Chit Chat Stocks - CAVA Group (Ticker: CAVA) with Alex Morris

Episode Date: July 20, 2023

CAVA Group Inc. (CAVA) is a fast-casual restaurant chain specializing in Mediterranean cuisine, with a focus on fresh and customizable meals, and has shown significant growth and expansion, attracting a loyal customer base and capitalizing on the popularity of healthier dining options. Listen as Brett and Ryan ask questions about the company, its business model, and valuation. Enjoy the show! ***************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney  Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Interested to see more of Alex's work? Find their Twitter here: https://twitter.com/TSOH_Investing?s=20 Contact us: [e-mail] Timestamps Playboy | (3:16) Licensing | (23:48) Management | (34:26) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. Today is our Thursday deep dive episode where we interview an analyst to discuss a single stock or industry. And today we have on the show, Alex Morris, recurring guest at this point. And I'll give a little pitch for Alex. He runs the Science of Hitting Substack and it is one of my probably top favorite investing blogs. He writes three articles. it's basically three articles every two weeks um it's thorough coverage on companies he owns as well as researching stocks outside of his portfolio and then on top of it it's just like general investing framework write-ups and kind of how he's evolved as a value investor and he just wrote something up called my evolution as a value investor and i think it's one of the

his best write-ups i really recommend everyone going and checking it out we're going to link to his sub stack in the show notes. For those of you that have heard him before, you're probably familiar with Alex on the show. We're talking about Kava today, which this is a really fun one to look at, especially given that it's so popular right now, right around IPO time, and that a lot of people are just writing it off to begin with, without even really breaking down or looking at the business. And so Alex takes a thorough look at it. And I'm excited to share this interview with you. I guess without further ado, here's our interview with Alex Morris. Welcome to Chit Chat Money.

On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. Welcome in. Today, we are joined by Alex Morris. He is the author of The Science of Hitting

Substack and recurring guest on the show. I'm not sure how many times you've been on at this point, but it's a lot. And today we're talking about, I guess, popular stock as of late, but it's something you recently did some research on for your substack. We're talking about kava which i guess why don't we start with me i don't think it's everywhere in the u.s so why don't we just talk about like the concept what actually is kava and what are customers going there to get yeah first off thanks for having me on again guys what was last time netflix no there's one in between there well we definitely did airbnb because that's one of our most popular episodes i think any listeners interested in that business go listen to that one we did netflix and

there was another one we'll have to look i'll do some research while you're answering it's probably down so don't do too much research um yeah so so anyways thanks for having me back kava is maybe it helps to start a little bit of the background kava was started by uh three childhood friends who in in 2006 opened a a traditional Mediterranean restaurant in Maryland. And two years later, they started getting into the CPG business, selling dips and spreads, you know, hummus and tzatziki and things like that. I think primarily through Whole Foods or solely through Whole Foods. And as part of that process, they hired a gentleman named Brett Shulman, who is now the CEO of the company.

um you know a few years after they started uh with the cpg business they opened the first what we call like a modern kava and essentially what it is is it's a fast fast casual chain it's very similar to chipotle in terms of it's a walk the line model where you step up and you know you pick either a pita or a bowl or salad um you know so you pick the base then you then you pick a protein of some kind you pick additional toppings vegetables and the like you pick you know different dressings and things like i said tzatziki and and hummus all that and yeah it's a true off-the-line model where the food's made in front of you so if there's if there's nobody there you can get in and out in you know three minutes or whatever it is versus i think some things that

get bucketed as fast casual are fast casual like in terms of it being a little faster but they have zoe's is a good example as we're talking about which is now part of kaba um it was more of what those other formats are like where you walk up an order but you're still waiting five or ten minutes for someone to prepare your food in the back and then bring it out to you so it's a so it's a slight difference that in my mind is uh you know pretty relevant in terms of kind of what what customers value in today's world um so yeah so the company had about 70 stores i think by 2018 as they continue to build out the fast casual concept and and that's where uh they they did did a transformative zeal with zoe's which maybe i'll stop there because i'm sure we'll talk about

