Chit Chat Stocks - Brian Feroldi; Pinterest, Semler, & an Investing Checklist

Episode Date: May 5, 2020

This week we are welcomed by special guest, Brian Feroldi (Interview starts at 26:38). Before we get into the interview Ryan covers the impending Meat Crisis (1:30), and Brett discusses app store data during these confusing times (8:00). And of course we have to discuss the Elon tweetstorm during this week's Current State of Fintwit (21:10). For our interview with Brian Feroldi (26:38) we cover all things from his work with financial education, his personal investing checklist, Pinterest, and Semler Scientific. After the interview, as always, we have our Hot Water (57:56), FMK (1:06:25), and Anecdotal Evidence (1:08:22).  --- Support this podcast: https://anchor.fm/chit-chat-money/support 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, May 5th. We are recording this on May 4th, so Brett, may the 4th be with you. Oh yeah, thank you. Great joke there. Yeah. Anyway, we have an interview with Brian Feroldi today, writer for The Motley Fool, and he has some really interesting stuff that he's working on right now alongside some stock analysis that we go through. But before we get to that, we have our own stories. So what's yours? Mine, it's not much of a news story, but there were the app downloads for the month of April, and since it's such a weird month just in all parts of the economy, I thought it would be interesting to see who is winning,

who is getting some acceleration in app downloads, and who is kind of losing the Ubers, Lyfts, who are getting the slower growth than they were in the winter months. Okay, and then I'm going to be talking about the meat crisis that is upon us. um not i mean it's kind of progressed throughout this so it wasn't didn't necessarily just happen this last week um but there's some news from this last week so i'll talk about that and then as always we have current state of fin twit we have hot water fucking ready to kill and our anecdotal evidence let's go

all right welcome in i'm gonna kick things off with the meat crisis um as you know a lot of the stay-at-home orders still remain in effect in a lot of places i think there's a few starting to open up but um due to this meat consumption has increased because apparently people are like bigger meat eaters now that they're at home or maybe they're like stocking up so they're just buying more meat when they go yeah a little a little surprising uh that it's more because you would think of people like restaurants when you go to a restaurant a lot of people go there and get like a steak or something so yeah um and so i only found a few numbers on the consumption side but it said according to a consumer report survey seven percent of americans couldn't find any red

meat and six percent couldn't find any poultry at their local grocery stores so apparently americans are stocking up on goods and i've witnessed this as well there's um definitely sort of a meat shortage and there's a lot of people that are stocking up i know a lot of grocery stores are beginning to regulate how much like if you walk out with like four packages of chicken you're like not you know they like limit you to two or whatever so um definitely there's some help there from the grocery store side but a lot of this is due to outbreaks at meat packaging plants so um and i'm sure you've heard about this and it's caused a lot of these plants to pause operations a lot of them were pausing anyways but now these outbreaks are causing

them to completely shut down or just like take a full day off to like disinfect the entire place so an analysis from usa today reported that at least 4 400 workers had tested positive across 80 plants, forcing closures of 28 of them. And that's only 4,400 that spoke up or got tested. So there's probably more than that, but there's 4,400 confirmed tested positive cases at a Smithfield foods, pork processing plant in South Dakota, more than 850 employees tested positive. And at a Tyson foods plant in Arkansas, more than 900 tested positive. So when the coronavirus hits these plants it's spreading fast um which i'm curious why that's happening like why it's happening in a meat packaging plant well i mean it's probably

because those places are pretty gross um and you know tons of bodily uh fluids from these animals and things like that because they're going through so many every day and you're really tight with all those other workers that I think it's just a pretty gross place to work with a lot of people in there. Yeah. And so as a result of these packaging or production shutdowns, according to the U.S. Department of Agriculture, beef production was down nearly 25% year over year. So, I mean, kind of couple that with the increase in consumption, decrease in production, you're starting to see a big discrepancy there in the supply and demand last month tyson foods went so far to take out a full page ad in new york times warning that the food supply chain

is breaking um and i could only find it on one website and i couldn't really read it but they took out a full ad basically saying it sounded like a call for help so yeah kind of yeah um and so last tuesday president trump signed an executive order declaring meat packing plants critical to keep open with and i believe he implemented the defense protection act or whatever it is doesn't that seem like a waste of like that act yeah i mean i don't even know what's going on over there anymore so who knows okay here's another concern all the buzz like the more articles that are written about this the more buzz that there's a shortage the higher consumption there's going to be because people are going to think that there's going to be less meat later on

So they're going to take more than they can. It's going to be like toilet paper all over again. Yeah, it's going to be like toilet paper, although I guess the grocery stores could raise prices more than with toilet paper to try to curb that demand. But yeah, it'll be similar. People, I don't know, I don't eat meat myself, so it's kind of different.

I haven't experienced this personally, but I think it will be interesting to see what happens. happens like if i don't know like what's the end game how bad could something like this get um and then on a stock side i don't really know like the food companies just seem like something you want to stay away from anyone that's connected to the food supply chain uh you just want to you want to be looking at that if they're in their your portfolio at all yeah so something that can okay i don't think it's the end of the world it's not i mean it literally isn't the end of the world but like it's like people don't i mean you can get your nutritional needs met without meat i know a

lot of people like it but yeah hey you're you're preaching to the choir here but yeah i mean it's not gonna like kill anyone and toilet paper is probably more important uh you know what i mean like yeah like so it's it's gonna be people like will probably be very upset um i don't know it's interesting though what's gonna happen with that do you think we're gonna see more of these industry specific crises like we saw with oil because we're starting to get these big very like it's starting to vary from the typical supply and demand trends so much like we're starting to get these massive discrepancies where it's going either one of two ways like there's oversupply or there's less supply more demand that kind of thing do you think yeah yeah

i mean oil oil and the meat ones are the easiest it would be interesting to see if any other the food industry gets hit although meat packing plants are the only ones that are more inside so probably not maybe since we're using a lot more data inside and like the streaming video things maybe there will be latency issues or you know what i mean i guess the airplane industry as well airplane industry is gonna yeah i mean that whole thing it's basically connects you know the airlines and boeing and then all the part manufacturers i think a lot of those part providers and suppliers, they may have zero demand for the next three years and that could crush them. I know someone like Heiko, I think they're resupply parts. So that might be a little

