Chit Chat Stocks - Investing Power Hour #28: PS5 Supply Explosion, $NFLX Ad Tier, Investors Regret $TWTR Deal

Episode Date: October 16, 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. The meeting is being live streamed. This is the CCM Investing Power Hour. This is power hour number 28. So getting up there, hopefully just continue to do one each week. If you are listening

to this in the podcast format, when it comes out on Sunday, you should know that you can watch these live every Thursday afternoon at 12 p.m. Pacific time on the United States and 3 p.m. Eastern time. And you can also watch them on YouTube as the recordings will be up there as well if you prefer the video and the live chat. But the beautiful thing about the live chat is that you can ask us questions and we usually get a few and we hopefully will today. But first, I want to say what the show is. There's no preparation. So we're just going to go through anything that's on our mind in the investing world today. Ryan, I don't know anything out there. I guess we should talk about our sponsor though first, and that is 7investing. So Ryan, anything that you saw from

them this week? I know our new strong buy portfolio out there. Let's hit on them for a little bit and then we'll get started. I did read, I did look through the strong buy portfolio. I also, I'm still kind of getting through all the recs from this last month. There's one in particular that feels like a fat pitch and it almost feels like don't spoil it but give a little tease do you ever hear an investment pitch

and it almost feels too easy like I know that's a bad thing to say but it's maybe so many people think it or it's such a crowded investment that it makes you reluctant to be a part of it

even though like the pitch totally makes sense that's kind of what i'm experiencing here uh i think that is that makes sense yeah if something if everyone loves something um oh let me switch to gallery view so everyone can see both of us all right for the listeners you don't care but yeah uh that totally makes sense um but it is really hard to i don't know anyway i think i did i just like to ignore it but yeah it's it's tough because if it's so popular you're like, all right, where's my edge? Do I need an edge? You cannot throw that around in your brain. But this is part of the seven investing recommendation you read or report. Yeah. Well, it was one of the recs, but I won't say, well, I can say who, I just can't say the

company. It was Matt's rec, Matt Cochran. He's been on the show multiple times. If you're listening to this episode, I'm sure you've heard him speak, but feels like a fat pitch. I also want to maybe, this is a good chance to give a bit of a pitch for 7investing generally beyond just the recs. Now that they've stored up so much research in there, I think they've got research on like 200 different companies, it's a great place to get up to speed quickly on something. Even if you're just looking at it for the first time, you can glance back to the time that they wrote it. You can look through what the business was like then, how it's evolved, how it's changed, and you get like all basically a good sense

of the competitive advantages or what they think were the competitive advantages. So for me, I use it for that a lot of the times. I kind of just, whenever I'm looking at a new company, basically, do they have something on it? Could I get up to speed that way? So if you want to do that, use our code MONEY at checkout,

get $100 off the annual. Yep, M-O-N-E-Y, show notes. We'll have the link to easily do that. That's $100 off, 25% discount. And that is for every year for the life of your subscription. We'll also be talking about a nice article they wrote. The one thing we prepare for here, the nice article they wrote this week, which is a value winning long-term performance, kind of time horizon,

all that good stuff. We can do a segment on that later in the show, but let's talk about anything else. I mean, we got, we got an inflation, I guess, another, yeah, it was whatever it was low enough. And then it was high enough. i mean it's kind of a crazy market day right now i wasn't i wasn't around my computer when this stuff whatever the cpi print came out and everybody was like we're west coasters so we get

you know yeah and it took this wild intraday swing and i i looked this morning all basically the whole portfolio was down three percent roughly and then i i checked twitter people are like wow amazing how they swing from down three percent to up three percent check my portfolio nothing's up three percent so i don't know i can't win i think we can't win in this market no that uh when shit goes drop we drop when shit goes rip we drop it doesn't matter no that that changed it just took a little since we don't change but not quite as much as everyone was saying it looks like yeah i mean it's interesting because the large caps seem to go right with the market or the mega caps, but we don't have as much exposure to, say, the large caps or the

mega caps. So those ones that maybe don't have as much index, I don't know what exactly it is, but they seem to trail a bit if there's some rapid market movements, if it's a smaller or mid-cap stock. And I don't know why that is, but it is. And I don't know, anything from the inflation readings. I got nothing. I think we should probably just talk about something else because really, I think it's just a number. No, no, I don't. Yeah, it's a number. And frankly, it's a little hard to gauge the relevance of that number.