that later but just not to go too far ahead yeah we do have the yeah you're going into the third question there uh for any listeners that you know don't know we do have the questions that we make beforehand and we do send them over to the to the guests so we do have the format but i want to talk about before we get more into the history and how they kind of got to where they are today right when they ipo'd is you know what's the fun thing about a restaurant is you can kind of go to it and check it out and see what you think. And I think that's what happened with a lot of people when they went to Chipotle in the early days. They're like, wow, this is a new model. This is really innovative. And it's just a great product. So you did some boots on the ground

research. What did you think? And do you think this is a concept that can go, you know, continue to grow? Yeah, well, funny enough. So Zo's, which is where my interest in this company kind of started from used to be a public company that I was invested in. And the reason I knew about it is because I had gone there as a customer. So I have been to Acava. I actually went last week or two weeks ago and prepped for the write-up that I did to see how it was similar or different from what I had seen at Zoe's. It was actually the same real estate. And I think the general gist that I got was, as I said, it's a true walk-the-line model. It's a little bit more modern um i would i would say better uh service model for today's world um you know one thing

that really stood out to me which i did more digging on later on was you know pricing relative to to chipotle um and you know we had some conversations before we hopped on today it sounds like it's similar at sweet green and i would assume that other you know of these smaller fast casual chains i was surprised to see that chipotle there was a chicken burrito for starting at 850 in the in the plaza that i checked two weeks ago and if you went to kava and you wanted to make a pita or a bowl the price would be 20 30 percent higher than that um so there is there is something interesting about uh the game that chipotle's playing especially obviously when it's compared to fast casual or historically compared or fast food i mean when it's historically

compared to fast food it was you know the higher price kind of premium alternative and now as they become a skilled player and the one that's very well known it's it's interesting in some ways that they may be uh finding a position a little bit in between those two uh not to get too extreme on that statement but um so yeah i thought it was you know it's a compelling concept i think the variety of of options that they had honestly was a bit overwhelming um i think it's the kind of thing that they they learn to refine more and more over time but but i think they have a lot of the pieces in place that that would enable this to be a chain that could you know be significantly larger than it is today which is you know at the end of 2023 they expect to have called 300 units

nationwide okay and before we get to the next question i would do want to note that that show was on roku so it's not something you own it was actually you know you're kind of concerned with some of the uh i think the title of the show was was it a commodity or the next great computing platform a little bit of a tease i wouldn't call it the next great computing platform but yeah if anyone's interested in you know the roku business model i'll go listen to that as well how uh how to taste how was your experience at kava as a diner i thought it was good it was a bit it was a bit uh strong for lack of a better term very a lot of taste a lot of flavor um and and the thing I ordered was one of the pre-selected meals. Cause again, I thought it was a bit

overwhelming trying to walk the line and pick stuff out. I didn't even know, you know, what 20 or 30% of the things were weird beans and other things that I just wasn't really familiar with. So I went with the pre-selected option and it was, I think it was 1450. Um, so it was a lot of food. I thought it tasted good, but it was noticeably more expensive. Again, I'm talking about in a, in a strip mall where there's a where there's a chipotle three units down so um yeah i thought it was i thought it was an interesting experience interesting and i think i remember in your write-up you mentioned that and you just said this but you were overwhelmed with the options like the the amount of choices which is something i think chipotle has gotten right is just it's a

very limited selection do you think there's any i guess do you think that'll matter for kava anyway I mean, I'm sure they have their own thoughts, right? And they probably have some, at a minimum, educated guesses on how this all works. I just simply noted that the number of dips and spreads and things were, there was a large number. I mean, I'd say there was 10 or so. So another thing that was interesting that I noticed, and it reminded me of something I read in a Tegas interview about Sweetgreen in terms of the inventory requirements of operating with a real emphasis on fresh food. I think it said something along the lines of that there was a delivery almost every single day to the store in order to ensure the quality and freshness of the food, which obviously, depending on how much volume you're doing, can be. um i mean even if you are doing a lot of volume it's still a challenging logistical thing to deal with right and at kava behind at the start of the the make line was what appeared to be like five or six different types of greens that were kept in uh almost like a refrigerated kind of area um and noticing that just made me wonder again like how much how much are you dealing with

