Chit Chat Stocks - Buffett's Dominant Performance; MicroStrategy's Blatant Ponzi Scheme; Collateralized Burrito Loans?

Starting point is 00:00:00 Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome to Chit Chat Stocks. I'm one of your hosts, Ryan Henderson, and I am joined as always by Brett Schaefer. This is our weekly Power Hour episode, Investing Power Hour number 154. We're getting close to three years here of doing this. And on this show, we talk all things financial markets. We riff on any recent events. We talk about any earnings. We talk about

Starting point is 00:00:57 the IPO market opening back up. We have a couple of high profile companies filing to go public. So we're going to rip through some of those and we take any questions from the audience. We do these live on Wednesdays at 1.30 PM East Coast time, 10.30 Pacific time. So if you ever have any questions you want to ask us, feel free to head on over to YouTube and check it out. We also post these on the podcast players. So if you listen there, we appreciate that as well. But I guess let's get right into it a bit here brett what are you excited to talk about today yeah this is usually the slow time of the week or excuse me the quarter and luckily we have a few ipos that have filed to go public clarna and etoro so we got to kind of scramble you know we don't

Starting point is 00:01:45 have earnings to talk about much anymore but i do have nike which is at a bit of a crossroads as as a company and i think that uh apologies i think i'm a little loud there for the audience but i turned myself down a bit uh we have nike that reported earnings another tough quarter for them they're getting really really beaten down in china we have some more bubble watch from our friend michael saylor ryan's got a small cap of the week and as a listener suggested topic celebrating the tremendous outperformance of berkshire hathaway and warren buffett so far in 2025 and the last few years and collateralized burrito obligations there's been plenty of memes made about this but i think it's actually worth discussing because it's kind

Starting point is 00:02:33 of interesting uh and i'll be talking about that it's a partnership that i'm guessing not a lot of people expected so we're going to talk about that in a sec but before we do i want to talk about our friends at public if you're serious about investing you need to know about public.com that's where you can invest in everything stocks options bonds crypto they even offer some of the highest yields in the industry like the bond accounts six percent or higher yield that remains locked in even if the fed cuts rates what sets public apart is how they give you the tools you need to make informed investment decisions their built-in ai tool called alpha doesn't just tell you if an asset is moving it tells you why the asset is moving so you can actually understand

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Starting point is 00:03:29 and get up to $10,000 when you transfer your old portfolio. That's public.com slash chitchatstocks. Paid for by Public Investing. Full disclosures in the podcast description. Do we want to start with these collateralized burrito obligations? Let's do it, Ryan. For anyone that doesn't know what the heck you're talking about, explain. Who is it, Klarna, one of these people?

Starting point is 00:03:54 It is. Partnering. And what's the deal here? Why are they doing it? And then we'll discuss our thoughts. Yeah. Yeah, so for context, in 2008 during the GFC, and if you've watched the big short, the collateralized loan obligations I think is what they were called initially. That was basically pools of mortgages that some of them were not so great, and that's kind of – it created bad underwriting standards and then kind of ultimately led to the collapse.

Starting point is 00:04:27 It was basically they were securitizing these loans. So the originator of the loans wasn't the one really taking the credit risk. They were passing them on to investors, that kind of thing. Well, this week, Klarna, which is the – I think one of the leading buy now, pay later providers, struck a deal with DoorDash. Now, Klarna, for anyone that doesn't know, buy now, pay later, just – it's basically short-term loans. And for the most part, these are 0% interest. So the way they make money is by offering buy now, pay later as an option at checkout. Apparently, it helps increase volume for a lot of merchants.

Starting point is 00:05:08 So the merchants pay a fee back to Klarna instead of having the interest paid. So that's where the revenue comes from. But they also have interest-bearing loans as well. And then there's also late fees if you don't pay them. So now DoorDash customers can use Klarna to pay for their orders. So you can either pay in full, which I guess if you're – I don't know why you'd pay in full using Klarna instead of a credit card provider. Well, I think it probably costs the same. Maybe there's points involved.

Starting point is 00:05:38 Who knows? Yeah, maybe there's some sort of reward system. So pay in full, pay in four, or pay later, which the pay in four, I think it's like basically you pay a quarter of it every two weeks. What about pay never? That is an option and you get charged a late fee. I'm not sure what the collections process looks like after that. So basically, yes, this is in some cases interest-free loans to people so that they can afford a meal. Now, historically, people have been using these more so for higher ticket purchases, things like a couch, a TV, something where it's quite expensive and it's just – maybe you have a bit of a cash crunch.

Starting point is 00:06:24 You'd rather pay it over two months instead of all up front. But yes, in this case, it's for a much lower ticket item. Now, if you're like me, you might think, would you really want to lend money to someone who can't afford a burrito? And that was kind of the question that was asked, but that is quite literally what they're doing in some instances. Now, maybe some of the DoorDash orders are multiple orders, that kind of thing. But if you're just buying one, you can use Klarna at qualifying locations to pay for your meal. Now, here's what's kind of interesting. Klarna engages in synthetic securitization of loans. Sometimes, like I said, they charge interest on some depending on their credit score, meaning it sells these on to someone who is willing to take the credit risk. So they've got these credit partners.