Yeah, it's all estimates. Yeah. And then I did see something the other day. It's kind of, it's not, it doesn't matter to people's investments, but I thought it was funny. Some guy went on Fox Business and was like, that was like inflation is so bad i just had to buy a 28 meal at taco bell i'm like i wouldn't i wouldn't that's not inflation i wouldn't yeah you take that to the grave i would not tell anyone

about that no if you spent 28 at taco bell that is about approximately 6 000 calories probably it's got nothing to do with inflation conservatively you can feed a family in africa for a whole day that's all the calories they probably like you know what i mean like that's not it's not uh i don't know yeah but anyway um thought that was funny no i don't have any big takeaways from inflation i did however see a couple of things that look a little more promising in terms of the chip shortage so gm reports i'm sorry i'm touching the mic gm reported inventories grew i think it was 3x year over year playstation or sony apparently imports of the playstation 5 were up 400 year over year in september xbox i think was like 89 so playstation playstation

got a ginormous uh just bump and inventory has we head into the holiday season so what i'm thinking here, and apparently there was reports that Sony is projecting 30 million PS5 sales in 2023. I don't know how much validity there is to that, but if it's true, and that's because they see the visibility in their production,

these are great signs. Yeah, and Apple, their TSMC's largest customer, they brought down their demand slightly. That's probably good for the chip shortage as well.

Nvidia and AMD both guided down on the PC stuff. But I think the biggest thing for the chip shortage that affects the broader economy is the automotive exposure. Because everyone has a phone and everyone, maybe that's a gamer, can play on a game console. But if they have to wait a year to get their new upgrade, that's not a huge deal.

But the automotive stuff can really have an effect on affordability, all that good stuff inflation so I think that's probably pretty important but we'll see what do you think of the

the console inventory news I think that's great for publishers I think it's good for the industry in general we'll see

because we're gonna know how popular these new consoles are actually gonna be and people are saying that there's so much pent up demand but we're gonna finally

see all that and yes it's great for the companies that sell games I know we harp on this a lot uh and we talk about the gaming industry a lot but yes i mean the more consoles that are out there especially for publishers that have more console exposure it'll be great i mean looking at

say the call of duty game this year uh that it's getting record engagement on the pre-download stuff or however you want to track it and if you just get 50 say 50 million well not just during the holiday season say tens of millions of more consoles out during the holiday season I think more people are probably going to buy Call of Duty it translates fairly well and especially on the new consoles the new games are

just a way better customer experience than the new games on the old consoles because they can just seem a lot buggier just because it's on that old console even though you have the ability to play it potentially on that old console better graphics yeah it gets you know the better

graphics performance whatever gets utilized uh here's another thing and i know we talk about video streaming a lot but this is actually big news netflix is going to roll out its new ad supported tier on november 3rd so less than a month from now and it's only going to cost seven dollars a month but it will not include 10 to 15 percent of netflix's i guess top shows uh so those are going to be behind the other paywall which kind of confused me a bit. And then the ads will be approximately four to five minutes per hour. So much

lower than regular TV. Yeah, I saw this. And it's also lower quality. That part was, yeah, that last part that you just mentioned there seems just the part that could be a big misstep. It seems so dumb. It just ruins maybe

the customers. The ads are going to be 1080p. The video is going to be 720. wouldn't i yeah if you make it like that you gotta it's kind of like if i don't know it just doesn't make sense to me that part that last part or at least i would love to hear that i would love to hear their thinking on that because it seems like it's not customer focused don't you want to make your ad-based experience as good as possible so that people people feel like incentivized to get the full subscription it feels like the thing you don't want to do is take stuff away