the logistical challenges associated with having something like that and how much is it doing for business to have that versus just the typical greens that you get like a chipotle right so those kind of things stood out to me but i would assume a lot of that is you know something that you continue to tweak and learn from over time especially as you go into new markets you think the employee was like why is this guy like psychoanalyzing the our restaurants i was asking him about the uh the traffic trends and how many people are on the make line during third parts of the day. And I think he was slightly confused about why I was asking these things. All right. Let's go. You already mentioned some of the history.

Anything else there that you think is important in the company's history? And then can you talk specifically to the Zoe's Kitchen deal? Because it sounds like it was quite transformative for the business. Yeah. I think real quick in the history or really the present, I guess I'd say is what's important to recognize is that the CAVA banner has attractive restaurant-level economics, which for anybody who doesn't know, it's basically trying to get a clean look at the unit economics, excluding other costs that may be at corporate, those types of expenses that you really wouldn't apply at a unit level. Obviously, they're relevant, but it helps you to look at what kind of the economics

are on a unit basis. um you know this is a chain that has at a comparable size to on unit count to where chipotle was in the mid-2000s has margins that are that are as good or in my mind have properly accounted for the zoes you know parts of the business margin profile that is better than what chipotle had at a similar time in its history um you know the zoes acquisition is a very messy deal. So in 2018, they bought Zoes, which is a chain of 260 stores, I think it's worth noting, for $300 million at a time when, again, Kava had 70 or 80 units. So this is a very big deal. It's also a very messy deal. And probably the easiest way to see that is, again, let's say

70 plus 260 is 330. Well, you're looking at a year-end 2023 store count for Kava of roughly 300. So it just kind of shows you how much of this has been conversions and closures driven in terms of them trying to figure out the optimal real estate and what this business looks like going forward. That said, I think the deal was opportunistic in terms of giving them the ability to, to kind of meaningfully expand the base. Um, I think Ron Shake, who's from, he's the founder of Panera and, and now runs a firm called Act Three Holdings that, that invested in Kava as part of that deal. I think having him involved is, uh, incredibly important to the, to the story long-term. He's chairman of the board and they own, Act Three owns, I think it's around 12 million

shares um so and also the price point is interesting right they paid 300 million for again 260 locations and um we can see how we can see how the market is is valuing a uh successful kava today right at not a dissimilar number of stores and it's valued at uh more than 10 times that that that number so you know it kind of speaks to it kind of speaks to where zozo's at But it also speaks to maybe the opportunity they had to to kind of quickly add to their real estate and some real estate that is probably very well placed in terms of locations that I visited, for example, that those two are there in attractive plazas and they're in their good location. So I think that's probably what they saw in terms of accelerating where they were trying to get to. And yeah, they're almost done with all the pain of going through that. So hopefully it's cleaner going forward.

Yeah. And one more question before we kind of get into the actual business, the actual financials, as we kind of go through the history. And it's kind of a double question as I wanted to think about this. Do you think the ZOZ acquisition by Kava was smart, good in the long run? And on top of that, you mentioned that they're still absorbing kind of the acquisition stuff and it might be muddying the numbers or maybe hurting some of the margins. Can you maybe hit on that a little bit more? Because I don't think that's not something I'd thought about when looking at Hava's S1 before. Yeah, long story short, I think it was the right deal to do. And you can get into some weird, you can get into some theoretical accounting on,