different, but any of those other suppliers, they might be in a lot of trouble. All right, let's get to your story. What do you have? Okay. This isn't any news. It's app downloads. The best app tracker out there as a person, and if you're looking at any investment related ones, is Sean Emery who was a guest on our show this fall or last fall sorry in 2019 he compiles a lot of the data and it's very interesting to see on his feed and he posts like blog posts about and compiles all the data so he compiled some of the app data for April to see who was winning and to see who was losing during the coronavirus because a ton of things basically every industry has changed so i'll go first up finance our favorite one uh cash app and venmo strong saw strong month

over month growth cash app 4 million downloads venmo like 2.8 million so it looks like cash app is uh winning again over venmo although both are growing robin hood decelerated but remember this isn't they're still growing their nominal base but it's deceleration versus march so they still had 1.5 million total downloads but it was less than they had in march and then zelle which is the big bank competitor for then for venmo and cash app that got uh that was still a big laggard so we did not see any momentum from that and that's probably because i don't think they do much marketing on that at all which seems like a really they're missing an opportunity here uh any surprises on the finance side yeah i'm actually surprised that the peer-to-peer was so

strong because i i would just figure that there's like a lot and i'm figuring that a lot of the peer-to-peer downloads are coming from younger generations and i guess maybe they're still going out but i would guess that a lot of those like transaction or i'm interested to see transactional volume because well that'll definitely be down this is just download data from the app stores i know i'm just thinking like who's you think like the transaction volume and the downloads would kind of be tied together but whatever a little shocking yeah all right i'm just going to go through all of them okay then we can discuss um any surprises or anything any thoughts on these uh so next one is productivity uh webex which is cisco zoom competitors saw 200 growth month over

month so they're getting some momentum zoom had strong growth as you might expect but slack and skype actually decelerated while teams which is microsoft's slack competitor accelerated uh looks like maybe microsoft is getting some momentum compared to slack i know there's a lot of good news coming out about slack but maybe it's not as it maybe it's more hype uh what do you think about those and maybe they're okay it's important to understand this like you said this is not nominal growth because slack might have had higher nominal growth in terms of like who joined but it's in terms of percentage basis so if teams was coming from a lower like customer base it might look better than it really was uh teams but uh teams did have a higher nominal one as well they're

actually top 10 in overall app store downloads so i think they're they're doing for whatever they did in april uh it was it went really really well okay so random thesis then is that teams was mostly used website wise like used in a company on a computer whereas slack already had a fair amount of people using it mobily so i'm curious if maybe they had to add it like a lot of the teams members had to add it as they went virtual okay so maybe it's not actually transition translating uh to revenue yeah i mean maybe it's not users it's just existing users downloading the app uh possibly possibly yeah it'd be interesting to compare that to the user number data and then also compare that uh to revenue and profits which is what really matters right

all right what else you have okay social uh which is you know social media uh facebook snap tiktok decelerated although they are all in the top 10 of nominal growth so they're still you know monsters tiktok especially uh twitter actually decelerated which is a little bit of surprise to me but house party uh which i don't really know that is uh twitch spotify and pinterest accelerated pinterest is looking very interesting we talk about that with brian in the interview um we probably have to look into that more i used it today actually really yeah and you know what i used it for the exact use case that would make me bullish on it like i was looking so i saw i know this is gonna make me sound like such a consumer but uh yeah you're yeah you can't be a consumer

so i saw on a netflix show an outfit that i liked so i looked up the actor or the character in the netflix and i looked what show outfits outer banks it's a new one is it good i saw it i really liked it but it might not be your thing um and so i looked up the character or the that he plays and i said outfits and it came up with like a bunch of links to amazon and different things which is exactly what i was looking for i don't know that's i'm i'm getting anecdotally bullish yeah yeah gotta look at the financials though but yeah actually this is a preview to the interview we talk about that with brian who is a big fan of pinterest i'll go to the next one here though entertainments roku youtube were flat uh you know as you though you know youtube still

is getting tremendous growth nominally since they have over 2 billion users disney plus actually decelerated still saw some strong growth and downloads and then netflix and amazon video accelerated in april compared to march so it looks like disney plus had a very strong march but april was kind of you know for netflix and amazon video okay so i have first of all going back to the social house party is like basically just massive facetime like people which whatever and i don't think it's a great product but anyway it makes you feel a little old it's for like teenagers that's what teenagers are using right now it was big in high school yeah okay on the entertainment side i have another thesis that the roku app is going to become increasingly

like useless because they're starting to add like the roku speakers where you can voice activate everything and there's a whole bunch of functionality around it and it's the whole point of the app was basically it was a remote so i don't see why that would increase over time maybe i'm wrong but yeah they could probably get some solid momentum uh with voice activated stuff that could be a use case i'm kind of a bear on uh the use of you know the voice stuff like alexa but i think that actually would be a nice little thing to use i have an idea for roku and if if anthony wood picks this up i deserve credit so okay um a search bar on the home screen in which you can look up like a movie and it will take you to the app where the movie is in

oh yep yep so make it more search engine like yeah because you always do that i go to google and I look, where is something streaming? Yeah, that is a good idea. And then people could, I don't know. I think that they'd be able to monetize that as well. I mean, then if it's on Netflix or Hulu or whatever, it'll just take you right there. That would be perfect.

Yeah, and then those way smaller ones where you're like fine at that one time. Yeah, that is a good idea. All right, I'll get to the next one, delivery. Uber Eats was flat. DoorDash and Instacart was strong acceleration. don't really know what to say there because i think all those businesses are pretty poor uh but it's interesting to see doordash versus uber eats um the growth there yeah i don't like

any of those business models but i would see how there could be acceleration right now i another anecdote here on my apartment door i got like a random thing that was like a local food delivery startup and like 15 i'm like all right the hype needs to come down with this Yeah, it's really easy to start one of these things and then it's whoever just pours in the most capital is going to win. And it doesn't mean the business models are actually good, but we've gone over that a lot. It's just the business, the unit economics just don't work. Yeah, that's really all there is to say about those businesses. Next one.