Starting point is 00:07:11 They securitize these burrito loans, and then you literally have analysts at investment firms saying, yeah, we'll take those loans. So people are literally like betting on whether or not people are going to pay back their burrito loans in some instances. How hilarious would it be if this was the cause of GFC 2.0? Yeah, well, under a billion dollars in loans, that's not going to be meaningful. But I do get – I do appreciate the candor. Yeah, I would imagine the meeting just like the beginning of the big short. And these burrito loans, gentlemen, they're AAA rated. and everyone starts laughing they're like this is exactly what the michigan pension fund needs

Starting point is 00:07:54 yeah it's interesting i don't know if this is going to do much i think maybe it spurs demand for doordash doordash it probably makes sense they just want more demand for their platform i still and we're going to get into the financials of clarna here in a bit because they actually did just file their s1 in uh for the ipo coming up i'm assuming they made this announcement to bring some hype around the IPO. It's classic tactic from these companies. I still don't know why these need to exist or why there's any sort of competitive advantage here. They could argue there's an innovator's dilemma when going against the credit card companies like an American Express, JP Morgan, Bank of America, whatever, whoever's issuing out there. But a lot of these

Starting point is 00:08:41 companies and a lot of the so-called credit card competition can copy this product and And I don't think credit underwriting changes just because it's pay in four, buy now, pay later concept versus credit card. This is something we went and talked about. There's really a debate for way too long during 2020 and 2021 on whether these were disrupting the credit card networks. I remember there was a fantastic buying opportunity with Visa because of a Chamath Paliapatiya tweet. So thank you for that, Chamath. Well, I didn't take advantage of it, but a lot of people did. Do you want to talk about the numbers here, Ryan?

Starting point is 00:09:27 Because Klarna has grown pretty quickly, and they got a sizable business here, although, shockingly, it's not profitable. Yeah, like you said, I don't really understand the need for this business to exist. but it does. So we can rip into some of the numbers. But functionally, you might as well use a credit card. If you're a standard consumer, you want rewards, you're credit worthy. I don't see the advantage of using Klarna. If the idea is that you just defer your payments, you can do that with a credit card and you can earn points in the process. So anyway, it doesn't make sense to me, but people use it. So let's go through some of the numbers. Yeah, they have an S1 here. They are a big mission-focused company. So we're going to

Starting point is 00:10:17 skip that. People can read the narrative on that and how they're empowering financial freedom and all that good stuff. But if we look at their GMB, which is gross merchandise volume, and I'm assuming that's just all the dollars spent through its system, okay? Like someone similar to Visa, they have whatever it is spent through the network every year. Now, Klarna has $105 billion in GMB, $2.8 billion in revenue. They have 675,000 merchants using the platform, and revenue has grown 23.5% year over year in 2024, $121 million operating loss, but that is improving over the last few years. And the one thing I'll note, Ryan, and I think, I'm not sure whether this is a figure that is supposed to impress me or disappoint me. They have 675,000 merchants on the platform.

Starting point is 00:11:22 Visa, according to its fact sheet, has over 150 million merchants accepting Visa cards. it's quite a difference yeah i mean i think a lot of these services are localized too so visas merchant bases global i would guess that a lot of people that are on clarna also probably have some sort of a visa mastercard branded card but i would assume because i think after pay was like pretty heavily focused in australia clarna i'm not sure where they're i think uk based sorry i was on mute there i think they are swedish but probably more european focused yeah i mean like i said i still don't understand really the rationale for this maybe people just like the mental concept of paying things in installments but you know financially it doesn't

Starting point is 00:12:24 make too much sense yes like i said i would go with a visa credit card or mastercard backed credit card you know it doesn't really make a difference to me i think you're getting pretty broad acceptance just about anywhere same with amex at this point as well what do you think the valuation will be on this day one i have a i have a little bit less confidence in this one compared to core weave where i think core weave is going to if they hit it right and they get the hype going that could be an absolute blockbuster ipo which means you should avoid it at all costs but the number could get quite large compared to their actual revenue figures so they're doing 2.85 2.8 billion in revenue operating last 121 million dollars i'd assume the margins aren't sky high but

Starting point is 00:13:15 could be decent or long-term maybe 20 operating margin 25 maybe i don't know do they have any big cost of revenue uh i don't know if i can pull that up but i'm assuming you know the inner the credit losses are gonna be there uh let's see i think i have the s1 pulled up but i'm not sure if it's on the right page. Oh, yeah. Okay, perfect. $2.8 billion in revenue in 2024, $596 million in processing and servicing costs, $495 million in consumer credit losses, $503 million in funding costs, $444 million in technology and product development, $328 million in sales and marketing, $203 million in customer service, $281 million in GNA. Well, you can see how they hit an operating loss i think this doesn't go out it shouldn't go out

Starting point is 00:14:11 more than a 10 billion dollar valuation i think it probably goes out 15 to 20 but this is not that good of a business there are a lot of costs you're in a hyper competitive industry and there's no need for it to exist yeah i was going to give this 10 billion dollar valuation on day one seems reasonable like i obviously wouldn't be a buyer there and ipos are always a little bit extreme but it seems like a pretty good possibility that it comes out above a 10 billion dollar valuation we've got some other ipos potential ipos as well do you want to jump to that etoro yeah we can we have some questions here from your friend aria says touch on ryan on your morning routines are you doing the saratoga water uh whatever it is did you see this ryan

Starting point is 00:15:04 some guy dunks his head in expensive water when he's getting up in the morning no you don't do this i know i didn't i saw a bunch of memes about this i'm not like i don't actually yeah i was a little confused myself but what is your morning routine a little coffee i know you're a coffee guy just coffee and reading right uh well i've shifted uh time zones now so i've got a little bit of time in the morning now so i'll usually try to work out in the morning and then yeah drink more coffee than i need wow right start posting some tiktoks you're working out in the morning all right i know i i've got quite the morning routine now yeah i'm more of the bezos mindset which is you know it's an advantage to be a little lazy in the morning yeah i just get up

Starting point is 00:15:50 and kind of, you know, I'm cloudy for about an hour. That's the weekends. That's probably more what my weekends look like. Let's see. Someone's asked, what do you think happens to buy now, pay later if the paper market closes, such as during the GFC? Yeah, this reminds me of the big concerns at Upstart that almost materialized and have been a big risk for them