you know, for example, if you were the 100% equity owner in advance of that deal, do you think it's the right decision to make? I think it partly depends on your objectives, right? If you're trying to scale this concept and you think you've landed on the right concept, your thought process on how much of the equity to give away to make that happen should at least be informed by the size of the prize and how much this kind of accelerates that. I think there's a very real possibility that this deal in hindsight is looked back as being quite intelligent in terms of that objective, you know, regardless of what X percent of the equity you had to give up to get it done. So I think Judge, in that light, I think could be very smart. And again, I think Ron Shake's

involvement and, you know, he's chairman of the board now. He was intimately involved with Panera, formerly a St. Louis bread company. I believe that was kind of the predecessor. He was intimately involved with that going from a, you know, nascent chain to something with a very large number of stores. So he strikes me as the kind of person you want to have in the board room as you go through the challenges of taking something from 200, 300 units to potentially over time, thousands of units. What was the second part of the question? Sorry. Basically, you mentioned that Zoe's Kitchen still may be kind of the transition and stuff like that. The remodels have been hurting their numbers on a consolidated basis. It's not something I thought about when I

read the S1. So maybe, I don't know how much of an impact that is. And did they mention anything about when we should see kind of the full breakaway from the old Zo's expenses. Yeah. So it took me a while to even come to this conclusion. The S1 was pretty messy given what is going on in the business to kind of make sense it was messy. But I think they at times in the S1 struggled to kind of clearly show what is going on here. Long story short, the Kava bannered stores in 2022 at restaurant level even margins of call it 20 the zoe's bannered stores had restaurant level even margins in the mid single digits which gets you to a blended number but that they kind of showed for the whole enterprise of 15 16 which puts you in the

same ballpark as cmg and you know i think it was 2003 or 2004 when they were at a similar similar unit size so so yeah you can obviously see zoe's was you know margins were restaurant margins were 1500 bps lower than than at kava um you know another data point they had in there that i thought was helpful um of the 54 locations that they converted in 21 uh in 22 those locations delivered 2.2.0 million in kind of average unit volumes in 19 when those were when there was those locations i think they said they were at one three or one four so you know they basically got a they basically got a 50% lift in unit volumes on those conversions from 19 to 22. Yeah. Let's talk a little more about the financial performance for Kava. And maybe

in your write-up, you compared it to Chipotle. And I thought that was a really useful illustration. How do you think about where Kava's at financially relative to Chipotle in the early days and what are some of the big differences i think the the main thing and i tried to i tried to get this across on the write-up and hopefully did a good job at doing so is is to appreciate well one the chipotle situation is really messy given the historic investments by mcdonald's and you know not just in terms of not just in terms of the dollars they put in but also in terms of you know, the, the organizational knowledge, maybe that wasn't part of on them or even how the costs were potentially allocated, right. Until you get, until you get clean, broken out

financials from CMG, it's hard to say. So you look at that period, again, I just spoke about the restaurant level margins. You look at below the line expenses, the things that are not included in restaurant level margins at CMG, you go from, I'm looking at a chart in front of me now that I, included in the write-up. You go from restaurant below-level expenses being nearly 25% of revenues in 2001 to being less than 15% of revenues in 2005. So they added a significant number of units during that period, but it kind of speaks to the amount of operating leverage you can get out of some of these expenses as you really start to grow the base. And importantly, as the new stores that you're building are maturing as well, right? Because a store in year one is not going to

produce results that are on par with what's going to produce in year three, for example. So I think that was part of the point I tried to get at is when I listened to CNBC interviews or some of these other things that people are talking to the CEO about it being profitable and what's the path to profitability and things like that, I think it just provides a little bit of perspective of how quickly these things can change and kind of what the drivers are. And honestly, as part of as a long-term investor or someone who's thinking about it a bit more intelligently than is this in the black or in the red if that's the question whether or not you don't want them to be profitable right now you know because because there's trade-offs in these things right in terms of

the amount of investment or the pace of unit growth and what's the kind of optimal um the optimal goal so um i think it'll be it'll become much clearer once we get a couple quarters out from, um, less so the IPO and more so the end of these, those conversions, which will, which will be done by the end of this year. Um, I think we'll start to get a much cleaner read on the economics and, and I think it'll become more apparent that, uh, these guys as it stands today have, have a pretty good business, um, on their hands and we'll see, uh, we'll see how aggressively they want to push unit growth. Yeah. The, I think what's interesting about restaurants is that they're so simple in one regards where you look at some of the top ones from the last,