Yeah, fitness and health. Peloton and Nike Run had strong acceleration. So Peloton, as we talked about last week, it's doing really well. And then Teladoc had slight acceleration, not as much as you might think, although I don't know if that translates really to revenue. And a lot of times people probably use their computer because it's like they're their insurance provider and you're not really talking to a doctor on a phone since it's more professional, although it is a little concerning to see that.

Yeah, that definitely feels like it's a rare enough occasion that it should be done on a desktop like on a computer yeah yeah and then as far as the fitness and health apps i'm not surprised on peloton and i downloaded the whatever track my run app like i'm sure a lot of people are in the same boat yeah that's the under armor competitor but the yeah the nike one yeah similar everyone's trying to do running outside and stuff like that because i can't go to the gym all right last one here travel easy everything was down like 50 uh you know uber lyft airbnb everything's getting crushed price line was getting crushed uh even vrbo i mean it's just gonna be bad for them they're not losing users uh right now but

the growth has just totally stalled and a lot of those companies are relying on the growth story to succeed yeah that's interesting i i mean it it's gonna harm airbnb a lot i actually just re-upped my Airbnb. Interesting note. Yeah, for your, you know, spoiler, Motley Fool internship. Right, yeah. I'm not sure if I'm supposed to say that,

but yeah, Motley Fool internship. Full disclosure, no. Yeah, right. Transparency. Radical transparency. Thank you, Ray Dalio. You're right, exactly. So I had to cancel or whatever

because I thought I was, you know, not going to be able to do it for any reason whatsoever. I'm not going to get into the details, but I had to cancel, canceled, and then all the prices came down. Turns out I'm going back. All the prices came down, got the full refund, and now I'm getting a cheaper one. Nice.

Nice. So the prices are really low right now. Yeah. It wasn't for all the places, but most of them have dropped prices. That's interesting. Yeah. I mean, that's basic supply and demand right there. That's what Airbnb has created.

All right. Last one. Top 10 monthly downloads, and this is in order. number one zoom then tiktok whatsapp instagram facebook facebook messenger really strong uh from facebook like they always are and then google hangouts netflix microsoft teams and then snapchat any surprises look maybe whatsapp i guess i don't know that i don't know the international growth google hangouts i guess is a surprise yeah that's the uh it's like the one that competes with zoom

they're kind of the second rate one skype's just done i guess there's they're probably gonna close it at some point facebook always surprises me they're so strong i don't know it's just every country i don't know anyone that still uses that app at least my age yeah but you're yeah it's but it's it's just demographic internationally people still are using facebook so much yeah all right well and and i guess people over 35 40 ish and that there's still a ton of those people out there so oh and i feel like this has been filled with anecdotes you talked about snapchat being on there their ads have gotten you know when you kind of when like advertisements take that leap where you're kind of like all right this is way too personal how do you know that

it's taking that leap for me that's good well it's good for the business yeah twitter's gotten a little better they're recommending investing topics to me now although they did recommend ethereum to follow i've gotten the most random twitter ads like yeah not fit into anything i would like have even searched yeah oh yeah wait there's a spider sorry okay uh there's yeah and twitter you you're a big advocate for the subscription right oh yeah big time yeah i Yeah, I think so as well. I'd pay $5 a month, $7 a month for Twitter, but I don't know how many they'd lose,

those monetizable daily active users. Yeah, I did a poll, and I think it was like 52% would be willing to pay more than $3 a month, three or more. Interesting. But yeah. Okay, current state of FinTwit, I think we have to talk about it, right?

Yeah, that's... Elon's tweet storm. Yeah, I call it the Twitter meltdown. I don't know if it was a meltdown, but it really made Friday morning. It was exciting. There's no way. He was high. He had to be high.

Yeah, well, he tweeted he was getting rid of all his possessions, so I thought he probably took a bunch of acid and watched a minimalist documentary. Okay, and then Ross Gerber tweeted offending him. He was like, oh, guys, come on. He's sleep-deprived. you know like we like it's fine he's sleep deprived who cares dude i you're like oh he was tired it's fine that he's like selling everything and like going insane like that is no excuse could you imagine if bob eiger was like oh i'm tired if anyone still too high

that would be yeah he'd get fired immediately yeah it's um yeah i mean it's technically not securities fraud because like whatever it's just his opinion um you know what i mean but it is it's wild um and interestingly uh he is eligible today for his billion dollar stock-based compensation payday so congrats to all the shareholders on their share delusion um that is coming down the line yeah not even delusion it's delusion delusion share delusion okay and then also how how can any fiduciary responsibly or even reasonably explain owning this now uh yeah any price that's above what he said was too high because like the plurality shareholder or like the guy that owns most of the company literally says you shouldn't own it yeah i mean

it's bad if the people that's uh bought stock at 767 a share in february when they sold 2.3 billion dollars worth are probably feeling pretty shitty right now um and are i'm guessing not very happy. Although the stock did recover as we're recording and it could easily be above $800 a share on Tuesday. So that could not really matter. Uh, but I would be concerned if my, uh, you know, a growth company CEO was doing anything like that. I think this is one of hundreds, not even exaggerating hundreds of giant red flags with the company. Um, but whatever, I think it's just going to be exciting to watch how this thing ends uh because it will end in it will be glory it'll be something just i don't even know it's gonna be incredible oh yeah it'll be one of the best ever

they'll call it the last dance too also did you see that mike tyson video of him at like 53 it went viral him like punching that guy i did not okay well whatever it was incredibly frightening he he still got it if anyone was curious and so my question to you was uh would you rather stand in the ring and fight mike tyson at 53 years old for a minute or invest your entire life's income in tesla shares i think if i was worth more than a million dollars i would go with the tyson but less than a million dollars or a lot less which is what i'm at right now i'll go with uh tesla okay all right well that's it for current state of fintwit right yeah that's all i had next we have our interview with brian ferroldi so what did you like about the interview uh like i said

before love talking about pinterest uh and he is a great growth investor one of the best out there very Motley Fool-esque. That's his style. But if you're into that type of stuff, or even if you're not, I don't know. The stuff he focuses on and the way he does his ratings is a great perspective to have, even if it's not exactly the way that you invest. Yeah, he's got a good checklist. And I think everyone should kind of develop a checklist that... There's definitely some ideas you could steal from him as far as adding that to your own checklist. And then he's also doing some work, some ground level work with financial education, which he talks about, which is really interesting.