from the ad experience yeah you don't want someone to join um the ad supported part and then just be like wow this service is terrible i'm leaving after a month i think uh i actually funny enough the chief product guy at spotify was just on a long podcast talking about this type of thing on how they wanted to make their advertising tier very you know attractive for people to go on because their theory was that the more people can get to join the advertising tier, there'll be a percentage that'll be pretty standard in each region that will funnel over to the paid tier and will make a lot of money. The labels did not like that because they had the thought that they needed to make the advertising tier bad, but just because it

would attract more people to the premium side as a percentage of the advertising tier as that ratio. But if you do that, the percentage of people that actually join the advertising tier is much lower it and you don't get that wide enough funnel um so actually the number the absolute number of paid subscribers you get lowers if that makes sense yeah i know that yeah so they they experienced that i think that's it's it's pretty uh it's not exactly apples to apples but yeah it's fairly similar you may want to pull the mic a little further away from your mouth by the way i'm hearing some puffs some you know but uh yeah i it just makes me a little wary i know netflix is up like five percent on that news maybe that maybe that's market related but it's kind of up more

than most right now and i think a lot of it has to do with the ad supported tier that kind of surprises me um i don't know not not the biggest fan of that um other news that i thought was relevant roku getting into smart home devices i think this is pretty dumb oh yeah what's the art what's the roi i'm not going to be spoiled we are doing a little tease for next week maybe next week or the week after i don't know when it will come out we're doing a interview with the science of hitting media expert on all things roku so it'll be exciting uh so look out for that in the podcast feed but yeah the pitch is that you can all right you got like a roku security camera let's say at your front door you can see it from your roku tv like you can see the screen

no i mean no because the app who needs that when you have the app you don't you just look on your phone if someone's at the front door i mean you don't need to see every little inch of it i don't think this makes much sense i also saw some thoughts that the netflix advertising tier is going to be beneficial for roku but netflix blocks out and maybe this is the bull case on netflix they block roku doesn't like netflix excludes roku from all average they don't they don't give them any cut because of the leverage they have uh i guess just on ads on ads yeah so you sure about that because they're going with my i'm pretty sure i mean we don't know we don't know But from what I've read, since I went with Microsoft, and in the past, Netflix doesn't give any money to Roku, even though if people subscribe to their service, I just don't know.

I mean, maybe that changed with this advertising tier. But I think saying that's beneficial to Roku is not... I just don't see it. I mean, maybe they get a tiny percent cut of that advertising revenue that's going through Roku devices. but how much meaningful is that going to be if they're not actually the ones powering it and the one powering the advertising tier is Microsoft and then if you look at Disney Plus

I think Trade Desk is powering them it's just hard for me to see where Roku gets that advertising money I think it might be off of the Disney Plus accounted for like more than 10% of Roku's revenue

even if well you mean well Disney Plus doesn't have an advertising tier yet I know, but Disney Plus, the subscription business, accounted for more than 10% of Roku's revenue in the last two years or something like that. Yeah, sure, sure, for that. There's no way that they're going to be able to pivot to an ad model that just avoids giving any to Roku.

That just doesn't seem likely. I think Netflix maybe could, because they've never before. I wouldn't assume that... Netflix potentially, yeah. I mean, if Netflix hasn't given Roku any money in the past, why should we expect that to continue i just don't well maybe the negotiating power shrinks over time netflix's yeah yeah that's kind of the whole honestly it feels realistic because you get like i and i'm sure there's data out there and i could be totally wrong but it feels like

the content wars right now for ctv are going to equalize or diminish time spent on netflix maybe not total time spent, but as a percentage of overall time spent for each user, if that makes sense. Yeah, I think maybe in CTV, I've seen the number go up as a percentage of overall TV, but that potentially just could be the tailwind

of they could be losing market share in CTV, but gaining market share overall. We'll see. I think it's a huge test with all the stuff that Amazon and HBO Max are pumping out with those giant shows, Disney Plus as well. the giant star wars shows that seem to be constant the thing that's interesting especially

with roku is do you have to be short netflix to be long roku because if netflix continues to grow in usage then i just like the if so much of the spend on or so much of the tv watching on Roku's is on YouTube and Netflix who give them no money. That's just a huge hurdle for them to try to get over.

