Chit Chat Stocks - Investing Power Hour #27: Successful $TWTR Arbitrage, $POSH Acquisition, Mt. Rushmore of Buybacks

Episode Date: October 9, 2022

The CCM Power Hour is a live-streamed show every Thursday at 3:00 pm EST. On the show, Ryan, Brett, and a rotating list of guests have an unscripted discussion on a variety of investing topics. You can watch the show on our YouTube channel here: https://www.youtube.com/c/ChitChatMoney Follow the show on Twitter: https://twitter.com/chitchatmoney ****************************** Interested in becoming a member of 7investing? Subscribe with code “MONEY” and get $100 off your annual subscription for life: https://7investing.com/checkout/ ***************************** Access our “Not So Deep Dive” episodes by signing up for CCM+. Sign-up directly through Spotify or Apple Podcasts. If you listen on another podcast player, use this link and create a private RSS feed: https://anchor.fm/chitchatmoney/subscribe Need more information? Check-out our launch newsletter: Here ****************************** Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host 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. We are live on YouTube. This is the Chitchat Money Investing Power Hour, number 27. For the few people that are joining us in the live stream, but listening on the podcast,

we've been doing this every week, basically for most of 2022, starting in the spring. And the only rule of the show is that we have no preparation. However, actually, we have this amendment now because we're going to be doing a seven investing segment every show to help promote our sponsor in a fun way that can have some lively discussions on here. And that leads us into our sponsor today. And that is Seven Investing, a research service with different stock picks. And if you want to use our code money, M-O-N-E-Y, you can get $100 off your annual subscription. That is a 25% discount

on the annual subscription for life. And what do you get with a subscription, Ryan? You get seven picks every month. This month I got to ask what were some of the favorite topics, or not topics, stocks that they recommended from all the advisors. They got some research reports

on different ones without spoiling, obviously, what the picks are because that's what you're paying for. What ones interested you? I liked well I liked Matt's but I feel like we say that every time I think Matt

his style we're in the same sort of style group yeah there were three actually that I really liked let me guess that healthcare one I know you like the healthcare one yeah we can't tease it too much but yeah

Dana's was really good well I should say really good time will tell if it's really good but it's it's interesting good right definitely interests me it's something i like have kept up on it's not like it's in the healthcare industry but not on not incomprehensible like i feel like i can get a grasp on the business and then um i also like christoph's christoph's okay let me see what one did he have without spilling um oh yes that is interesting little software one

payments uh probably can't say anything more about that but that is the tease we won't talk about it for too much longer but use code money they are exclusive sponsor for the rest of 22 we love them over at seven investing use code money get a hundred dollars off your annual subscription for life all right ryan what are we talking about this week i got some stuff there's plenty of news yeah that i remember we have we're going to talk poshmark later getting acquired that's a fun that's going to be a fun topic, but we got the jewel bankruptcy. I mean, we got the big elephant in the room, which is the Twitter deal closing. Should we start with that? We don't want to talk about it forever, but maybe hit on it for a couple of minutes. No, I want to start somewhere

else. Okay. All right. All right. You and I and all the investors in Arch Capital are shareholders of Match Group. There was a new dating app launched this week called The Right Stuff. Not a Match Group product, but it's meant for conservative dating.

I think they, right wing maybe, I think, they were doing too. Yeah, something like that. Not conservative in the political sense. Yes. That's who it's like meant to be catered towards.

A couple of things. I could care less about the political side of it, but I wanted to see what the product was like, so I downloaded it and I tried to sign up. I swear to God. It's due diligence, right? It is. I have to assess the competition for Match Group.

That's one way to do it. And there are so many flaws that they got wrong. All right, name them. Number one, you've gone after a demograph. first of all females on the platform first that's the number one priority it's the hardest thing should be for most data it's the hardest thing to do and the females will attract the male users bumble did it really well you don't have to uh yeah you don't have to you don't have to even market to the male users they will come build it you build it they will come exactly 100 and

they are not doing that um whether i'm sure there are plenty of conservative women out there but just about all the users apparently happen to be male and that's one of the big problems in all the reviews that I'm reading they say alright I'm on here but there's no women in my area I went to check

just to see if there's any users in general and there's tons of men and so you've got a problem there so that's problem there second of all it's invite only that's you can't have that either unless you're that um well what's it raya or whatever unless you're that one which is like celebrities only or famous people only you can't have that unless

it's for people that are quote-unquote whatever famous right and there's basically a couple of ways you can get an invite it says give us access to your contacts and we will see if any of them are already users. The last thing I want my contacts to know is I'm joining some conservative dating site. It's relationship, George. I don't want someone to know that I'm on Tinder or Hinge or Bumble. I'd rather keep that fairly discreet. It's not something people are outward about generally. Now, if I'm doing it even in a more niche product, you think I want all my contacts to see that i'm looking for an invite to this thing absolutely not and i mean i don't want to be clamoring for an invite to some conservative dating site no matter what even if your friend

group is all conservatives it's like just this act of desperation so there's so you're saying you would short you would short this if you could if it's possible it's maybe there's a way that they can like just like brute force their way to scale but they've they've messed up on several accounts already the context thing is so crucial you don't want any it's it's again it's letter we wrote a uh write-up on them earlier this year and the title was relationship george which is from that Seinfeld one where it's like you have the relationship side of your life and you have the whatever social side of your life that is still the same thing in online you need separation between your online relationship or romantic

life however you want to describe it and your social should be complete there should be no or mental absolutely minimal crossover try to minimize that We had a comment here from Matt says, talk about how stupid Elon Musk is. I think we might for a second, but that has been covered constantly throughout the news. So we don't want to talk about the same thing that everybody at the show was talking about. However, congrats, I think, are in order for the Twitter arbitrage investors. They were really nailed it. Probably annualized returns of about 100% within a couple of months.