And I love to hear about that as well. you Okay, today we are welcomed by Brian Feroldi from The Motley Fool, and we're really happy to have you on, Brian. Welcome to the show. Brian, Brett, awesome to be here. Thanks for having me. So why don't you just start by telling us how you joined The Motley Fool?

Sure. Sure. When I graduated in college in 2004, and my dad, when I graduated, gave me a book called Rich Dad, Poor Dad by Robert Kiyosaki. And I just devoured that book. It was the first time I ever heard of the concept of investing and you can use your money to make more money and the concept of financial independence, et cetera, et cetera. So I just started devouring everything that I could find on finance personal finance money etc and that led me to fool calm and I became a casual reader than a really heavy reader I became a subscriber to the services in 2009 and I spent so much time on there that I made the leap to

becoming a writer for them about five years ago interesting and we're gonna talk about some of we're gonna talk about two companies similar in Pinterest just so all the listeners know. But before we get to that, we want to talk about the investment process that you go through. And also you've been doing some interesting work as far as financial education goes. Do you want to kind of tell us about that? What's this project you're doing with the kids at the schools? So I have three children. They're in elementary school. And last year I asked one of my children's teacher, my oldest was in third grade, if I could come in and teach them a little bit about the stock market and she was intrigued. So she let me come in and I just made a

fun presentation, just trying to make it as fun as I could. Um, so I called it how, how, uh, how pizza, uh, video games and streaming movies can make you rich. Um, and I just went in there and introduced the concept of them to, to them that you can actually become a part owner in some of the companies that you love. Made a very quick talk to them about what is a business? What is a stock? What is profit? How does profit relate to the business? And then at the end, gave them 25 companies that they could pick from. And I tracked how they did for a couple of months. But when I was doing that, one of the other teachers overheard me doing that. And she asked me if I could do that for her class. And then I did it to another class. And then I did it three

more classes and last year uh this year at the beginning of the year i did it for 12 classes um so it's uh it's so fun uh to do because you're talking to them about video games and what do you like better disney plus or netflix and they're just so engaged and it's just such a great way to get kids interested uh in introduce them to the concept of business and money do you have any plans as far as where you want to go from there? I know you said you're tracking the performance of those stocks, but do you have any other ways you want to do that? Yeah. My hope is to actually track, follow those kids through their entire careers in my local school system and show them the power of, well, remember these stocks you picked in third grade? Let's check in how they're

doing now, two, three, four, five years later and show them how businesses build value over time. So that's my plan. But I've also reached out to the middle schools, to the high school, to my local university, etc. I'm pushing hard to push this education as far as I can. Wow. And you've had a lot of experience then with teaching to these younger children. What do you think the best way is to introduce people to investing? Is it like this going very simple or is it personal finance? What is it? I'm a big believer. It depends on the person, right? Uh, if it's an adult, uh, personal finance is, I don't know, a hundred times more important than teaching them about what is a stock and how does the stock market, uh, work for most people, just getting your personal finances in order is a, is a foreign, is a foreign concept. People are just not taught anything about, uh, money, about cash, about debt, about what to do. So I think learning about that is incredibly

important. But a big part of that is learning about what to do with excess money once you have it and how to think about saving and investing for your future. And the first time you show somebody a compound interest chart and what can happen with a little bit of money over time, hopefully their eyes light up and realize, whoa, you mean I can have hundreds of thousands or even millions of dollars later in my life if I just save a couple hundred dollars a month. Some people get really excited about that. Yeah. And that's when you know that they may be another fan of investing. We'll transition now into your investing process, which is very interesting. It's a unique one. You have a one through 100 scoring system for businesses. What

is the highest score you've ever given to a business? And I guess you can say what it is maybe, but why would that be the highest score? Yeah. So I guess we should back up a little bit. So I've had, I'd have full access to every single Motley Fool recommendation for years. And the wonderful thing about the Motley Fool is they have lots of recommendations. The bad thing is they have lots of recommendations. So it's, it's a real, it was such a huge challenge for me to keep all the factors going in my mind about what I was looking for in a business. Right. Right. I was like, before I had a system, I was just like, well, this company has really fast growth, great margins, huge opportunity, but I don't like its management team. This one over here is growing

slower, but I love its management team. This one has a huge total addressable market, whereas this one's already in the market leader in a big market. So I didn't have a good system in place for kind of categorizing the investment features that I desired the most. So I decided to kind of build a checklist from scratch. And I've been posting this out to the world specifically so that I could get feedback on it. And I've gotten wonderful feedback from readers saying, hey, have you thought about this? Have you thought about this? And it's been so helpful to read that from other people. But the version that exists today is a scoring system that it goes from negative 44 is the worst score you could get up to a hundred. So a hundred would be a

perfect score. And it tries to weigh business attributes that I like, such as a very strong balance sheet. I like fast growth. I like profits, free cash flow. I like a wide moat. I like companies with optionality, multiple futures. I like them to have operating leverage ahead of them. I want their customers to come to them. I want recurring revenue, et cetera, et cetera, et cetera. Uh, so by going through this process with all the companies that I'm interested in and own, it helps me come up with a quality score. And in general, the higher, the high, the companies that do the best on this, I just asked myself, well, why don't I own them? If they, if they score so well on everything, why don't I own them? So that's, that's why the process is. And,

uh, it helps me make decisions about which companies I want to buy and which companies I want to avoid. What is, uh, what's the highest score you've ever given a business? So the highest score, again, this is out of a, to a hundred, uh, the highest score I've ever seen is an 88 out of a hundred. Uh, so to me, that's like, that's as close to a perfect score as you're going to get. Uh, and that's a little company called Facebook. Uh, you might've heard of them. Uh, Facebook is the, yeah, is, is the best scoring company that I've come across. Uh, so far there's, there's some other ones that i'm sure you're familiar with that have also scored very well uh google is the second highest uh at an 87 uh then there's like adobe systems 86 uh etc etc but yeah those are