You're spoiling our potential episode with Alex here. Yeah, I mean, I'm sure we're going to discuss that with him, yeah, but I don't know the answer to that question. Who is Roku eventually going to get enough power to get an equal cut?

We'll see. They're just, they're in a precarious spot. 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.

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All right. New topic. So we don't just talk about that forever. Oh, I got one. Okay. Brookfield Business Partners, together with the Brookfield subsidiaries, I guess. So, Brookfield Asset Management is one of their various subsidiaries. Brookfield Business Partners, together with institutional partners, collectively Brookfield,

today announced an agreement to sell its nuclear technology services operation, Westinghouse Electric Company, aka Westinghouse, to a strategic consortium led by Cameco Corporation and Brookfield Renewable Partners. So Brookfield is selling its Western house business to themselves. Yeah. I mean, that's how do people not say this as a convoluted, like everyone says Brookfield's not that complicated. It's super complicated.

Yeah. The yeah, I don't know. We, when we can't, we did that episode on them. We're like, I don't know what the hell's going on.

And the thing is, I don't mind, you know, the Canadian, it's kind of people say it's the Canadian Berkshire. If you're Canadian, I mean, And it's not obviously Berkshire,

but I can see the love the Canadians have for them. Like, you know, you see a lot of Canadian investors we know are like, yeah, of BAM. Yeah, it's complicated, but the returns have been great. I just get nervous.

They're selling stuff to themselves. Hey, what was that stuff with the limited? They were going to spin off the asset manager and people are all excited about that. And they're like, oh, wait, actually, we're going to spin off

75% of our chain, like whatever of the... Spend 75% of the equity, but we'll retain a different portion of the voting power. Yeah, I don't even know at the end. What is your... Look, I know a lot of people. There's probably some people listening. Yeah, let's be nice here.

There's a lot of people that are probably listening to this that own Brookfield and have done quite well with the stock. I just don't know. What's the thesis on it? I get confused on what the thesis is besides dollar. Money in, yield. Yeah, it confuses me on what the thesis is. I mean, I can see the KKR thesis as more of a pure private equity kind of play,

although I get nervous about that as well. But you can kind of see that one. But Brookfield or BAM, BAM, I just, I don't know. i mean exposure to commercial real estate which is just i would i'd be getting more pessimistic about that each quarter um i don't know anything about commercial real estate but i think a lot of smart people have been pessimistic about it i'm kind of like you know chanos has been super pessimistic on them i just i think like why why brookfield over other stuff is kind of what i'm thinking like why them over something simpler or why them over a different uh asset

manager that has less confusion yeah uh something that's been fun to do lately is to go to some of the tech stocks that were sort of the the darlings of 2021 and read through the employee reviews a year later on uh glass door store 2020 2020 2021 2022 22 sorry i'm to spoil it for you but i think i know where you're going keep going uh yeah no you can compare them just basically especially with the sales staff you can look through the sales people's reviews and everyone is so frustrated now to the two that i've looked at were docu sign and octa and doctor sign seems to have a they've had tons of sales staff attrition um but octa has some not so glowing reviews on Glassdoor as well.

I've got one here. Yeah, you got one. It says, cons. What has transpired since Todd brought in Splunk leadership and then took an 18, in parentheses, and then took an 18-month nap is a complete travesty. SS to LSR, I'll be honest, I don't know what that is, were told repeatedly by proven company veterans

that their plan, load the box with an insane amount of new hires, shrink territories, dramatically roll out a severely diminished comp plan rife with nonsensical variables that run totally counter to how customers buy require two completely different sales motions to be prosecuted by the field would fail. No, the veterans were told, you just don't understand the genius of our plan. Oh, but see, they did. Fast forward six months, most of the Octa talent, not just in sales, but across the business has exited stage left. The great knowledgeable auth

reps who could have served as invaluable, well-paid overlays, history. The people who knew how to actually get things done gone so so yeah part of this may have just been i can't tell whether this was management's management missteps or unrealistic sales um or non-normal sales years during 2020 and 2021 right right they get like 10 whatever 10 clients and they're like wow that bonus was phenomenal whatever because everyone was looking for especially the docusign the one is the one that's easiest basically the docusign going through their glass door like not a single sales rep has met their quota and all the sales reps are saying like the uh incentives or the the quota is just completely unrealistic it feels a lot like a lot of these sales reps came in in