Starting point is 00:16:16 where they're trying to underwrite some loans and then offset it to third parties, well, if that process closes, you have a month in your balance, you better have the capital to absorb that. And these companies are not nearly well capitalized as an American Express, a JP Morgan Chase, or a Bank of America to absorb all these loans. So yeah, I mean, it could be a huge issue. Yeah. A lot of people, when Upstart was going kind of crazy around 2021, 2022, and for anyone that doesn't know the company Upstart, it was basically ai consumer lending ai in quotes but basically it was just a consumer lending algorithm that was meant to sort of emulate the fico like they were trying to say the fico was

Starting point is 00:17:01 outdated and and that they had a sort of a new formula for determining credit worthiness anyway proven on the fico the they were doing the same thing they were selling on these loans to third party credit or partners and basically investors and everyone said well it's you know it's asset light they're not taking the credit risk but it's really easy for those investors to say you know we're pulling back on our uh on what we're buying here we're not interested in any more loans and all of a sudden upstart either has to start hampering down what it's willing to take what kind of loans it's willing to write same with like clarna and in this case i imagine all the buy now pay later providers are doing securitizations the so they'll either have to

Starting point is 00:17:47 decrease volume or they'll have to take the credit risk themselves so there is while it's not directly credit risk there is credit risk in sort of a macro economic in tougher conditions you know do you want to guess upstarts market capitalization right now as of this recording i think they've had a bit of a revival if i remember correctly let's go two billion dollar market cap five billion dollars ryan yeah the stock price ticked 400 in 2021 it was a 10 bagger in a year uh i remember telling everyone to sell because a 10 bagger in a year means you should sell and they didn't listen to me stock fell to 15 or maybe even lower i'm trying to just kind of yeah a little bit below in late 2022 13 today back up

Starting point is 00:18:37 to 53, a little bit of a recovery. So maybe they're on the upswing. Yeah. What is easier? That's a perfect example of fast growing financials. Fast growth is not always a good thing, especially for financials. And they were able to pass a little, the hardest part of that business I imagine is finding credit partners. And so once you've kind of found the credit partners, if they're willing to expand volume with you, I mean, then you can write whatever loans you want i mean you can grow as fast as you want in that case but eventually those credit partners are going to stop buying from you so uh yeah fast-growing financials always be a little wary especially uh try to get an understanding of of who's taking the risk let's talk e toro

Starting point is 00:19:26 actually there was another question that i'll pass along to you in a second but e toro filed to go public they are a trading and investing platform headquartered in israel and it allows people to follow the trades of other accounts. So it's sort of like a hybrid social plus investing app. It's actually pretty popular. I imagine some of our listeners may even be on the platform and it reports total follower assets under copy as sort of like, you know how you see follower count

Starting point is 00:19:57 on Twitter or X or whatever? This is like the amount of assets that are copying you. So it's kind of just meant to determine like how popular you are as an investor, I guess. And initially, I think this model was pretty unique, although there have been a lot of platforms that tried to copy it as of late. And the growth of the business actually looks pretty good from the numbers they provide. They have three and a half million total funded accounts, which is up from 2.6 million two years ago. So solid growth. First of all, does that number surprise you at all? Three and a

Starting point is 00:20:31 half million funded accounts i guess not because we're in such a bull market and we've seen robin hood ibkr all the ones that are publicly listed have solid growth and in a bull market you're going to see more accounts getting activated yeah the i guess maybe you can pull up what robin hood's funded accounts are because i'm curious in kind of yeah it might be 10x that yeah i think it's around i thought it was around 15 million somewhere around there but could be is that a kpi on our friends at finchette yes they should have it i'll pull that up anyway so looked like a relatively decent business however the income statement was a nightmare to dissect because of all the crypto trading involved in this business

Starting point is 00:21:18 makes it so like i'm not only crypto trading but like crypto trading with derivatives too makes it super complicated to understand um if you're just looking at it on like it's pure income statement like what do you go that image that they've got of the income statement the standard gap one that part kind of sucked to read through but it's kind of like that block or square thing that they had where it was crypto trading and so like you have didn't know how to count for it yeah yeah it's crypto revenue but basically it gets overstated because in this case etoro buys it and then sells it so it's like a gmv so you got to net that out yeah it's essentially trading volume yeah um and basically they end up breaking down their overall contribution profit

Starting point is 00:22:11 which is quite helpful. And so in 2024, a quarter of their business came from trading on crypto assets. 42% came from trading on equities, commodities, and currencies. I kind of like that better. It's nice that the bulk of their business is from that. 23% is net interest contribution. The 9% is eToro money, and then the rest is subscriptions and others. They've got like etoro gold or something like that anyway they've done 787 million dollars in contribution profit over the last 12 months which i guess you could kind of think of as net revenue well maybe more gross profit right yeah i'm looking at the income down here that interest expenses deducting from their interest income so oh okay okay it's kind of like a net

Starting point is 00:23:03 revenue. But yeah, anyway, gross profit net revenue, it's kind of similar in this case. They are generating some solid income before taxes of $246 million. However, nearly 200 million of that is net interest income from users. So that's obviously interest rate sensitive. That doesn't mean it's going to disappear next year. It depends where interest rates go in general. But I thought that was actually pretty solid overall. There is kind of this very heavy crypto bend and a lot of the growth has come from increasing volume and crypto trading. What valuation do you think this comes out at? We're talking about pretty solid operating margins if you use contribution profit as the numerator here.