those are some of the the highest scores i've ever seen and in general when i get a score of 80 or higher i get very interested have you ever owned any business where it didn't score that well for you when you go through your checklist and if you did why was that and then what did you end up sorry, what did you end up doing? Is that a cause for you to like, do you like sell immediately after that? Or do you just kind of reevaluate what you own? Yeah. So I've only had this system in place for a couple of years and I tend to buy and then, and then hold for a long period of time. Um, and the thing I like about this is had I been using it from day one, this would, this system would have caught a whole bunch of losers like ahead

of time. Uh, and I would just, it would never have, have purchased them. Uh, but the lowest scoring stock on my list that I own is Tesla. Tesla gets a 57 out of, again, a hundred, or at least, you know, I typically wouldn't add new money to a company unless it was above 70. And this system is by no means perfect, not by a long shot. It's not going to find companies that have a hundred X potential. It is designed to lower my risk as much as I possibly can. So Tesla is kind of a super weird company on so many fronts um and i have no plans to to sell tesla but because it gets such a low score i know i knew this already but i just knew that it is a very high risk company and it is one that i do not have as much confidence in as i do with companies that get higher scores

right that's an interesting way to go about it um is it is there any part of your checklist that you're willing to kind of overlook if management is stellar like let's say you like you really love a business but it doesn't check certain boxes for you are there parts that you're willing to overlook yeah so the the system is designed to weigh attributes according to how much I value them so the three attributes that I value the most number one would be the moat number two would be the potential. And number three would be the current financial statements. So if a company had those three things in spades, but it had a low inside ownership or kind of, or low Glassdoor

ratings, those things would lower its score, but it wouldn't, it wouldn't knock it out of contention. For example, if a company had a really bad Glassdoor reviews and low inside ownership, it probably would score at a maximum the low 80s, but it would not be a top scorer for me. Now, that checklist does a comprehensive job of evaluating the quality of the business, but when it comes to valuation, how do you weigh that? Are you willing to buy quality businesses because of your time horizon, or are there certain valuations where you just can't wrap your head around them yeah so the i use the quality system it's just that it's just quality it speaks nothing about valuation it speaks nothing about uh anything else not not is this

company a buy right now it is just how high quality of a business uh is this and then i rank companies according to their quality then i do some very broad very broad um very very loose valuation analysis of a company. And in general, the smaller the company is, when compared to its opportunity, the more willing I am to pay a very high valuation premium for it. Conversely, the bigger a company is compared, if a company is starting to bump up on the end of its growth trajectory, I become far more price sensitive. So if a company was, let's say a company was like a $250 million market cap, and I could see it one day growing into a $25 billion business, I'm just going to buy. Like I'm just going to flat out buy because I literally think it could

be a hundred bagger. And the valuation I pay today is insignificant compared to what it could be. If a company is worth $50 billion today, and I could see it being a $100 billion business one day, I would be far more price sensitive. Yeah, that makes sense. And I guess that tails into our next question here. How much do you worry about the law of large numbers? I know a lot of people talk about that with big tech, whether they have enough room to grow two, three X more from here. How much do you worry about that when it comes to a new potential investment or for stuff that you're already holding? Yes, I know what you're getting at. I prefer the term mega cap multiplier obstacle, uh, which means like when a company is like, take Microsoft,

Microsoft is a $1.3 trillion company. And it's very natural to ask how big can this company get? That is already so huge to, to double. It has to be a $2.7 trillion company. And that's just such a mind boggling, a big, big number. Um, I've, I've, I, I, I'm on both sides about this. On the one side, I totally see that that number is absurd at so many levels. On the flip side, Microsoft is expected to grow its revenue 12% this year, and it's expected to grow its revenue another 11% next year. Those are very strong growth rates for a company of this size. Or take Amazon.

Amazon's another trillion-dollar company. company. It's expected to grow its revenue 20% this year and 17% next year. Those are extremely strong growth rates in general, let alone for the size of the company. Now, conversely, if you take a look at a company like Apple, Apple is growing at a much slower rate. So, while it's huge, its growth rate is much slower. So, I try and focus on the growth potential of the business as opposed to the absolute raw size of it. Because there are businesses that could be worth $500 million and have no growth. And there can be Microsoft, which is 1.3 trillion and is still growing. So I'm more focused on the how much growth is left

as opposed to the absolute size of the business. Okay. Let's pivot into some stocks specifically. The first one we have here is Semler. Why don't you speak to the bull case broadly for Semler? What do they do for anyone that doesn't know? And then why do you like them? And that is Semler Scientific, if anyone's interested. Yeah, so Semler Scientific is a company that fascinates me. The ticker symbol there is S-M-L-R.

And Semler has developed a product called Quantiflow, which helps to diagnose peripheral artery disease. So one of the biggest killers in general heart attack strokes is caused by the arteries hardening and preventing blood from flowing to them. Currently, there's no easy way to screen patients for peripheral artery disease. So what Semler has done is they developed a little clip that goes on your finger and your toes. And within five minutes, this device measures the blood flow to your extremities. So how much blood is flowing to your hands and to your feet. And within five

minutes, you get a printout of a report that shows exactly how much blood is flowing to those. And if the physician was noticing that blood flow is extremely low to one of the limbs, that could be an indication that the patient has peripheral artery disease and action needs to be taken, maybe surgery, maybe drugs. So the question is, well, what's that information worth? I think that's extremely valuable information to have. And Samler is the first and only company that provides this five-minute test. Now, what attracts me to Samler is, first off, it's the only company doing what it's doing. But more important than that is its business model. The company doesn't really care about the sales of the actual clip itself. It's focused on the software. So it's

selling the software to actually make those reports. So because of that, this company has fabulous margins, fabulous. Gross margin is 90%. So last year they did 33 million in revenue And $29 million of that was gross profit. That's outstanding. And this company is actually already profitable. Even though they're only doing $33 million in sales, they are converting a significant chunk of that money into profits. Now, they believe that they have an enormous growth runway ahead of them