I don't know, 30 years that have been great stock performers, Chipotle, Starbucks, Domino's, a lot of the times, it's not all the time with Domino's, but a lot of the times these companies get premium valuations because you can see like, hey, look, they got a really good model. They all have these traits that make them super profitable and they have these unit economics that can basically, boom, either go across the whole United States or some cases globally. You've studied a lot of these businesses, I think specifically Chipotle and Starbucks for a long time and maybe a few others. What are some common traits among successful QSR companies, which for any listeners, quick service restaurants? And do you think Kava has these traits? Why or why

not? I think my primary answer would be a lot of things that a consumer could just answer, or a consumer would note about these. Again, the service model, in my mind, is something that's very notable that can speak to whether or not this works over time. Going back to Ron Shake and Panera, this is something he talks about. If you go listen to, there's a number of good interviews with them. The How I Built This interview is a very good one. I believe it was from 2016 or 2018. He talks about this idea of Panera having gone through two or three transformations where just by kind of having his eyes open and thinking about where the ball's going, it informed multi-year investment periods at the company for Panera. And the first big one

is he talks about in the 90s. And he specifically talks about people like Howard Schultz at Starbucks. I think they were friends. Jim Cook at Boston Beer, Sam Adams, this idea of that type of business emerging from what was historically more of a fast food Budweiser type of world, right? And that trend being something that even 30 years later is still kind of relevant, right? I mean, it certainly is relevant in terms of something like Chipotle. So I think it's recognizing those things and then companies making adjustments as as it becomes evident that they need to do so i mean online ordering obviously and and pickup and delivery would be another example today where you know a company like chipotle is is continuing to build out chipotle lanes as far

as i know and it's been effective in terms of driving auvs and and unit economics and if you're a new chain like kava is or you're gonna you know triple your store base over the next 10 years as they likely will. A big question would be how effective your strategy is for dealing with these things. Obviously, digital technologies and things like that also play into it. I think a lot of it is really just blocking and tackling. I don't know if simple consumer insights would be the right thing, but when you recognize the big ones, really, really, really playing into those. okay you mentioned ron shake shake um let's talk a little bit more about him what's his involvement here you mentioned i think they own 12 million shares how important do you think that

is to kava success long term yeah so again he he not to go too deep he started a he started a cookie chain or a cookie store. And I believe it was in Boston, uh, somewhere in the Northeast. Um, and, uh, the cookie store was doing a decent amount of, I guess, afternoon and nighttime business, but it wasn't doing anything in the morning. So he got hooked up with the guys from Obon Pond who, um, you know, they were doing pastries and things like that. They could sell in the morning. And I think he, as he has said, he, he thought they had a good business idea effectively, but he didn't think they were very good vendors slash operators. So that eventually led him to taking control of Au Bon Pain. Then he's selling these breads and croissants and

things and has customers coming in saying, hey, cut this thing in half. And he'd cut it in half and they'd grab meats and cheeses from out of a bag that they brought with them and they're making sandwiches and long story short he he kind of credits that to the inspiration for for going in the direction with panera um and making some notable decisions by the way in the late 90s around um putting the the weight of the company behind that concept right and i think there's a there's a part of that in my mind that is a bit similar to to zoe's and kava where if you go listen to interviews around the time of the deal they they kind of thought maybe that these are two banners that can can just be run in parallel and i think in hindsight they probably correctly came to the