Starting point is 00:23:52 but 250 million roughly in earnings yeah growing at a nice healthy pace in terms of funded accounts what do you think well i think it should be probably about five given the pro cyclicality of this industry but i guess closer to 10 i don't like these businesses whatsoever because of how pro cyclical they are with bull and bear markets maybe for a high quality one run run one like an IBKR, I'd be looking to buy during a bear market or when there's an anticipation of trading volumes collapsing. And you can kind of time it like a cyclical, which I should say, that is the next company I'm going to be researching for chitchat stocks. But I don't really have much interest here. Ryan, do you think $5 billion to $10 billion makes sense? It doesn't. It seems like a fine

Starting point is 00:24:42 business, you know, decent company. It's not the leader in the industry. Although I thought robin hood was much bigger from a user perspective their monthly active users the uh 2024 december 2024 figure was 14.9 million actually lower than 2021 17.3 million i will give credit to robin hood here the average whatever account value is like double what it was in 2021 so okay i think they've leaned they've gotten rid of some of the lower quality customers potentially and by well they probably got rid of quality i just mean less less money in their accounts yeah yeah they maybe uh did that to themselves there um yeah i think it's a fine business in general i'm seeing a lot of it feels like we're seeing israel sort of be produce some fascinating tech businesses

Starting point is 00:25:41 monday.com wix yes sir etoro i'm trying to think there's some other big ones as well but i'm i'll leave it there for now yeah there is uh i don't know it's kind of producing some uh some unicorns as they say yeah they gotta get vc market and yes software financial technology and defense tech those seem to be the big three yeah all right let's uh i want to talk about nike you want to talk nike first i was gonna say nike or bubble watch uh i can't hear the word michael saylor again if that's what you're gonna mention so well this one is whiz too uh someone just mentioned whiz in the chat yeah just got bought for 30 billion dollars 32 cyber security oh duh cyber security that's kind of i guess defense tech a little bit but yeah cyber security for sure

Starting point is 00:26:34 all right nike you want to do nike not michael saylor my guy michael saylor please nike your drunk uncle that you met at future proof yeah let's go with nike okay so the headline i put here is nike now a well i don't maybe we try to not swear on this because the kids might be in the car listening is it a bad company is it the blank co that we like to describe bad companies. The stock is now in a 60% drawdown. Revenue fell 9% year over year last quarter. Last 12 month operating margin of just 10.5%, according to our friends at FinChat, which when you chart using margins like that, that's one of the best ways to visualize how a company is doing and how either, I mean, for example, we've used this for Tesla time and

Starting point is 00:27:29 time again, when they went through that period of pricing power versus they've had the lower prices. Nike's had the same thing where they've had inventory gluts, they've had to decrease prices and that operating margin has fallen flat. It's a great way to visualize that. And you can go back 10, 15 years and even longer for you sometimes using the charting tool. So yeah, shout out to our friends at FinChat. Use our link, finchat.io slash chitchat, get 15% off any paid plan. More numbers here. China revenue is lower than in 2019. They are struggling really badly in this market. And then the last figure I'll have here, EV to EBIT is now 20 on what, if you're an optimist for Nike, would be potentially trough earnings. Are you interested, Ryan? Or is this

Starting point is 00:28:15 another notch in my belt for never invest in apparel? I think this is another notch in the belt honestly now i think at one point maybe over the last two three years prior to this drawdown there was kind of the sense that nike was sort of bulletproof although if you read our friend alex morris's write-ups on the company they were they were missing estimates constantly from like they they were not growing very quickly and they were missing their estimates and then they would once again put these really optimistic estimates out there and they wouldn't be able to achieve them so that kind of happened again and now we're seeing just sort of a sheer collapse especially in the footwear business and particularly in china as well plus some competitive threats also

Starting point is 00:29:06 the alex shared a chart recently that was pretty good and it basically showed uh between there's apparently two competitors in china uh i think it's like anta something and local competitors that you don't see the brands over here right correct so if you combine those two you combine hoka and you combine on running so all of those four i think it was two years ago that accounted for 25 of nike's footwear revenue today it accounts for 50 of nike's footwear revenue i'm going to share a chart here as well this is hoka and on running's growth versus nike's footwear business and that's another one from our friends at finchette yeah look at that dang what is it footwear revenue has since q2 of 2021 so basically over the last four years

Starting point is 00:29:59 it has grown nine percent in total while on running has quadrupled its business and hoka has tripled its business so hoka plus or that's that's hoka specifically that's just hoka nice you can really yeah i mean i'm just a walking advertisement for the platform you can segmentize that that is nice that's a nice looking chart so i don't know every time i read about nike i think okay obviously tons of brand value that's great but i don't love breast i don't love investing purely in brands and you look like it's just a tough business there's always inventory issues uh consumer preferences change which makes your inventory depreciate quicker than you think it's going to easy to bring easy to make a competitor now it's yeah i i don't like apparel i just think

Starting point is 00:30:59 it's such a tough business you're joining the team you're joining the team huh this i think A question from Tyler in the chat here relates a lot to the sentiment you have right there. Do you guys think the internet has permanently broken brand power? It just seems like it is easier than ever to scale a clothing, shoe, energy drink, or CPG product due to the internet. It seems like Lululemon, Nike, Celsius, and Coke have all lost their moats, which existed due to the scale advertising on TV. Celsius and Lululemon might be a bit new for that, but I agree with this sentiment. If you are a brand, you need something else for a competitive advantage, I believe, in order to maintain that durability, give yourself a wiggle room to have a longer-term mindset. Three examples come to mind for me that have had more durable brand power in the age of the Internet.