I mean, really, really strong. So glad to see some good investors do that. I'll just hit on it right now because I saw like a fairly hilarious meme. It was basically Elon's face on Trump's art of the deal book. So they like replaced Trump's face with Elon's face and it says, Musk, the art of the deal. And then quotes, it's got make an offer out of spite, back out of the deal, get sued, publicly denigrate the thing you offered to buy,

get your ass handed to you in court agree to the original deal act like this was your plan all along yeah i worry though it's not done it's not a done deal he is that he's slippery he is extremely slippery and i could see him still somehow wiggling his way out of this but uh did you see the uh that he avoided going to court out of concern of getting covid yes mr open the factories in may 2020 yeah yeah well he's a uh surprise that even works anymore i think it's your it's kind of like one of those rules where if someone like the health stuff is pretty black and white if you go what i mean where someone makes a case they have to um i don't know like i mean i use that excuse it's funny we've all used that excuse when

there's something we don't want to go to over the last two years in almost the same. Oh, I just tell people I don't want to go, but maybe I have less. It's called saving face. Yeah. I am not a big saving face guy,

maybe to my detriment. All right. We got a question here. What are your favorite podcasts to listen to? Well, let's keep it investing for one ourselves, obviously, if you're watching this right now and you don't.

Do you actually listen to us that often? No, no. Why don't listen to us? But I'm just saying. Well, he's asking what are our favorites. Let me scroll through. Let me scroll through the... Let's see what I got downloaded here.

I mean, what do you listen to? I've been listening to some of those founders ones now that they're free after the Invest Like the Best team acquired them. I like Invest Like the Best like everyone else. I like Oddlots from Bloomberg. They hit some interesting topics from time to time. sometimes it's more market structure stuff that i'm not too interested in but they have some cool

stuff on commodities and like the real estate market stuff like that uh motley fool money is always solid if there's a topic you want to get kind of a 10 minutes on i mean business brew is good for some long-form interviews on uh with investors that might be a bit you know different than typical interviews and then I like Value After Hours too which is basically a show that we are not copying but we saw that

we like that show a lot and we are doing a similar thing with this so I like that one a lot if you like the Power Hour format I would highly recommend listening to that one as well I think they do it on Tuesdays so another day of the week that you can do something like this

here's a couple for me I like the Yet Another Value podcast That's good too. It's kind of a similar format to what we have with the deep dives. I like the business brew. I'm not like a completely regular listener, but depending on the guest I'll listen. They're just longer.

So you kind of have to have more time for those. It's definitely like the Rogan style, but the niche for investors. I listen to the Wall Street Journal podcast a lot just to kind of get updates someone the one with the orange thing on it the orange logo yeah yeah the one that's done by gimmick media that's a good one yeah that is a good one the other thing someone put together a uh a list of buy side gems basically a list of different shows so it's like a playlist of podcasts no we don't listen to the all-in podcast sorry i did not listen to skim off

uh no uh yeah i can't i i'm not i don't like to be a supporter of skim off and um david sacks and all those guys can't say i want to support them i actually don't have like the biggest problem with jason kalachnis but i can't stand the rest of those guys i agree kalachnis gets way too much it's gonna be uh this is gonna be we can't turn this into a podcast we don't like show. But no, I don't listen to that very often. The other one is Capital Allocators with Ted Seides. He tends to have some good ones. Also, if you can, there isn't a whole lot of these, but Value Investing with Legends is pretty good. That's a solid one. I think that's a lot of choices there. Okay, new topic. And now this one,

because we've looked at some of these companies before, this is from Thunderdome Capital. and it's more of a rhetorical question, is there any worse capital cycle developing than the one for electric autos and electric auto batteries? Where basically there's this huge demand that's coming, right? It's staring everyone in the face potentially with the projections people have. But in order to get that,

there has to be a ton of capital investment. And then once that happens, just there's so much money flowing into space if you kind of get what i mean you can see that almost every large company is saying we're investing tens of billions of dollars into it and it's so hard to build up an you know electric vehicle company uh because of just how capital intensive it is and once that cycle rolls over as it does with basically all capital intensive industries with minimal moats,

does it feel like it's just staring us in the face? That rollover. Maybe I'm describing it poorly, but that rollover of the capital cycle. Yeah. You maybe described it in a complicated

way, but basically are you saying when basically the money's going to flow out of it now and demand's hitting sort of highs? No, not consumer demand, but the tens,

probably hundreds of billions of dollars that are flowing through from all the different companies into building up their battery capacity or electric vehicle manufacturing capacity. They're seeing the demand out there, But since there's just going to be this flood of supply, it's staring us in the face that there's going to be this consumer surplus and that's going to be bad for the companies. Now, what time frame is that?