because they're only in very few clinics. But in theory, this technology could be used by every doctor in the world basically. Obviously, that would be extreme pie in the sky thinking. But when you combine all those attributes together, Semler is a company that absolutely has my attention. And I have taken a very, very small position in this company. And you said right now, they're only really in a few clinics. And a lot of the concerns that I've seen with Semler is around the customer concentration. And I know that on your checklist, you said something you kind of watch out for is heavy customer concentration. Why do you see Semler as an exception? And then how can having

heavy customer concentration hurt a business? Yeah. So I don't see Semler as an exception. One of the things that I, after I score a business, I run it through kind of a, something I call the gauntlet, which is when I subtract points for things that really concern me. And one of the things that really concerns me is customer concentration. If a company has severe customer concentration. That means that a huge portion of their sales come from just a few customers. And that makes a business fragile because if it was to lose one of those customers, then they lose out on a whole lot of revenue very quickly. And the thesis for owning the stock really gets hurt. So I subtract a maximum of five points for companies that have very high

customer concentration ratios. So I have done that for Semler. The point was that's not enough to make this company uninvestable on its own. Now, there could be a very legitimate argument that I'm not detracting enough given how extreme Semler's customer concentration is. I don't have the numbers exactly in front of me, but I believe that like three of their customers are something like 80% of revenue

or somewhere around there. I think it was, yeah, three make up 70% of the top line. Yeah, that's huge. If it lost its number one customer, its sales would drop almost by half. that's extremely, extremely risky. So people need to know that ahead of time. However, customer concentration is a risk that can decline over time. If Semler is successful in adding new customers every year and diversifying its revenue base, that concentration

should be diluted away over time. And if they're successful five years from now, let's just say, I'm hopeful that none of their customers make up more than 10% of revenue. So I ding companies that have high customer concentration, but to me, the potential upside of Semmler is worth that risk, given that this is a very, very small holding for me. It's sub 1%. Right, okay, okay. And then one question, we're both fans of Semmler Scientific.

We've looked into the stock as well. So, if a business were trying to compete with them and try to build a competing product, is there a difficult regulatory process for that? Or is it more of a technology-based where Semler just has the better, no one can come up with their technology to compete with them? Yeah. I don't think the barriers would be all that high, but Semler is the only one doing what it's doing right now, and they're the only ones that are attacking the market in this

way for right now. I don't think that if somebody got serious about it, I don't think it would be all that hard to eventually compete against them. But the company has no direct competition at this time. If they grow and are successful, the odds are pretty good that they could have a competition at a later date. Okay. Another stock that you've talked a lot about is Pinterest, which has kind of caught both

of our eyes. And it's an interesting business. I think they went public within the last year or year and a half, maybe. Yeah. So why don't you talk about what Pinterest is for anyone that doesn't know and kind of just the bull case broadly? Sure. So Pinterest is commonly confused as a social media network akin to like a Facebook or Instagram. I think that's an incorrect view of them. Pinterest calls itself a visual search engine. And that's how I think that that's actually a better way to think about this company. Think of them like Google, like the way that you would use Google

except for images. So you go to Pinterest, people create a Pinterest board and they type in things that interest them. For example, if you were about to redecorate your kitchen, you would type in kitchen ideas and what would come up. Pictures of different types of cabinets, different washing machines, different layouts that other people have done. And it's something for discovering ideas. And what they like to say is that Pinterest is for people that don't have the words to express what they want, but they know it when they see it. So when you see an image that really sparks an interest in you, you can save it and you can pin it to your board. And that's a very natural progression to go from, okay, here's an image that I like, and then taking action on that.

People go to Pinterest because they're looking for images that inspire them to take action in their life. To me, that is a very monetizable platform because if I was an advertiser, I could put an image on Pinterest, and if somebody liked it, well, then that takes them right to my website to buy it. That's a very natural progression. If you compare that to, say, Twitter, which I know we're both big fans of, why do we go to Twitter?

We go to Twitter to communicate. We want to talk and connect with other people. When I go to Twitter and I see my feed, ads are a distraction. Ads detract from the experience. When you go to Pinterest, ads are part of the experience. That's actually something that people go there to see. It's like looking at a circular that comes in the mail. People are looking for them for ideas. So to me, the bull case for owning Pinterest is that a metric called average revenue per user, also called ARPU, at Pinterest right now is very, very low. I think in the last quarter, it was about a dollar in the US and about 15 cents worldwide. For comparison, Facebook was

somewhere in the teens, and even Twitter was at about $6 or $7. So Twitter users are monetized currently about six times higher rate than Pinterest. Now, why is that? Twitter users are monetized because Twitter has been monetizing them for longer. Pinterest only recently started to turn on the monetization engine. Now that number is growing very quickly, but I believe that ultimately Pinterest's average revenue per user will be much higher. And at the same time, the number of people that are using Pinterest is also growing faster than Facebook and Twitter and Snapchat are on a percentage basis. So when I see high user growth and the potential for average revenue per user expansion, I get excited about Pinterest's future.

Right. And I guess we were about to ask about the ARPU number, but I guess we'll talk about profitability. How do you see them getting to profitability? Because they are unprofitable right now. And how many users do you think they have? What is the upper limit? Are they getting close to saturation yet? Or is the growth going to come from their average revenue per user? Yeah, I think at last count, they had something like 350 million users for comparison. I think Facebook is around 2.5 billion. And 80% or so of Pinterest users are in international markets. So their growth rates in the US are slowing. They're single digit off of a pretty high base. But But Pinterest is not yet crossed into profitability, at least especially on a gap basis, because

they do have very high stock-based compensation. But they are getting close. The analysts actually expect Pinterest to post a very minor non-gap net loss in 2020, and they expect on a non-gap basis the company to become profitable in 2021. Usually, companies like this have reached cash flow profitability before they reach non-GAAP profitability. So Pinterest is to me, it's right on the line. But if the company can grow its top line at a very quick rate for the next 10 years, like I expect it to, there's no doubt in my mind that by 2030, this company will be insanely profitable. Who do you see as most of their main competitors? Is it mostly Instagram right now i i know a lot of people maybe go there for inspiration or advertisers probably flock to

instagram because of the uh customer base what are there any other ones yeah facebook google uh those are their biggest competitors uh by far uh to me uh to me the thing that separates pinterest from from those platforms is uh there's a lot of negativity uh associated with facebook uh with Twitter, with Snapchat, there's not any negative, there's far less negativity associated with companies like Pinterest. Because again, it's an idea, it's an inspiration machine. You don't go there to communicate with others or to like spread hate speech or those kinds of things. You literally go there to see images. If I was a brand and my image mattered to me, I would be very interested in advertising on Pinterest, much more so than I would be in advertising on other platforms.