Starting point is 00:31:56 One is kind of an Internet company, Apple. They have multiple competitive advantages besides their brand. second american express with the network effect and scale there and third nintendo with a vertically integrated software platform or software hardware platform excuse me does that make sense to you ryan is that kind of a i think a good way to put brands versus brands you may be invested versus brands that have zero competitive advantage in the age of the internet where large scaled advertising on tv it's just not gonna build you a moat anymore where nike yeah they're one of the best makers of commercials ever they partner with athletes the jordan brand

Starting point is 00:32:37 was obviously one of the best moves in the maybe ever in the shoe industry but you are still fighting tooth and nail every year at this point yeah it's i don't i think you're right so i think you need something to your beyond brand and storytelling and that's it's the same issue with disney now to some there's other issues as well but like disney's a great chance versus nintendo where they have that other competitive advantage right the you need something else and for apparel i don't know how you create that other element you know maybe having really successful omni-channel presence is important but that's some sort of store thing that's also like potentially baggage if things

Starting point is 00:33:31 turn the other way so yeah maybe only the luxury companies are okay let me run even lvmh is struggling quick uh quick question for you who do you think has better returns over the last five years nike or sketchers total return yes well sketchers kind of a leading question can you guess sketchers total return oh well we had uh why am i blanking on his name good investor the guy that ben claremont yeah lives close to i think the sketchers headquarters five years 200 112 they're kind of a recent drawdown so So – and I'm not sure what – for them, I just think there's risk as a premium brand. If you're considered a low-cost provider, that is an advantage.

Starting point is 00:34:27 If you can truly be a low-cost provider, that's great. I think Skechers kind of fits in there. Generally, with a lot of their shoes, I think you could probably call them a low-cost provider, not the ultimate low-cost. But there's some brand notoriety plus being a low-cost. nike obviously just different ballpark different game in general maybe this is just economic like economic cycle talking and maybe in five years we're going to be saying like oh yeah no you got to be the premium brand in these in these industries but i just think apparel in general i'm i'm never going to touch it yeah it doesn't make sense play an easier game the big difference

Starting point is 00:35:09 I'd say, touching on the comment here, Celsius, Coca-Cola, they are literally addictive. I think that's a bit more helpful than – and maybe you could say shopping at Lululemon is addictive for some people. But I think with Celsius, you're getting that caffeine, which helps. Yeah, CPG food products are a little more enticing for me. a little more customer loyalty i'd say so i still i still think you can have that although i do get the point where i like to do a check with celsius i haven't on the stock i've said i like it you know it's climbing up the watch list but unfortunately i said i liked it at 22 and now it's at 34 and i haven't done anything uh but when you search i like to search on amazon just

Starting point is 00:35:58 energy drinks that doesn't seem like celsius has a moat in that regard distribution is not a moat whatsoever amazon has a lot of power there yeah we've got a comment here that says nike used to have the distribution moat but they killed that themselves yeah i mean you see it in the commentary from management today straying away from their wholesale partners and i mean they three years ago they really hurt a lot of their wholesale partners i mean they like really started to prioritize their direct to consumer channels and so that angered them like footlocker stuff like that well i mean it hurt the businesses from just like like financially they stopped feeding them i believe a lot of the items so yeah i'm sure i'm sure and then they switched

Starting point is 00:36:45 to competitors i'm guessing yeah that they're saying that they're trying to kind of focus on those partnerships again but i just think going dtc here i don't know if that's that's not giving you any sort of competitive advantage i think being everywhere is a bigger advantage than having just a great website yeah you know what this reminds me of all birds remember when you and we used to have brad freeman from the stock market nerd hon you guys were hyping up all birds you love the product doesn't matter never own shares and hey yes apparel it's apparel and it's a fickle business just plain and simple all right we're going to talk other topics here we have bubble watch small cap of the week and boeing's new contract but ryan you want to talk about some

Starting point is 00:37:40 of our sponsors as we get halfway through this episode first one here blue chippers club it is 100% free. It's a tight-knit community of stock-focused investors started by two friends of ours and they have weekly meetings. You can throw your portfolios in the chat. You can pitch stocks. You can receive great useful feedback. We've talked about it here on the show plenty of times, but truly I have found myself getting a lot more value out of a focused community like that over just general social media. So I recommend checking it out. You can build a true network of like-minded investors. It's totally free, bluechippersclub.com. Head on over there, hit apply. We're going to have the link in the show notes. And then once again, public. If you

Starting point is 00:38:29 are serious about investing, you need to know about public.com. That is where you can invest in everything, stocks, options, bonds, crypto. You can even earn some of the highest yields in the industry like the 6% or higher yield you can lock in with a bond account. Public is a FINRA registered SIPC insured platform that takes your investments as seriously as you do. Fund your account in five minutes or less at public.com slash chitchatstocks and get up to $10,000 when you transfer your old portfolio. That's public.com slash chitchatstocks. Paid for by Public Investing. Full disclosures in the podcast description. Brett, what do you want to talk about next? what about our friends at boeing this is a short one losing winning the njad contract did you know

Starting point is 00:39:16 what njad was ryan no no all right so boeing in a surprise win won the 50 billion dollar plus maybe more of the long-term contract for the next generation air dominance platform that's a good name right that means that that says this is an important uh plane here it's you know, NJAD, N-G-A-D for the acronym, and it's for the U.S. government, the Next Generation Fighter Contract for the U.S. government. Our question here is what bribery occurred to get this over Lockheed Martin or anyone else? Here's a quote from the Wall Street Journal that I think sums up the surprise here. Quote, the U.S. is entrusting its most expensive fighter jet program in history to a company that hasn't successfully launched a commercial or military aircraft

Starting point is 00:40:02 in a decade i don't think ever has launched a successful military aircraft to be honest the way i compared it at least i thought about it is lucky mark mark and just developed a plane that defeated the sonic boom i don't know if you ever saw that and boeing can barely make its own 737s that it's been trying that it's made for decades yeah i don't get this i don't get this one the commercial and uh government are like two different businesses so it's not the biggest deal that the seven through seven production issues like that's not going to impact i don't think it would impact maybe it diverts resources and focus from some people but two separate divisions but yes it seems like lockheed martin was kind of a

Starting point is 00:40:48 shoo-in for this i can my gut tells me there's some politics involved here yeah maybe maybe or someone doesn't like lockheed yeah i don't get this one we'll see what happens but i don't really much to say except that lockheed i guess could be the stock fell could be a buying opportunity i don't know maybe boeing just needed this and the government knew they needed this what's weird is that the government should be upset with them uh one because of the obvious issues with the commercial side of things but they've delayed they can't even make a single air force one They're supposed to make the new Air Force One, and they keep delaying it. It's like – I don't know.