I don't know, but I'm pretty confident that's going to happen because if you look historically, it happens. Why would this time be different? I just don't know. yeah like it's not just it's a bold thing to say because that has some interesting implications first of all that means used cars used car prices are going to plummet well i think that's just i mean this is more multi-year i think maybe used car prices is more multi-year but but if you're saying because the way i think about it is basically the ev production and i believe this is essentially how the companies have stated it.

It's going to replace a lot of the ICE production. The vehicles they're actually producing might not rise that much, but it's going to replace some of the ICE vehicles that they would have produced. But it seems like they're going to produce

too much, too quickly. Too much cars in general? No, too much, too quickly. Think of all the announcements from these companies. I don't know about that. you've still got big waiting lists

like when you go to these dealers my dad was looking at buying an EV recently too you're still waiting on a pretty big waiting list I think they're going to have some visibility into that as those waiting lists compress and it isn't I don't know

it's not an oil producer you think they're going to cut back production Well, here's the thing. Here's the big concern. You got all these commitments, right? To build all this manufacturing capacity globally. There's a ton of CapEx that goes into that. And you need a certain letter full of factory output to make that factory, each individual factory profitable. if everyone overdoes it in general that screws everyone too much capital flowing in no matter what the end demand is i mean yeah look it's hard to get an electric vehicle right now but that actually could make things worse because then they might overdo it there could be a big bullwhip effect on top of this and i think the covid disruptions could make it even worse

but what if you've got But EV production as a percentage of overall automotive production is like, what, 5% right now? Less? Yeah. Oh, yeah. I don't have the exact numbers, but sure, you're probably in the right ballpark. I would say if you're picking today, let's say prices were equal and you're a consumer, 70% of consumers would probably go EVs, right? I disagree from anecdotes, but maybe a little lower, but still fairly high. I think you still have plenty of room to increase supply across the board. Yeah, but I think we're talking through each other because I do agree. I just think that it's pretty clear they're going to do too much because just so much money is gained.

like think about all the commitments that these companies are making what if they can't what if they literally can't they don't have the chance oh well then that's a different question maybe that maybe that saved it but it's just that uh the capital i don't know the exact term but the capital cycle theory or um just like all these all these new industries it's uh throughout history the same exact thing has happened and it feels like it's about to happen with electric vehicles It's not about to happen this quarter, but about to happen over a multi-year period. I mean, I think the best near-term historical analogy is telecom infrastructure in the late 90s, early 2000s.

I think that is extremely similar. Everyone was like, wow, we need this internet infrastructure. We need to invest as much money as possible because there's just an endless opportunity. Turns out, it was not infinite. I think that same thing. That's what I'd be worried about if looking at the electric vehicle space right now. okay excluding the valuations

which are still surprisingly we'll see how it plays out I would not be buying any automotive producers right now probably sorry if you own any we got a Matt H saying you mean to tell me QuantumScape isn't going to be at $1,000

in five years that is what my DCF says I can guarantee I know he's being facetious there well you're right all right This episode is brought to you by ourselves. If you're hearing this now, we know you're a Chit Chat Money listener, but if you want to get more than just our free episodes, you can become a Chit Chat Money Plus subscriber. Within the subscription,

members get access to our weekly Not So Deep Dive episodes, our monthly episodes detailing one of the holdings in our investment fund, Arch Capital, and then they also get written work, so newsletters and research files to go along with each Not So Deep Dive episode. Am I missing anything? We should talk about the themes that we do each month. So each month we choose a theme based on whatever we want. So last month we did video games. This month we're doing housing. Next month we're doing engineering software, I believe. And then the following month we're doing website and e-commerce software. We choose those because it's a great way to investigate a different industry. And if you want to subscribe to CCM Plus, go directly through Apple Podcasts

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businesses like Match and Spotify seem to already have significant sale, but are not achieving gap profitability. I don't think it's accurate for Match Group, but I understand. Well, recent quarter looks back because of a rate down, But I mean, yeah, look at historically.

Yeah, I would say over its lifetime as a public company, it's generally got profitable. Hard to bet that they're ever going to achieve 20% plus gap operating margin or gap margins, whatever you want to choose, EBIT margins. I would say you're right. For Spotify, it seems unlikely that they will ever achieve that. But that doesn't matter. So what? No, it doesn't. I mean, it has no, it doesn't change that.

I still think it's a good investment from here. Granted, we own it. So keep that in mind. We got to, you know, we're talking our book. It can still be, you can still generate good returns without reaching more than 20% margins. Match Group will. I can, I say that with a whole lot of.

Yeah, it's hard. Their historical track record. I was just writing something on them. So I know their numbers from 2017 to 2021, one, they grew revenue by 22% a year. So investing for growth and at the same time, their adjusted operating margin, which correlates is just

slightly different than gap. So their gap was just slightly lower than this, was above 35% every year. So they're investing for growth and a lot of their apps weren't being monetized yet, say like Hinge.