Is that a durable competitive advantage? I don't know. I think it could be, but to me, that is the company's advantage right now. You said they make their money through advertisements right now. Can you see them evolving into more of the e-commerce space moving forward, maybe launching something that competes with Shopify so that maybe those advertisers could build websites or a place to shop on Pinterest's site? Is that a possibility in the future? Sure. It's a possibility. I mean, you could see them kind of almost becoming an Etsy store of sorts where people would post their own wares, post images and possibly do commerce that way. Yeah, absolutely. That's a possibility. That's one reason why I like investing in

companies like Pinterest is I don't know what the future holds, but with 350 million users, if they were to launch another business that was successful, boy, could that be profitable for them. and yeah it'd be easy especially with these platform businesses it's really easy to just you're advertising or whatever but you just launch it and all the users that are going on a daily or a weekly basis are going to see these new products um i guess that's the way they give them optionality but we'll get to the wrap-up questions here these are the questions we ask all our interviewees first one is what is one financial saying that you disagree with uh buy low sell high that seems to be the molly fool one right uh yeah i mean the whole idea that

you buy something low and then just later sell it high um i understand why that saying came to be but if i was to replace that i would say uh buy and hold that's a much more pro buy greatness and hold greatness. That's a much better way to invest. Yeah. And the timing aspect is rarely executable. Last question here. What is one piece of advice that you have for any new investors? If you're new, if you are just getting into investing, there's nothing wrong with just going the index route at the beginning as you're starting to build out your knowledge base. So have the majority of your money, your investment money in index funds. And then if buying individual stocks interests you, slowly layer in companies

that excite you over the long term as your knowledge base starts to grow. But I just love the idea of starting at 100% index. And that way, if you only know and buy one company, you are still extremely well diversified. So that's what I would suggest. Okay. That's all the questions we have. Thank you for coming on to the show, Brian. Great to be here. all right welcome back in thank you once again to brian feroldi for coming on the show really enjoyed it but next we have our hot water what do you have uh robin hood users as always they're in hot water every week if you go on robin track you can see how just

relentless they buy the dip as uh hipster trader was saying but they were absolutely piling into airlines and then buffett this weekend said that they sold their entire stake even at you know upwards of a 20 or 30 or even 40 percent loss for berkshire hathaway and i the stocks puked today and the total number of users that own airlines on robin hood is still skyrocketing so they are btf being uh just amazingly hard yeah you know and talking about the whole buffet selling airlines thing i was going to tweet this out but it's a dan mcmurtry on some interview talked about being contrarian like in terms of magnitude versus instead of like directionally so i was thinking about this he that's basically buffet by selling all his airline

shares because a lot of people were bearish on the airlines but they're like all right screw it i'm late. I'm just going to hold it. Yeah. And yeah, yeah. You can't get into that mindset where if something drops 50% and it's still not good at that drop of 50%, you should still sell and put your money in a better place. If the business you still think can outperform the market or be a solid investment, then keep it. But it doesn't matter where the price was at all. Exactly. all right what else do you have okay well math i guess math in general is in hot water this isn't very investment related but nick majuli uh had dollars and data on twitter he had a tweet where he stumbled upon anti-math twitter and it is quite something uh they had this whole thing it was about

there's like a viral tweet of someone saying something about eight times seven equaling 56 doesn't sit right with me it's kind of you know whatever they're saying something but then this one person responded and said it's just like this i don't even know it's like a psa stop doing math bullet point numbers were not supposed to be given names discrimination i guess years of counting yet no real world use for going higher than your fingers i i can think of a few next bullet point i will just this would be the last one because it's a little long wanted to go higher anyway for a laugh we had a tool for that it was called guessing i i don't know what these people are but they're out there and they are voting in our general elections i i didn't know there was

anyone out there that i mean i'm sure i'm sure they've had a few failed math classes or something but i never developed like a hatred for the actual counting part oh yeah almost 10 000 likes on this reply so it's it's something it is i don't even know all right next one is the financial times because for some reason they allowed this absolutely terrible chart crime to be put in their newspaper which is like the wall street journal of europe i was just so surprising it was in there it was this guy overlapping the 1920s and the last decade and there wasn't even any correlation it just kind of moved up and then there was a dip and he was like showing the great depression for the next few years it's like this is where things could head but it didn't even

match up that well and plus even if it does match up those things are always bullshit i do not know how the financial times posted that yeah it's a bad look for them i didn't see it but it sounds it sounds bad yeah that was wild seeing that all right who's it i'm the next hot water is me for trashing Boeing because they did not take government money. Instead, well, technically the Fed is backstopping all the loans, so they're inadvertently taking government money, but they didn't take a direct bailout. But they instead took a wild three- to 40-year bond ladder.

