they could get disrupted, but there's a lot of good arguments for the business. Roku, also the business has a clear path to success over the next five years or so. But again, it trades at what, 40 times sales now? Yeah, I remember looking at it. What, margins aren't that good? Three times sales?

Four, four. Don't worry. yeah yeah we were looking at four in between four and five back when that was we were like because that margin we might have overpaid yeah yeah and uh i mean those gross margins aren't that great i'll just say it again like their gross margins i think are usually in between 40 and 50 because they subsidize that hardware the hardware sales yeah and those won't go away they'll become a smaller part but still i mean yeah i i think i'd probably be buying roku it's business that i loved uh it's always hard to depart from the businesses you like do really

well on and then you become emotionally attached especially if you're vocal about it yes because then you feel like that's your company you were the one that was like the originator of that idea not that i was beth kendig was probably on it earlier than me but i don't know it's harder to sell but i think roku might be number one for me there square number two mongo db i don't understand well enough so it's probably three yeah i can't complain about that the uh my number one emotional attachment though has got to be stitch fix though that's got to be my number one that's rough all right uh anecdotal evidence this week um gosh i have two oh i want to talk about the spotify streaming event uh oh do we want to just save that for next week kind of get a because there

was like 10 things announced or not i'll just i'll just have one question okay what do you think the labels think when they watch stuff like this because shareholders are always getting optimistic yeah if you're a label and you're watching this on the one hand you're thinking all right we're gonna have to spend a little bit more money on advertising in that marketplace um we're getting a little bit detached from the artist but on the other hand they announced they're going to 80 new markets with over 500 million current internet users and probably a billion internet users over the time being so i mean they're going to be continuing paying out more and more to the labels each year yeah i think it's kind of just give and take you know

bittersweet yeah i don't think it's any changed something they didn't know about nope um another anecdotal evidence for me this probably could have gone in current state of fin twit but i saw someone mention that there's no points for originality in investing i kind of thought that was powerful do you think do you spend too much time trying to find businesses that are underfollowed because I find myself doing it all the time yeah

underfollowed is helpful because it means that potentially less more inefficient but yeah you can get caught in the trap like everyone owns this

we don't like it I think we had some like troll on our fund thing oh yeah that was a message saying if you're listening

cookie cutter portfolio or whatever I know that sent us through a message didn't even say who they were we've been getting flamed on the website so if you feel

if you're a troll hate mail just throw them in there i don't know what trolls are looking to hate mail on some fun that no one even knows about but you guys have found it and uh all right thanks for the thanks for the criticisms yeah all right uh what what do you what do you have okay so uh this could have been state of into it as well but i had a poll on shopbox versus dropbox you said shopbox shopbox well you can so shopify you can tell it when i like shopify versus dropbox 76 percent of people like to draw uh shopify over the next five years are you surprised i was i was a little surprised i know people like it uh was i being too pessimistic on shopify though i was about to

comment rip to your mentions when you put that out there because you you've been vocal against shopify for a while now granted they had a big time boost from covid um but yeah yeah they're i I mean, there are a lot. I was told we'll get Shopify at $1,000, so I've been wrong so far. Everyone loves that business. There is a ton to love, and I think Tobii is incredible. I think that, yeah, it's got a bright future, but it is so hard to rationalize the price. Whereas Dropbox does trade at fair value, in our opinion.

And then, yeah, I mean, I'm obviously a little more optimistic for Dropbox. because it might not grow as fast, but it's fairly valued. Sorry for the Shopify shareholders out there, because you've been right, we've been wrong. I hope both do well. I hope we're wrong, because I don't want people to lose money. Most of the really, really good investors that we know, a lot of them love Shopify.

Yeah. Respect it. I hope I'm wrong. I'm not short it. Okay. Is that all? Well, I guess another last, we'll wrap things up, last one. There's a lot of chatter out there about Facebook being cheap, something we've tossed around.

Facebook being, oh, stock is cheap? Stock is cheap, yeah. So you see that, you're thinking, all right, well, they're losing a little bit of the market in the United States. You can kind of see that anecdotally, but they've got that lock in globally. A lot of countries are using them. People have all the pictures. There's a lot of give and take with Facebook. It's a really controversial name right now.

But then you see the positives, Instagram, the VR stuff, blah, blah, blah. And then I see articles, though, from the Financial Times that read, like, a Facebook manager said that it made revenue that it should not have gotten. And this is from overstating eyeballs on ads. I mean, how do you weigh this? Like, when I see that, I just think, all right, Facebook's a black box. Have they been inflating, you know, those things? There is. I mean, here's the discrepancy is the most engaged audience is international, and the most engaged users are probably on WhatsApp or Instagram.

and they haven't necessarily diluted instagram too much yet but you can't monetize whatsapp they tried true true and so now you've got you're just monetizing the crap out of a base that's dwindling away and so maybe there's and what if they're what if they're inflating it what if they are like i know that you know the thing where you'd scroll by one second and you'd see the ad you'd see it quote unquote and it counts as a view i don't know i just can't get around that i mean i think that's total risk but don't you think businesses would know if their marketing was super ineffective like there's no way they'd get that much ad that much if they weren't getting like some reward from it well that's the truth yeah i know but there's plenty of people alleging

this so who knows i don't know it feels it feels like microsoft in 2010 no no no no that was It's trading at 10 times earnings. Are you serious? It's trading at 10 times earnings. Yeah. It's trading at 20. No. 20?

I thought it was cheaper than 20. Facebook? I believe it's at 20. That was like 17 or 18. Let me check right now. But, yeah, it's definitely not as cheap. That's cheap. It's not as cheap as Microsoft in 2010.

Oh, EVD is 17. Never mind. Never mind. It's cheap. It's a little lower. It's a little lower. and it just feels like sometimes i mean this is one of those companies that's really in the news a lot so sometimes the news can weigh on it and as if if you think the fundamentals are strong

going forward then maybe tune it out yeah i just gosh i don't know what news here i've been look i've been hesitant on uh facebook not bearish or anything but just hesitant uh i don't know what to think about it yeah it's almost in my too hard pile the the product is super easy to understand but it's still almost in the true no yeah the product whatever that's not in the too hard pile but just all the factors going into their future growth it's it's hard to analyze yeah okay well i think that's gonna do it thank you guys for listening uh quick reminder we're general partners at arch capital uh and we're not financial advisors so anything we say or discuss This is not formal advice or recommendation.

Feel free to reach out to us, Twitter, at ChitChatMoney. We've been getting a lot of show recommendations. We really appreciate those. And I think we also have email, ChitChatMoneyPodcast at gmail.com. Feel free to reach out through that. Thank you, guys. We'll see you next week.