And they're still at 35% margins. That translates fairly well to free cash flow too i don't really this might sound to some people um i don't know what it would sound like but like you might disagree with me i don't care about gap how much cash is i don't care about gap net income how much cash is how much cash is it going to generate that's what i that's that's what i like to focus on because gap net income can look wonky um yeah free cash flow can also look wonky sometimes um but i'd rather start at the cash flow and then make any sort of adjustments

that are either making the business look better or worse at that one time period and go from there because the value of the business is the cash it generates, it's not the gap net income. Yeah, I was going to say that as well, Sandeep.

I think focusing on cash flow margins is probably a better proxy for the earnings power of the business, I guess, for both of those companies. And I do think Match will continue to have around 30% or higher cash flow margins, depending on if anything ever happens with the App Store fees. But hopefully that answers the question a little bit. Do you want to talk a little bit more about the Twitter deal or no? It's really outside of our expertise, if we have any.

What do you mean? Yeah, exactly. I think this is the outcome as the non-lawyers that we were thinking was going to happen, where he would either through the trial or through a settlement would have to pay just because the evidence was really, really damning that Musk could get out of this deal. So not really surprised. However, it's comforting to think that the legal system works. Exactly. I think that was the biggest takeaway as someone who had no skin in the game here. I have a little bit of a theory.

and this might prove to be wrong, but you've got somebody who's made his intentions pretty clear on what he wants to do with the platform. Well, it's an accelerant to X, whatever the hell he was talking about. Accelerant to X, the everything app, right? Ignore that. Ignore that. It's not going to. That won't.

You're saying that... Okay, he wants to be a little more lenient with free speech on the platform. Right, that was the number one thing, yeah. Regardless of what you think of that, I think there's going to be a disconnect between how the employees like the business and how Elon wants the business. The current ones, at least, yeah. Additionally, I don't think a lot of them were a big fan of this process. he's made it very clear that he wants to fire people

I've got a feeling the turnover is going to be somewhere around 70 or 80% on the employee base at Twitter Is that good or bad though for the business? So either one of I think a couple things can happen they'll learn just how

lean these businesses can be run, how little employees it actually takes or the investing community will learn how much employees it actually does take to run a business like this properly and the platform will begin to struggle

due to all this turnover due to not being able to keep up with any changes as effectively as they should yeah it's interesting we're not going to know though unless

because it's going to be private, right? I guess they'll share. Well, they'll probably share stuff if it's going well because then they'll want to brag. Well, we'll know if the platform's beginning to suck via our experience. Well, isn't that already what happens? I don't know.

Does it take more to maintain just the business staying up? That's true. Yeah, I guess. Yeah. It could get way worse. Is the security? I'm curious. Could the platform come down?

could it like stop functioning yeah i don't know i don't know i knew i knew someone that i think he left but i knew someone that works in their database segment said it's a really tough a lot of just it's like uh just so much data to manage um but yeah i guess it could get worse i hope it doesn't collapse but maybe i should delete all my tesla q bearish tweets just in case just in case he goes a little less free speech the worst part about this is that the ukraine takes he got completely ratioed for like one of the like a brutal ratio yeah you always got to think why was he doing that there's always an ulterior motive with elon musk why was he doing the ukraine thing i can't figure it out yet we'll know

eventually because it's always he's always got a motive for his tweets right i saw some i saw some that potentially they he doesn't get the financial commitment from the banking partners that he initially had he has to go to russia for financial backing and then the government or something yeah the government says we're not going to let that happen and then he says well then i'm not going to buy the business if you're going to shut it down i don't have to buy it that's a lot of it's a lot of variables there yeah i know i mean i wouldn't be surprised i wouldn't be surprised but that that's slightly far-fetched but in the musk world i would not be surprised all right new topic uh from tiktok

investors tiktokers now are you um this is my this is the pitch are taking their discord account public now let me read the definition here and see if you are interested in buying this company asset entities is a technology company providing social media marketing and content delivery services across discord tiktok and other social media platforms we also design develop and manage servers for communities on discord now this this is definitely a legitimate public company right like this is something that's not just a small business that needs uh certainly it there's They're taking this public because it needs more capital, right? That's the reason they want to access the public markets,

not trying to dump any shares on unsuspecting Discord members, right? No, that would never happen. And then they announced that our stock's the most cheap and then pumped their own. Yeah. It's a closed ecosystem. Yeah, here's what I saw. I was doing, I don't know where I saw this this week,

but there was a company called Pagaya Technologies. you may have heard of it, kind of a poor man's upstart, a lot smaller. It is down in the last three months, or last month, excuse me, 86% because they, okay, so they had about 650 million shares outstanding, something like that, right? Or no, I think fully diluted. It was a SPAC, so warrants were weird. I think it was closer to 700 to 800 million, but they announced in September that they were doing a $50 million stock offering. And this is right when the lockup period is about end. So they have $50 million share stock offering. And on top of that, they were unlocking $650 million of the insider shares to sell. $650 million, they were raising money through that,

but they were doing stock offering for their end. And lo and behold, the stock collapsed 86%. That has got to be... I mean, you see that and you just... How can you touch SPACs? How can you touch recent IPOs, it just seems so dangerous that you don't know when you're dealing with malicious executive team. Yeah. I've never purchased a SPAC. And there have been times where I've been mentally bought in on the business. And I think everyone's gone through this, this like mental process of, okay, all other investors are discarding SPACs because generally the average SPAC is