So they sold $25 billion worth of bonds, some expiring 40 years from now in 2060, some expiring three years from now, obviously with different rates, higher rates for longer-term stuff. but props to them for not taking like 50 billion dollars in taxpayer money um but yeah it's interesting to see what's going to happen with them i guess that's a better look than a straight bailout but 2060 whoops like you see the hipster trader tweet it was like people are going to be paying a billion dollars for coffee in 2060 like yeah hyperinflation bros who's making investments

like bets 40 years out yeah i know disney always sells like 25 year bonds apple does the same thing i haven't i don't know it's wild interesting all right any other ones yeah berkshire hathaway because the fed stole all of their deals they said during the meeting or i guess buffett said during the meeting that when in late march when things were crashing in the market they were getting some calls uh but they couldn't compete with what the fed was offering uh terms wise or the government in general uh so i'm guessing they were talking with the airlines maybe some of the travel industry some of the other really hurt ones that were probably looking for some you know short-term cash and buffett would have gone for one of those nine percent or ten percent preferred

equity things that he likes to do or that berkshire likes to do it's not just him but yeah they kind of got screwed out of there uh but the fed came in and rescued everything so yeah i mean maybe this liquidity pumps these uh these liquidity pumps are kind of ruining ruining that margin of safety that value investors look for yeah uh it's it's true i mean the distressed debt uh funds berkshire hathaway they want times to be oh they don't want times to be illiquid but when things are illiquid in general when things are tightening up throughout the whole market that is when they are you know can do their great deals uh where they get like stock at a you know tremendous price uh and they kind of got that taken at least for right now

um we'll see what happens over the next few years here though yeah all right is that it for you that's it okay so my i only have two so my first one's sort of a real one uber cto left this week which I don't really look into the details, but that's usually not promising for what is the growing tech company of the future. Yeah, they've lost a lot of executives. It's a tough, I don't know if anyone can turn that thing around.

Yeah, I think Uber's screwed. I really do, and that's not that hot of a take, but do you think this is going to allow startups to sort of rethink liquidity positions and then also profitability in general? yeah i think it's just gonna hurt everyone i yeah people we were kind of was more important from that perspective yeah i guess that's true okay my second one is people in washington um okay that's us yeah what the hell is up with the murder hornet and what like

i'm like i'm not all right with that that's 20 2020s kind of sucked i mean no there's not that many it'll be all right okay all right well i'm look look this look evolution will take its course uh i was reading something that the bees in japan where these other asian hornets live they have learned to crush the hornets by like glob just basically crushing them by using like hundreds of themselves together and then they they shake you know like how they they buzz like a bee and then that heats up the hornet and suffocates it and it kills it so group thinking on the bees hopefully the north american ones learn and uh yeah so wow shout out the bees yeah nature fact of the day there maybe import some some of those japanese or chinese bees

you know get them on a quick uh quick trip over here that might help yeah i don't know okay um So, yeah, I wasn't all right with that. The pictures were quite frightening, but those were my only hot waters. Fuck, Marry, Kill this week is the food supply chain. Oh, great. Sell, sell, sell. Kill, kill, kill. I guess one of these might not be a supply chain.

Maybe it's vertically integrated, I guess. Adjacent, yeah. Heisen Foods, Calivo Growers, and Beyond Meat. Wait, sorry. Say the first one you cut out. Heisen Foods, Calivo Growers, and Beyond Meat. Oh, I used to be a fan of Calvo Growers just because I thought there was growth in avocados and there is, but it was kind of overvalued. I've seen it though. It's kind of suppressed here. And I think there is, I mean, don't you think avocado demand, unless something happens with the environment where, you know, agricultural, wherever they grow them, you know, gets hurt, you know, something that is unexpected. Don't you think avocado demand will be sustainable, right? i mean as someone that likes avocados yeah yeah so i think calvo growers is the one you marry here

um don't like it that much either way just because i like digital businesses more they're safer there is a group i mean it might be a concentrated group maybe it's it's kind of on like the tomato side there's people that really hate avocados yeah but not everyone has to like it just like not everyone has to go on an app or something like that you just need to you know able to grow uh i guess i'll kill tyson foods tough business and i'll fuck beyond meat uh just because who knows maybe the whole supply chain gets ruined and everyone uh it starts eating beyond burgers although i don't expect that to happen yeah yeah you know what that that is probably the most bangable opportunity there for those stocks california growers is i guess is someone that's

probably sustainable easy to marry and then tyson foods it doesn't look like things are going well for them at the meat packaging plants so sucks for them okay anecdotal evidence um you want to go first sure so uh the news came out i guess during that chicago bulls documentary that nike got mj and they almost didn't get him adidas was trying to get him uh and they missed a big opportunity obviously so how much of nike getting mj michael jordan for anyone that doesn't follow basketball how much of their 100 billion dollar market cap did that springboard oh that's tough what i mean what kind of position was nike in before that were they still like what i mean they were basically all runners with not really much uh sponsorship for any popular athletes

that not that only runner athletes 40 because it changed the dynamic of nike i'm guessing yeah i'd say at least 40 because it made sneakers go mainstream yeah yeah all right 40 or higher okay um any others oh that's it for me okay i have one that's kind of timely because i think chegg reported today and i didn't look at their numbers but it is finals week for me so and obviously all the tests are online now and so i got to a question today that was a little hesitant on and i thought for a second if my grade was dependent on like my final test um humble brag I guess it wasn't. I would not even hesitate to pay $15 a month to get those answers.

Yeah. And so I'm curious with all these tests, all these finals going online, if we will see a massive uptick in Q2 for Chegg. Yeah, there could be a short-term bump, although I think long-term it's just a terrible – like it's not a sustainable business. People are going to start catching on to what it is.

I mean, yeah, it's a cheating service. But straddles, Q2? That could be interesting. It could be very interesting. Actually, you know what? We've got to stop gambling. We're done gambling. We have some gambles on.

And, yeah, I'm usually the one that is asking about doing some more gambling. Yeah, okay. We're not doing that anymore. All right. Well, that's going to do it for this week. Thank you, Brian Feroldi, for coming on the show once again. Follow us wherever you're listening. like and review if you're on apple podcasts give us any show recommendations um our email is

chit chat money podcast at gmail.com we will definitely do those we just got one from i think it was red violet and we published that show what is it two days ago at the time of this dropping yes um yeah thank you guys we are not financial advisors anything we say or discuss here on chit chat money is not formal advice or a recommendation thank you for listening we'll see you next week Thank you. This family is on the brink of civil war On September 18th, Mobland, the hit original series, is back on Paramount+.

We are the Harrogans. Don't know them yet? Then Google us. From the underworld of Guy Ritchie. Do you want to step up the ladder? I want Comet dead. Starring Tom Hardy, Pierce Brosnan, and Helen Mirren. Do I have to do everything myself?

You want more? I'll give you more! Mobland, new season hits September 18th on Paramount+.