conclusion that the the best bet here is putting their weight behind kava and making the tough decisions required to to get them there so so yeah long story short around the time of of the decision to put the weight of the company behind panera i believe this is the late 90s um the company's stock price was around three dollars or so and you know fast forward to 2017 and panera um was acquired by i believe it's jb for for 317 a share or 315 a share um so you know 100x over it's called 20 years just to be safe which which which speaks to this business right it's it's a very difficult business to to to stay ahead of the competitors because they can copy everything you do. And there's many, many examples of retailers, restaurants, et cetera, that have

not stood the test of time. But when you find a concept that has attractive unit economics and is broadly demanded by consumers, let's just say the US to keep it somewhat small, that is broadly demanded by people across different geographies, you have the ability to build a very, very large number of stores in a relatively short period of time and you know it can lead to 100x type type outcome so um yeah he's someone who has ron shake has has done seen that personally and now in his position as act three i he's he's in a place where he can you know make it seems like a relatively limited number of bets on on concepts or other players in the value chain you know in in hospitality or restaurants that that he believes are are well positioned to

you know have long-term success how big do you think kava can get um you know it's a tough question i've tried to in preparation for the write-up management gives a number in the s1 of this being a mediterranean being a 40 billion dollar category um i think they specifically define that as restaurants in the u.s there are a lot of local mediterranean places i gotta say there are a lot of them yeah and i think you know it's it's something when i it strikes me as something where the taste can kind of potentially adjust to right it's not so i don't think it's so foreign to people that it's that it's like out of reach for them to consider eating food there right i think it's i don't think it's too far a field

for it to be, it's not so adventurous, right? So yeah, so they say the number for the category is 40. You know, look at something like Chipotle, which is predominantly a US chain. Their sales are up around $9 billion. You know, I don't know how big the Mexican category is, but if Chipotle is nine, I'm going to take a wild guess that it's at least two times larger than Mediterranean, and maybe a couple of multiples of that even. So from where the company's at today, it's somewhat irrelevant how big it is. If it's 40, the model that I use that just tries to say, what does Kava look like if it is roughly similar to a mid-2000s Chipotle? Where does that get you in a couple of years? I think even then, five years out, you're at south of $2 billion in

revenues and again if the category is 40 50 whatever it may be um you know i don't think the size of the category is the problem i think them them figuring out the unit economics which it is one interesting thing from the s1 um this this company has a pretty uh broadly diverse geographic presence um some of it as a result of zoes and some of it as a result of kind of accidents of history of the business just where they happen to grow early on um and i you know i think you see some uh divergence across different geographies and it's the kind of thing that they have to figure out over time right um um maybe it doesn't work everywhere and if it doesn't then you have to figure out where it does and why um so but it's still so early that i don't i mean again

chipotle if we're going to take the assumption that it does work everywhere they're talking about having 7,000 units in the US and Canada. Kava, if it works well, they're talking about having 1,000 units in a decade. So we're not even anywhere close to being in the same ballpark, right? Stock valuation, what conclusion did you come to? Can you maybe give some numbers on where they're at today, price-wise? Yeah, I think it was expensive when I published this a week or two ago when it was at, I'm partly making these numbers up. It was expensive a week or two ago when I published it at 40 and now it's north of 50. So yeah, as of, uh, as of this recording, we're at $50 and 50 cents up 6% today. So nice little, you know, what's the market cap

five points according to Google finance. So sometimes they don't update all the time. 5.7 billion. Yeah. It sounds roughly right. Um, you know, the hard part is, And as I said before, as you're thinking about what the margin trajectory looks like over time, again, this is all assuming it kind of works, right? If you're thinking about the margin trajectory looks like over time, I think there's a realistic path to, you know, as you look on five years or so, as they get up towards 500 units, you might have a business that's doing one and a half or 2 billion in revenues with, at that point, they'd probably be able to get up towards double digit EBIT margins. So, you know, again, if it's one and a half and 10% margins gets you $150 million on a $5 billion plus market cap. So obviously there's a lot baked in there. You know, I think one of the questions that's interesting to ask if you kind of fast forward five years is basically what would the right multiple be?