trash out to make a quick buck. The, so maybe I'll find the diamond in the rough. You think you found the diamond in the rough and then lo and behold, it's, it's more of the rough than the diamond. And it, for me,

like, I just don't think I'm smart enough to, Or I'm guarding against my own mistake that I'm going to make, and I'm just saying like discard them all. Robert Leonardus Yeah. I don't know. I feel like there needs to be, even though it's weird to have arbitrary or just weird arbitrary rules as an investor, I feel like it's almost always better to just wait a full

year for a stock to be public. If it is such a promising business, waiting a full year to get some audited financials is not going to crush your long-term returns. I just feel like that's just going to save you more than it's going to hurt you. I agree. All right. A couple of other things. First of all, the Jim Cramer inverse ETF is officially public.

I don't know if you saw this. Fade that stuff. That's tired. Those are tired jokes. but it's actually you can invest in the ETF yeah that I want to know how it's going to do I these though

here's the about those ETF strategies that have these weird unique things they usually if you look at the what they're actually doing with the rebounds thing it doesn't make much sense now maybe this makes a lot of sense but I kind of doubt how they're going to be like oh Kramer talked about or tweeted about something and we're going to short it like

or buy it like for what time period for how long i i don't know i mean their back test their back test has got to be strong but he's got the his premium service or whatever that may be oh oh but he said uh this is from eric belchunas he says new filing for a wait for it inverse kramer etf ticker is sjim um and it's total capital management not really sure who they are it says sjim will be a long short strategy basically taking the opposite position to Kramer's publicly announced positions

on Twitter or CNBC. We actually wrote back in February about how an inverse Kramer ETF would likely be filed at some point. Given some of the stuff that has been tried with ETFs, this isn't a big stretch, and ETFs tied to big personalities, not unprecedented.

It's just, yeah, I mean, I hope they do fine, but that just... If you saw this in someone's 13F, what would you think? I would never give them money. Is it investable? No. Come on.

Not, I mean, like, you know, in your fund basket. If you really hate Kramer, I get that people think he's not, he's just a little bit overhyped, but I don't really get the malice, if you know what I mean. Like, okay, he's just

not that good. That's fine. But maybe if he's screwed you over like you know uh some way that's on you that's on you more than on him but he has been like impressively bad recently yeah i mean crazy crazy luck to be as bad as he has been in the last year here's the thing though with everyone if you put all of your stuff public right then people can hone in on the stuff. I'm not defending Kramer as a great investor, but even the best investors

are going to be wrong a lot of the time. Especially on the internet, you can just focus on what they did bad and then people forget about the good stuff. I just don't think it's probably not as bad as it looks just because you can cherry pick i mean yeah no he's he's a hell of an entertainer yeah which he's fairly captivating like i see something with him and it's kind of like he's got energy oh 100 he's got energy i just don't what's this fee on this thing did you see they might not have it i'm afraid he's got like i'm afraid it's like one and a half percent yeah something like that something wild

um still not going to cover a couple of other uh news items that i think are worth talking about it's actually been a pretty busy week first of all uh carvana is named the title sponsor of the professional pickleball association and multi-year partnership is this going to save the company yeah i think that's the advertisements they need i get a lot of carvana ads i'm telling you guys right now carvana if you're listening i'm not it's not it's not happening um i'm not going to be a customer but yeah that company is are they screwed or are they screwed i mean that they're in such a tight spot yeah there is oh we should talk about the uh poshmark deal you want to do that now let's

see if this can be our seven investing segment we have a little combo here remember we talked about at the beginning of the show. We're going to be highlighting our sponsor, 7investingalot. Use code MONEY, M-O-N-E-Y, to get $100 off

your annual subscription every year for life. That's 25% discount. Help us out. Get a discount and sign up for a great service. They had, we're not going to spoil

what the pick is. They had one of their picks, a, let's say, healthcare company. Don't want to spoil it too much. And it was entering into a take private offer from an investment firm. And they had a, I guess,

just kind of highlights part of their service as well, where when something happens, they're going to keep you updated if there's anything relevant that happens. And since this take private deal was gone through, they officially gave it a sell rating. So for any investors, they're going to help you through

if you're someone that wants that. But on a wider note, excuse me, We're seeing a lot of companies getting taken out at big discounts to where they're trading at a year and a half ago. Poshmark was a huge example this week. Went public at like 100. It was trading at like $100 a share at this peak. Got collapsed down 90% down to $10.

And now it got a take private bid at $17.90 this week from a siloed green company, which is kind of a surprise. What do you think about these? kind of the issue I have, what makes me nervous about these bombed out growth stocks that might have flimsy-ish business models or they're not doing so well, is you could have made a thesis that Poshmark was a value stock and maybe $25 a share, right, with all the net cash they had in the balance sheet. You also could have made an even better case at $10 a share, but you don't know if the management is going to take that buyout offer that's going to screw you or really

help you i think there's just a lot of it's kind of a coin flip risk maybe on that i think it takes weight off their shoulders is what happened here well uh apparently the business yeah is not doing as well as they claim i think something is going wrong because that was a huge discount to what people were the ipo yeah i mean it's like what 80 discount to where they issued shares maybe 60 I think. I can't remember if it ran up after the issuance, but it was at $100 a share. And yeah, it went public at the peak of the bubble in February 2021. You know, it's a bummer. We looked at this pretty thoroughly at $10, and I had a hard time determining whether or not this was just a really shitty business or deep value or both. Yeah, it was both. It had like $6 in cash.