Starting point is 00:41:31 If you give this contract, the NJAG contract to Boeing, I don't think it ever gets made, honestly, at scale. Yeah, I mean we talked about this I think like five episodes in a row when there was the unionization, the strike going on at Boeing. but this stock makes of all the horrible stocks out there and i i guess it's kind of unfair to lump boeing in with some of the like uh very how should we say i don't want to swear the bad companies that have great stocks for some reason uh it's bad to lump them in there but this stock makes no sense to me yeah it's priced like it's already recovered and production is already back up like i don't know if it's just held by so many institutions that'll never sell or what but it's trading at a pretty extreme multiple like it's trading at a reasonable multiple if

Starting point is 00:42:32 the business were operating well it's not operating well and now they're going to have to pay their factory workers significantly more so the economics are already going to look rougher coming out of this assuming that production gets back to what they were at with that without a hitch which seems like a very tough problem to solve so i don't know i kind of i don't understand bowing at all to be honest yeah apparently this contract is cost plus so they're guaranteed to make a profit but i still like lockheed over bone yeah yeah he's a nice dividend repurchaser of shares steadier contracts better history of profitability none of this union nonsense that they got to go through not that the workers don't deserve a lot you know to get paid but i'm

Starting point is 00:43:22 just saying from an investor perspective yeah i don't like it i i don't see myself owning either to be honest yeah lockheed's for someone that's six years yeah exactly it's the perfect retiree stock not for people in their 20s it's the perfect stock for someone that's worked at lockheed for five decades yeah exactly exactly although ryan good perform return last 40 years i think it's a hundred bagger really without dividends i'm just going with dividends a hundred bagger solid what's your bubble watch let's let's get to it michael saylor go ahead say the name what do you do well there's this video i i want to figure out how to share a video and play it but we're not going to test that here i keep wanting to try to do that we're going to test it in a

Starting point is 00:44:13 live stream but essentially there was this video from a podcast interview of michael saylor and he so there's this thing called you know you have your keys in bitcoin you have to have the key to access the cryptocurrency. And if you don't have the keys, well, then you have no way to access this. And essentially, it's lost. It's not tradable. It's not sellable. It's not convertible. And in a podcast, which Michael Saylor seems to go on every day, he says he confirms, well, this is a tweet, and it was a very confusing video. So let's not confirm or deny anything. But it says here that he's, quote, burning the keys to over 17,000 Bitcoin worth $1.5 billion and that's my legacy quote unquote and the reason ryan think about how ponzi schemish this is

Starting point is 00:45:06 i'm going to restrict the supply so much so the rest of it goes up i'm just going to get rid of it all and using this logic ryan should we just get rid of all the bitcoin so there's only one left or none left and then we can just all say it's magically worth whatever how i don't know The brain can't even comprehend what's going on here. This is actually brilliant marketing if that's his goal, which is he can say this and just go ahead and not do it. And if people think, wow, he's going to really restrict the supply for us because that's how much he cares, it's like a – it's a faux donation that really just only benefits him. the it's not a donation though it's it's a donation to the crypto community it's it's saying that we're going to make this worth nothing so that everything else can be worth more but that's

Starting point is 00:46:06 the implication here the implication i the logic i take away from this is that all of it is worth nothing but whatever the way you have to go through these logical leaps in your mind to just to just wiggle your way through to say oh no this is great for bitcoin i'm not saying you but people in general i mean just take a step back and think about what is going on here it's just magic means it's crazy do you want to hear about their new preferred stock ryan because we have more i don't know i don't know if i do because he's got my brain in a pretzel already okay this one's a little bit more understandable because that that one's a lot of just kind of matthew mcconaughey in wolf of wall street type stuff now apparently strategy

Starting point is 00:46:49 which is MicroStrategy's new name, has added a new financial instrument to get exposure to its business. And it is called, not a typo here, Ryan, I'm saying this correctly, a perpetual strife preferred stock. Weird name, but let's go through what it is. It offers a 10% dividend yield that grows if the payments are deferred. However, and I thought this was quite funny uh the financial times had some great reporting on this they can stop paying this dividend whenever they want to with no reason needed now how do you think they expect to pay for these dividends ryan profits right from the business cash flow no of course we expect to fund any dividends paid in cash on the perpetual strife preferred stock primarily through additional

Starting point is 00:47:40 capital raising activities including but not limited to at the market offerings of our class a common stock and our perpetual strike preferred stock they are this is the exact definition of a ponzi scheme and they are literally saying they're setting this up a ponzi scheme this is fantastic you know what you can consolidate the entire micro strategy thesis into one thing bitcoin has a finite supply micro strategy shares outstanding has an infinite supply and they intend to they intend to make money in that transaction that uh by just infinitely selling shares marketing and buying bitcoin uh yeah this makes no sense to me from like like who would be buying the preferred stock like i don't understand why there's a buyer there when you've got us

Starting point is 00:48:35 Well, people bought BlockFi. Same thing. Yeah, but in this case – well, those were sort of fake promises. This is like just coming out right and telling you that we might not pay the dividend if we choose not to. Yeah, I guess. Well, BlockFi, I bet, had the exact same thing. Yeah. Do you want to get my small cap of the week?