And I think the answer is, you'll ultimately find that the answer is either a very high number or a very low number. Because if they've actually proven out that the concept works and they're at 500, I think you have, or 600, I think you have a lot more clarity and assurance on this thing getting to thousands over time, as opposed to starting from 250 or whatever it may be. So it's one of those weird things in investing where success can be its own justification for potentially a higher multiple in terms of what it does to the certainty of the outcome. Okay. I want to shift maybe away from Kava and more towards something you talked about in your

Kava write-up that I think is important, but it's more of like a general investing philosophy. You came to the conclusion that this is expensive and you probably knew that going in just because of coverage on Twitter or CNBC or whatever. Why do you think it's important to do the work on it anyways, if you know before you have a good idea before that it's not going to be ownable at the current price? Yeah, I think the easiest way to say it is that I think I've learned from past mistakes. And I think in investing, coming to judgments and conclusions that are not based on actually doing the work is a dangerous way to think about the world, especially when you do that and then you see subsequent data points or subsequent facts about the business, you have a

tendency to frame things in a way that kind of confirms what you've already, you know, air quotes concluded, right, without doing any of the work. And I think I did that, you know, Netflix, as you guys know, and as I've disclosed to subscribers, Netflix is a very big position for me now. And it's something that five, 10 years ago, I kind of laughed off as a younger, hopefully now smarter value investor. I laughed off a, whatever the number was, 20, 30, $40 billion valuation as absurd for this thing that didn't make any money and had no competitive advantages and was completely dependent upon Disney and whoever else for content. And not to say I would have got it right if I had done the work, but I didn't honestly give it a look or the look that I

should have given it or learned about management, for example, to tie this into the Ron Shake part of the story at CABA. Actually doing the learning and thinking about what's going on is very important in my mind in terms of actually making intelligent decisions. And here, an interesting example might be maybe Kava isn't the story, but Ron Shake's also involved at ParTech. And maybe that's a company that is interesting. And it's also publicly traded, by the way. um so i think it's just basically forcing myself to actually do what i know i should be doing anyways which is forming judgments and conclusion based on actual work and and you know letting letting the research serendipitously lead to other potential ideas and you know it's remembering that i'm not so smart that i just know everything about everything without actually

doing anything yeah i seem to get plenty wrong even when i do the work so all right well i think that's all the questions we have i'll also say i think we did a show on par technology like three years ago so the story might have changed but if you look it up i think that's a complicated story too there might be something in the chitchat money feed yeah we could be here for an update though stock hasn't really gone anywhere so So it could be fun. Yeah, maybe that's first up for people who are maybe younger, haven't been investing as long,

maybe learning from my own experience in investing and part of my research processes to that point. I go into Spotify and YouTube and I just type in a company's name or the CEO's name and literally listen to everything I can find. And honestly, the three, four, five-year-old things are typically more valuable to me than some of the more recent stuff

because it gives a sense for the way the company was talked about and understood at that period of time relative to what may be very different today. And there's a lot to be learned from that, in my opinion, especially if you kind of be yourself as a longer-term investor who will live through periods like this, right?

So it's definitely a part of my process that is much more important than it maybe was five years ago. We want everyone doing that because that's our growth hack for organic marketing is to hopefully show up when someone searches a stock on Spotify or YouTube. That might be, you know, maybe that's how people are listening to this right now. So anyway, I think that is going to do it for our show. Brett, do you have any more questions, comments? Okay. Well, if you enjoyed this, go ahead and look up the science of hitting sub stack. We'll link to it in the show notes as well. We subscribe. We love it. And he actually just wrote, Alex just wrote one of my favorite articles, I think that he's written so far, which is the evolution of a value investor. So recommend reading that as well.

But without further ado, I think we're going to get to the disclosure here. Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital, so clients may have positions in the securities discussed in this podcast. Thank you all for listening. Thank you, Alex, again for coming on the show, and we'll see you all next time. Bye.