Yeah. Yeah. It had $6 per share in cash. I mean, it was a huge part of what you're buying at the time was just pure cash. Yeah. What's interesting is the stuff that we haven't bought this year. But like I've said, let's just wait. Keep it on the watch list.

It's gone up like 100% in three or four months. Now, that's not the type of time horizon we like, but it is unfortunate. Yeah, it's a bummer. Yeah. I don't know if you're a Poshmark shareholder. Let's say you're a Poshmark shareholder and your average cost basis was $17. Are you happy here? I think you are neutral and thankful because if you bought at $17 and your thesis wasn't to get a buyout, which maybe it was and maybe you're slightly upset, your thesis was this is a business that is sustainable, then you're thankful because management team is telling you that you were wrong. What do you think about owning it after these things are announced? for the arb or what yeah yeah uh i will leave that up to the quants and i know it's situational but there's been a lot of money made i feel like through merger this year yeah i mean the twitter

one that's i think activision will probably go through if i had to bet uh yeah i don't know why both those gaps were so large well the twitter one we can't understand the the musk craziness but for arbitrage i feel nervous looking at that type of stuff because i know there's people with way better legal expertise that are at giant funds um that have way more experience with that type of stuff and i just feel like a total minnow if i'm ever does it matter though if you maybe not i don't know maybe not yeah well i don't know kind of underwhelming for poshmark i thought this could have been sold for more it felt to me like management didn't want to be public anymore they went

through just such a rough year that they're like all right just i don't want to have to keep filing i don't want to have to take criticism from analysts let's just keep let's just go private and we'll take the first offer we get yes founder led to kind of weird He never bought back shares with 60% of the market cap in cash, which is frustrating. Yeah, it's a red flag for sure. The other thing that I wanted to mention, Juul. Official bankruptcy or rumored, right? Rumored bankruptcy. Yeah, it says Juul Labs said to prepare for potential Chapter 11 filing. What are your thoughts?

officially one of the worst investments in history was Altria's $12.8 billion investment like five years ago. It turns out doing Instagram ads to minors on addictive products

will lead you to some hefty legal bills. You know what would have solved this whole problem? If they changed their name. They could have changed their name and avoided all of this. I think they could have avoided all the regulatory scrutiny because everything got targeted

at juuling they're like oh juul you know everyone thought vaping was juuling there's all these rip offs that are don't seem to be getting any scrutiny these disposable ones

which are probably worse like if juul just changed to like vapor well they needed to take a a clue from their investors Altria group

where they just named themselves some random name that some MBAs came up with to get away from the cigarette company name

yeah 100% Altria what a beautiful name no one has any idea what it means well shame on Altria

I guess bit of a FOMO investment that was yeah they invested at the peak I saw someone describe it as

life insurance no i don't know if i'd buy that all right they're likely an ultra investor coping i'm sorry yeah you have to have look we saw what's an example spotify spent 50 million dollars on that live audio one luckily it wasn't larger and they didn't buy clubhouse for a few billion but you got if you're going to trust a management team you got to trust that they're going to be rational even in the face of some short-term competitive yeah like jewel that jewel peak is very similar to what that social audio thing was it just was a super big trend that you could kind of feel like all right this is there durability here maybe but let's see um and it was one of those things that just went viral yeah all the tons firing people oh sorry no no go new topic

Peloton's firing people that's isn't this every week at this point yeah I feel like I've read that headline a couple of times so far this

month they are screwed I'm sorry to say I've said this like three times this show but they are

they're screwed I mean who's who's buying a Peloton talk about used Peloton talk about used we're talking about the electric vehicle

capital cycle talk about the Peloton capital cycle those used ones are going to go be going for a few hundred bucks here shortly

i mean no one's buying any who's buying a new hardware right now absolutely no one someone said okay so this is what was sent out to the staff said in quotes here's a here's a quote that alex morris posted i know many of you will feel angry frustrated and emotionally drained by today's news but please know this is a necessary step if we are going to save peloton and we are but without you right that's what it's always like they always talk about how we're there's no good way to fire people well just yeah i just don't do it publicly like i think we talked about that recently right like it seems like it's so hard to try to hide it well like not i mean don't hide it from your employees but don't just announce it on twitter

yeah there's nothing worse than that i mean yeah tell your employees you know but yeah all right here's a good topic that people seem to like um i was doing trying to come up with and this is because we had the show on nvr trying to come up with my mount rushmore sherry purchasers uh i had one auto zone they're kind of a legendary one best one out there at least recently i know there's tell time but i'm kind of doing ones that are you know the last 20 30 years uh two nvr we just did a show on them uh just a shadow we did them on tuesday for the ccm plus show the premium show and then three i had swedish match which i guess r.i.p it's gonna be over but they reduced their share count by like 70 then i asked who should be the fourth didn't really

get a good answer for the current one because people would say like apple it's like no they I mean, yes, they have been a good repurchaser, but it's not nearly as good as these companies. Here is my candidates, my three candidates that could take the spot potentially, but they're not there yet. They could take it 10 years from now. As someone, they have a good track record, but it's only been like five, 10 years. One, Texas Instruments, two, Sprouts Farmers Market, and three, Ally Financial all seem to have really, really strong buyback programs.