2020 got a whole bunch basically became customer support roles instead where people were literally calling and asking for help and then would get they'd probably get directed to some sales rep and they could just help them with the process as opposed to outbound sales which they're now having to go in and do to a lot of companies who are probably trying to cut costs right now So, I mean, this staff attrition is going to be, this is going to show up financially over the next year. It's a white-collar recession out there. You've seen a lot of lower income. Big win for the labor.

Big win for labor. Lower income has risen. They're overdue. Yeah, I mean, the factory stuff is, you know, there's just huge manufacturing rebound in the United States right now. that it seems to just be set to just soar over the next decade. And we're realizing that there's too many people working at white-collar jobs.

But the problem is not going to be solved because of, I mean, unless the amount of business majors at state schools like we went to diminishes. They got to find jobs somewhere. They do not want to work at an Amazon warehouse. But let me look at, I think here's another problem with Okta

that's pretty clear and obvious is the stock price. So Okta went public in 2017. By 2019, it was up 400%. By January 2021, it was up 1,100%. Today, it is only up 119% since its IPO, and year-to-date, down 77%. When you're comping people on stock, and a lot of it, and even if it's RSUs, which is probably even more fair, I guess, but if it's stock options, where it's going to be below the strike price and you're not going to get any of it. I mean, they have a right to be upset

because they're going to anchor to that high comp plan and maybe they're getting a really healthy salary of including in the comp. It looked like it was, say, like $200,000 if you're only a second-year sales rep or something like that, and then you have your bonuses on top of it. Now, it looks way worse.

Maybe it's probably still a livable wage, but they're very upset and you know you set the expectations too high for them yeah i got a feeling bonus season is going to be a little rough as well only at the energy of these companies yeah the you know what's funny is the so many of these companies it feels like throughout 2020 throughout 2021 you know maybe even earlier than that when a lot of these companies were getting more like some ridiculous sales multiple i mean it was really throughout 2018 2021 the focus was like it felt like it was all on employees like how do we keep employees happy and then now that everything's come full circle and the stock is basically collapsed on a lot of these businesses

all of a sudden they're trying to please shareholders yeah and losing employees in the process yeah it's just if a business is in that spot and they're focusing on that those things it's a slight red flag to me because it just shows that they're not actually in it for creating long-term shareholder value or building a quality business they're in it to make it seem like things are going well to employees and shareholders they they don't actually want things to go well want to make it seem like things are going well yeah and it feels like it would be pretty easy to fall into that trap where if you're the ceo maybe you're the founder of this tech company you got a whole bunch of people that you've hired a founding team that you've worked with your whole

life or your your whole career with this company and you work with them every day you seem to like you care about them a ton, it can be pretty easy, I think, to have shareholders be an afterthought or to think about them as a capital source to help you and your friends keep going. Because you probably think these are the people that matter the most. It's my colleagues, my employees. But then you come calling for the shareholders when times get tough. I think Like that's it really now that I've kind of been through and watched these last two years, I have a newfound appreciation for management teams that really think about shareholders, partners. Yeah, it's just you have to have everyone aligned in the same direction because something like this happens, people get very upset. But that's not good.

All right, new topic. This is from an article about someone who's supposed to be part of the Twitter deal. I'm going to read the whole thing. Quote, we're all trying to get out of it, to be honest, said Andrea Wallen, a general partner at Manhattan Venture Partners. MVP committed to invest in the deal earlier this year. Committed. But the question remains as to whether the firm and others will be actually on the hook for the fully amount they committed to. Committed in writing.

according to Wall. Quote, we talked to the other investors. Everyone's trying to get out of it. Parentheses, a deal we committed. I added that part. No one thinks the company

should be valued at $44 billion. However, and this is not part of it, they signed a deal to buy it at $44 billion. Here's the last part back to the actual article.