Starting point is 00:49:05 A real business. Yeah, you're not going to be buying these new preferred stocks or strifes? No. And you know what? My goal for the next month is to not hear or say the word Michael Saylor. I enjoy how you had to hear him live. But yes, let's look at a real business, small cap of the week, and relate it to the last week's one from a listener's suggestion. Yes.

Starting point is 00:49:28 Last week, we spoke about Herc Holdings. They are the third largest equipment rental company in the United States. In that episode, I mentioned that the only other two equipment rental companies that are larger are United Rentals and Ashtead Group, which operates Sunbelt. So if you live in the US, you've probably seen Sunbelt equipment somewhere, either in a Sunbelt facility or on a construction yards. They're all over the place. Well, this is what a listener sent to us. he wrote us a message. Sorry if I didn't get the name, but if you like Herc, look at the specialty spinoff of Ashtead Group or look at what the specialty spinoff of Ashtead Group did with

Starting point is 00:50:12 Ashtead Technology. Way more growth potential with the aggressive roll-up strategy paying low single-digit EBITDA multiples and trades at a lower valuation than Herc. Well, I took a look at it and so far i like what i see 591 million dollar market cap so certainly qualifies as a small cap they also here's here i found a few interesting write-ups so i'm going to quote some of them here ash ted technology is a rental equipment company in the offshore wind and oil slash natural gas space that was founded in 1985 it's a similar model to ash dead and united rentals generally they're renting specialized equipment to companies that service offshore wind, oil, and natural gas installations. First of all, equipment rental business,

Starting point is 00:50:59 I kind of like it just overall. I talked about this last week. There's some economies of scale to the bigger players because you can service global customers and there's less delivery time needed. You can offer multiple services, multiple equipment to the same company. There's just a lot of benefits to being the skilled player which ashtead technology is a little bit of corporate history they were founded in 1985 like i mentioned acquired in 1993 by ashtead group and then sold to private equity in 2008 and then ipo'd in 2021 so they've been in the public markets for a little over three years they've been a good uh customer for lawyers and investment banks huh probably yeah 30 of revenue is from offshore wind 70 is from oil and gas and importantly most of their

Starting point is 00:51:51 equipment is fungible meaning that it can be used for both industries which kind of insulates them a bit from a cyclicality so like you know if you're offshore wind yeah it's going it the bubble there was i think a bit of a bubble in wind and that's okay that's a weird thing to say wind energy windmills you know the energy generation windmills there's a bit of a bubble and it popped and looking at their financials i would have thought they would have seen a downturn in that and looks like they didn't yeah and there's actually there's been a lot of one of these write-ups went into great depth on the offshore wind industry overall and he made a compelling case that it's while it's not the most cost effective to implement because there's really no way to take out the cost of

Starting point is 00:52:41 having to go out on a boat and do this in the water as opposed to just putting a windmill on land. There are certain cases where it's the right fit for certain geographies. He called out Japan as an example where you might not have all that much space to have onshore windmills, but you've got tons of water around you, or there might be sort of the NIMBY, not in my backyard, don't want windmills there that kind of thing sometimes you just transmission lines are so costly to get out to those spaces that it just makes more sense to go and put these in the water ultimately he made the case that some jurisdictions some areas just prefer offshore which made sense to me but yeah 70 is from oil and gas the remainder is from offshore and they kind of play off one another

Starting point is 00:53:31 right where it's kind of unlikely you get huge investment downturns in both um but ultimately i would say if we were smart and just went to nuclear energy which makes more sense compared to either uh then yes but i don't think that's the world that's going to happen in the next 10 years yeah seems seems unlikely but you know i guess who knows they're the ultimately they are somewhat insulated from the cyclicality. And then some of the geographies might say, oh, no, we're done with offshore wind or whatever. They'll still need oil and gas or obviously vice versa. The customer backlogs look really good. So a lot of the producers here are planning to invest a ton more into these different energy sources, which that's kind of one of the most

Starting point is 00:54:26 important KPIs or things to track for Ashtead Group because they are going to be servicing all of these projects, both on new construction as well as maintenance. So a good chunk comes from just maintaining the existing projects. If you look at revenue and operating income, $210 million in revenue over the last 12 months, $55 million in operating income, that's grown at a 27% annual rate over the last, call it five years. That's the revenue. Operating income has grown pretty similarly. Margins are kind of steadily above 20%. Today's EV to EBIT is 13 times. I really like this. It doesn't feel, my concern when I started reading about this is that it's going to feel a bit too much like a commodity play, too much

Starting point is 00:55:23 energy focus, but it seems like they are somewhat removed from the commodity prices and such. So I think this could be sort of a real long-term winner. I like the characteristics of the equipment rental business generally. It's a little more specialized and they have huge deals with all the global customers and they can service them all around the world which is really nice so i appreciate whoever recommended this one to us i will be uh this will be added to the watch list for me yeah it does seem interesting i saw sub c7 on there uh from our old episode with bob robati i think people enjoyed yeah it's a good industry it's one that's going to be around for a while it seems like it's not one that's going to have a lot

Starting point is 00:56:12 of competition coming to market solid business i hope you could get out a little cheaper multiple what's the do you know what the cash flow conversion is no i don't but they do a lot of like those little bolts on acquisitions so it's a little distorted anyways i i in this write-up that i read they said the cash flow conversion is pretty good when you strip out the expenses that they're paying for these acquisitions. So I'm not totally sure, but I'll look at it. Yeah, pretty interesting. All right, we have five minutes, Ryan.