do you have any that can make this list for you that you're thinking of any thoughts could be future ones those are either or future or current I'm sure you can just look at yeah Ally I think

could be one share repurchases we you know we're discluding you know Bed Bath and Beyond that these are ones that you know were really sustainable share repurchases if you get what I mean yeah I think Ally could be one although

I think being a bank I was looking through this being a bank holding company or whatever there's certain capital ratios that they have to maintain so it may limit their ability to be like overly opportunistic with their buyback but

I don't know what are some of the recent ones we've looked at Dropbox could reduce their share count by like 8% a year at the current pace. Yeah, but they're... I mean, that's only been a couple of years. I'm tired of all this one. Lowe's is being pretty aggressive with it.

How long? Let me look up Lowe's. The thing is they have two... They're like 20 times their cash flow, so they can only do so much. You have to have a cheap valuation to make it happen, so you kind of have to be hated in order to be really... Or forgotten about forever.

Yeah, let's see. Last 20 years, okay, 2010, say after the GFC ended, Lowe's was at about $1.5 billion, and now they're at about $620 million. They could be there. It's not bad. Yeah, Lowe's has taken on a lot of debt in the process, though. Really? How much?

What's the ratio? Yeah, Lowe's has shrunk share count by about 44% over the last 10 years. Even higher. If you go back, they were pretty aggressive coming out of the GFC. Yeah. I think they've got like $30 billion in net debt on a $120 billion market cap. Not too crazy. They generate like $8 billion a year, I think.

Maybe $7 billion. Yeah, it's still pretty high. It's still pretty high. It's a pretty high ratio. So Charter did the same thing. But they just got $5 billion in new debt, and most of it is like 5% with 30-year maturities or longer. Yeah, I guess that still isn't that expensive if you're a very profitable company. Here's the thing, though.

If you're going to be a levered buyback company, you just have a little bit of interest rate risk. And I would just prefer someone that doesn't do that over one that has to. Here's a good one is talking about RH, a guy like Friedman, who's the CEO of RH. Huge cojones, I guess, he was child-friendly, who has no fear at swinging at buybacks when he views the stock as undervalued, buying back 50% in 2017. Yeah, I mean, that's a great... He had a very high conviction on his own business. They took out some cheap convertibles, I believe.

bought back 50% yeah they're getting some dilution on the back end here but I like that they're kind of going after it again I do like

yeah I do like that strategy but man you have to believe in the business and you gotta believe in the guy that's picking when to do these

yeah that was probably the most impressive buyback I've ever seen like in a short time frame I just worry that we have

When that happens, there's a- It builds confidence that they can do it again. It's not as replicable across other companies. It's so boring, but I just love a company, a stock that stays cheap forever and consistently buys back. AutoZone, NVR. Rest in peace, Swedish Match. Swedish Match. We really had it all.

They took it from us. Look what they took from us. I know, the Swedish match. Well, maybe no one's voting for the shares. Maybe it'll come back public. Yeah. And look, Matt here, thank you for the comment again,

said that if you've been roasted the shorts, yes, there's also the short thing. There's a lot of, our interest is heavily shorted. I mean, it's kind of, that can add a lot of uncertainty as well. The risk reward might be good depending on what price you're paying, but the consistent repurchaser,

that's just in a durable industry. is so much safer, right? We got a question about basically the cannabis business. Well, it's a comment that says, what do you think of Biden pardoning everyone's sentence for weed possession? Weed stocks are soaring right now. I don't have a lot of thoughts on it, to be honest.

Yeah, I mean, the first thought, I mean, that's great. Why should someone be in jail? I mean, it's pretty logical why someone should be in jail for weed, especially if it's illegal. Second one, wheat stocks soaring. Yeah, those are trading sardines a lot of the time. It's pretty unclear.

We looked at a couple of companies. It's very unclear where the profits are going to go in that industry. And it's so early. Why not just wait five years until you can find that one that makes more sense

that you have a track record? Because right now it's kind of Seems like it's still so uncertain. It's so early. It's also those businesses are still structurally disadvantaged. Because of the taxes? With the tax laws. Yeah.

Until that changes, I forget what that bill is that they're trying to pass. I'm reluctant to buy a lot of these companies. You don't have to buy a cannabis company. Also, I have no idea what brands are good because they haven't been around long enough. I have no idea why any sort of store is going to be better than any other store. or why any sort of producer is going to be better. Yes, Coca-Cola could develop, or a Budweiser could develop,

a Corona could develop, but we don't... Could you identify why Budweiser, like a Budweiser, prospectively? I think you can wait 10 years, the brand will establish itself, and then there'll be still plenty of room

to run that's kind of how i see it the uh however i could be giving up well you know potential 10 beggar you know you know what i mean like i'm comfortable with that yeah the speaking of great brands monster um so last year wait for that wait for the monster yeah last year they acquired canarchy which is one of the bigger craft brewers in in the u.s i think it was 330 million dollar deal they were like the sixth largest craft brewer in the u.s um a couple of craft beers that i dale's uh maybe not west coast yeah there's some not like the most recognizable brands in the world but the they they use that acquisition i'm not sure exactly how this worked i think you just can acquire the licenses apparently they use the acquisition maybe it's for the alcoholic

distribution points to leverage into a new alcoholic monster beverage called The Beast Unleashed with 6% alcohol content. Do you think the monster brand could work in alcohol?

Yeah, for sure. Really? Horoloko's worked. Horoloko wasn't anything else before, though. It's basically... I don't know anyone that successfully made that pivot over. Can't think of anyone.

Oh, you think it, yeah. From like a normal drink to... To alcohol? Yeah, I guess that is maybe riskier than I'm thinking. Can you think of anyone? I mean, Coca-Cola tried, and I think discontinued. I don't know the CPG space that well, so.

I might be missing something. I still think it could work just looking at Monster specifically their sort of clientele it could definitely work yeah I like the name

too Beast Unleashed that could work yeah sounds like a football saying alright anything else oh no that was the conservative dating gaming Mario movies Mario movie trailers coming out today as we're recording this yes

10 minutes from now we're going to be hearing Chris Pratt Seattle Legend as the little plumber hopefully as that poster looked good in the context of getting kids to go to the movie fingers crossed

I'll be in the theaters I might look a little old as a bag holder as a Nintendo bag holder yeah diligence yeah let's see anything else anything else just a lot

of a lot of jokes out there there's a lot of macro stuff a lot of macro stuff I don't care about all right you gotta pick three companies that you think will be bankrupt within 12 months oh and they can't be okay

they can't be like whatever just a scammy company they gotta be something that other people may have a long thesis on Well, let's just go with companies that I've talked about or we've talked about already on this show. Carvana, Peloton, and let me go Pagaya Technologies. I think those three. I think Pagaya is unfair.

Give me one I know more about. Pagaya. Let me go on my shortlist on Robinhood that I made that I hopefully never use because I'm so bad. And by shortlist, you mean list of potential companies you would short? Yeah. Yes. All right.

credit suites apparently it's funny how everyone the world was collapsing this weekend apparently no one really seemed to care that's crap that stuff until it gets announced that stuff is if you learn

that the financial system is collapsing via some random twitter account it probably isn't I know alright I got a lot here Riot Blockchain that probably doesn't count App Harvest

I'm going to name some until you tell me it counts ThredUp Oh App Harvest they're gone I mean well capitalized though if I'm not mistaken

they were beyond me beyond me that's a good one yeah they got death they can't pay what about ThredUp

that's a shit co yeah it is Royal Caribbean Royal Caribbean cruise lines a lot of debt although

for some reason banks continually give them debt so I don't know I wouldn't bet on that ending in the next 12 months

Nikola probably not even though it's bullshit Oatly probably not even though it is a shit co

yeah I guess that's all on my list Plug Power that's a classic Coinbase thoughts Coinbase I would not be surprised

either although i wouldn't bet on it that would be an interesting failure yeah because aren't there uh customers considered could they could be used as collateral that was in a financial document yes so we don't know whether they would choose to or it's systemic yeah we need the we need we need all your magic beans too big to fail yeah we need your magic beans so we can re uh bolster our magic bean pile what do you think of uh kim kardashian getting fined 1.2 million for shilling some crypto on her instagram story i mean it makes sense that she got fined but i don't see why they're going after her specifically there's so many bigger whales that are obvious go after chamath go after

there's so many others like this is not going to get the public on your side she's so popular it made zero sense to me now she said not financial advice exactly did she have it in the bio did she have it in the bio

yeah look did it make sense to find her because it was a dumb like shitty thing to do yes but in the full context pretty dumb right like there's so many other whales to go after yes she's not even she's not even in that the world

like yeah all right we do have one question do you find yourselves looking at more international companies lately i'm gonna say this is our last question no no right no i mean the u.s was so i feel like with valuations coming down in the u.s i like the u.s market better just because of the laws and stuff i find myself looking more u.s now just because the valuations have been more attractive, but we're not opposed to looking internationally. Although generally internationally, I want a giant discount just because the markets as someone that's not living in those markets, I want this. If there's like a same exact company in Asia versus the United States, I want an extreme valuation discount. That's really the only reason

I'd be interested. Yeah, I agree. All right. That's time. It's one o'clock. It's one o'clock. All right. That's going to do it. Use code money, get a hundred dollars off your annual subscription at 7investing, and the link will be in the show notes. Thank you all for listening. Remember, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. We are general partners at Arch Capital, and clients may hold securities discussed in this podcast. Thanks again, everyone. Join us live on YouTube, 12 p.m. Pacific. Not very many people join, although we get a lot of good listeners on the podcast. But if you want to ask us questions, I can guarantee you we will answer them because we don't get that many.

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