Starting point is 00:56:51 Do we want to celebrate a little-known investor named Warren Buffett and Berkshire Hathaway? We had a listener suggest this one. He said, maybe you should talk and do a tip of the cap to Berkshire Hathaway having a three-bagger over the last five years, even though they're cast position is at all-time highs have you seen the performance of berkshire ryan maybe we should have a chart comparing these but it has outperformed the s&p 500 on a five

Starting point is 00:57:24 year 10 year and 15 year uh nice time horizons which it's i don't know that's just so nice to see because so well he needs that win yeah i mean the guys you know he's really struggled Now, the – it's nice to see because so many people – you see this rhetoric all the time of, well, he missed out on owning like all the best businesses. And he's outperformed them for the most part if you consider the market basically big tech, which it kind of is. Yeah, let's see. Five-year total return and this is pretty much – what are we? We're at the five-year anniversary of those COVID lows, Ryan. You remember that?

Starting point is 00:58:08 The panic? Yes. 10% down days, Ackman, General Ackman on TV yelling. Berkshire Hathaway, total return. They don't pay a dividend, but we're using that to compare to the S&P 500. 189% over the last five years. S&P 500, 137%. And there's been quite the diversion in 2025.

Starting point is 00:58:33 it's yeah it's funny well it's kind of funny because right now the cash balance might be what's helping the stock because people appreciate the safety of him just collecting interest on these treasuries and taking advantage of yeah the downturn yeah being able to potentially take advantage. Everyone keeps quoting the nominal cash balance that he has, which I think is like 350 billion or something like that. I hope I'm not way off with that number. But it is also 29% of total assets. That's the highest cash allocation he's ever had, as far as I know, as far as the data goes back. Maybe in the early Berkshire days, there might have been a different situation but that it is it's a real statement uh and for anyone that says oh no this

Starting point is 00:59:31 isn't timing i think to some degree it really is he also sold assets to accumulate this cash balance right bank of america apple apple so yeah it feels like a real statement and And the fact that he has been able to outperform while having – now, the cash – it jumped a lot in the last two quarters. So some of the outperformance has come prior to having such an exorbitant amount of cash. But yes, I think it just goes to show how impressive A, a lot of the operating businesses are, and B, as much as he isn't necessarily like – he isn't broadcasting that he's timing the market. He does have kind of impeccable timing. Yeah, yeah, and he's not timing the market. He just doesn't see anything he wants to buy, so he's just taking a risk-reward analysis of that versus treasuries.

Starting point is 01:00:28 i think now like you can see in 2025 the diversion versus berkshire and the s&p 500 i believe in the short run right here this is just a flight to safety not that it takes away from the long-term performance but i'm sure there's a lot of short-term people short-term traders i know ackman said this before that they use berkshire as almost a safe haven which buffett hates he hates when people do that but i think that's what's going on here the last thing i'll say before we end this live stream the price of berkshire hathaway a shares 798 000 well and 13 say roughly 800 000 ryan do you think buffett one of buffett's selfish not selfish and more of just the investing game his long-term goal is to get that to a million before he dies

Starting point is 01:01:21 i'm sure it'd be a nice round number to have yeah yeah he hits it kind of like the cubs fan when they won the world series that dies immediately after uh they hit they win but that would be a cool number that's a it's an awesome milestone it would be cool i do think there were a lot of implications in this year's letter that he might be stepping down sooner than people think like maybe maybe it's just like five year ten year thing which obviously is a long long time given his age but the he mentioned that todd combs is going to start writing a lot of these letters i think at the beginning he mentioned that he's using his cane it felt like there were a lot of references to his age where it was kind of like yeah an actual like get ready this might not be

Starting point is 01:02:13 me anymore yeah yeah i mean look what is he 94 he can go at any time like not to try to say it bluntly but it's the truth all right well that's a happy way to end it let's let's end on a better note would you sell if if you had been a long-term berkshire holder and buffett's no longer in the company and it's just todd ajit ted and am i missing any weshler yeah are you comfortable with them as the managers i like three or four there i don't know much of combs i don't know not my favorite he lacks some charisma but he might be a great writer yeah geico isn't uh doing too hot he's apparently doing that while running a giant investment portfolio i just don't he's not my favorite but i do think obviously the culture there is strong and able

Starting point is 01:03:18 i'm getting him confused greg oh yeah yeah greg abel's good yeah obviously great they're both they're all getting old though i i i don't know i don't know it's a big company i'd probably sell if he passed i would guess most shareholders are kind of just in there at this point for reasons beyond the potential returns. Yeah, exactly. And what I would enjoy is

Starting point is 01:03:50 a nice little tax-free special dividend if I was someone that's a long-term shareholder. Gets smaller to get bigger. Yeah, that can make sense. Alright, I think that's going to do it, huh? Let's do it. Yeah, let's close things out here. Thank you to everyone who joined

Starting point is 01:04:06 the live stream. I know only a few people do it, but really appreciate it. asking the questions. Always a good time. You can do these or join along with the live stream on Wednesdays, 1.30 p.m. Eastern time, or you can watch the replays on YouTube. Listen or watch the replays on Spotify, Apple Podcasts, wherever you get your podcasts. We don't care how you listen, just that we appreciate that you do listen. Now, let's hit the disclosure before we close things out. We are not financial advisors. Anything we say on this show is not formal advice or recommendation, Ryan, I, or any podcast guests may hold securities discussed in

Starting point is 01:04:41 this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you, everyone, for tuning in once again, and we'll see you next week. You

Chit Chat Stocks - Buffett's Dominant Performance; MicroStrategy's Blatant Ponzi Scheme; Collateralized Burrito Loans?

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