Citing the sharp downturn in equity markets over the last six months, Wall said she would put the value of Twitter at this point closer to $10 billion to $12 billion, a far cry from the $44 billion

that Musk has agreed to pay. And her, they agreed to pay in writing at that price. Here's all right. First off the, just, I don't know. Is that cognitive dissonance?

I don't know what that is, but either way, the, the delusional thought there. And just saying that in an article is amazing. Here's a comment from, uh, uh,

Jim Chanos on Twitter is pseudonym. I wonder if they're marking down the other portfolio companies by a similar, not similar amount. And if not, why not? That's just a jab right in the side because all these VCs, PE, whatever, they're seeing this destruction in software and tech or whatever you want to describe it as, 70% down, 75% down. and then their VC portfolios of earlier stage companies are not down that much or even more.

It's shocking to me that they're there. And they can still mark them at high rates and still take fees on that because they're marking on the high rates. I mean, it's crazy. Thoughts on that? A lot of info there. Well, I admit I'm experiencing some schadenfreude

in the sense that these people, the partners who chose to back Elon Musk's bid are kind of getting what came to them. First of all, doing business with Elon Musk is a risky proposition. That is true.

I think everyone can agree with that. You should have known that beforehand. The second of all, you shouldn't be underwriting based on relative valuations. If you're saying it wasn't worth, if it isn't worth $44 billion, why'd you commit to it?

That's a great point. Never do relative. about that. That's a great point. Never relative valuation. Never, ever do a relative valuation. And I'm sure it's hard not to do it in VC world, but- Well, Figma got taken out of 50 times sales, so we should just, everything's fine, right? Okay. Here's the other thing. I saw this idea proposed. You should let, if you're running a venture capital firm and you're not marking down the rest of your portfolio companies as you should, because you don't have to.

There's no daily price. You set your own valuation for these businesses. You should allow your LPs to redeem. Oh, whenever they want? Well, no, no, no. Maybe not whatever they want, but let's say 25% at your quoted valuation of that business.

Ooh, yeah. They're never going to agree to that. Maybe they would. And suddenly you might value it properly. yeah it seems like a scam to me it seems like a scam like listening to people say like they're almost looking for like a way out it's exactly what she said is we're all trying to get out of it why why are you trying to get out of it because the valuations of everything else across the board went down yeah you should have committed to it all right yeah no i i i mean and here's the

thing. They signed it in writing. It's not like they were thinking about doing a deal at a $44 billion valuation. You signed a deal. It's a contract. You can't just break the contract because you feel like it. You made a bad deal. I'm sorry. Yeah, I'm not sorry. It sucks for them. Yeah. I mean, we all make bad decisions. You have to live with them if you sign it in contract. All right. Okay. It's like this. We've made bad investments. It's not everyone else's fault. That is down 70%. Yeah. Yeah.

That's, I mean... Now, let's... Deal with it. Let's transition to an article from 7investing as the little mid-roll topic here. Remember, use code MONEY. They get $100 off your annual subscription

each year, a 25% discount using code MONEY. Link will be in the show notes. They had an article out there on long-term investing, long-term performance as they're kind of growth-oriented. They had that kind of outperformance in 2021, and it's been lagging the market in 2022.

They talk about volatility. They talk about trusting the long-term process. Here's, and people can go read this. I believe this is one that'll be for free on their website to kind of get a more reader on their thoughts. We're not going to read the whole article out here. Here's my thought. But what's actually the long-term?

How many years do you need to evaluate performance? And I guess, does it depend on the strategy? Because I was saying, okay, you have a sound investing type strategy that is taking a lot of different bets on maybe stuff that people will call more speculative, early stage. And I think for something like that, You might need a time horizon of maybe five to seven years at a minimum to see if the bets are working out.

But if you're running something, say, at the other extreme end, like what Ed Thorpe used to pitch to investors where they would do these arbitrage strategies, not going to pretend to know how it worked, but they would get a steady return each month just because of how guaranteed and locked in it was. You can test that strategy in less than a year. I think what's important is aligning your expectations for how long to evaluate, say, your strategy or your investment or whatever, even a single stock pick, how the time horizon you're giving it needs to be aligned with what you're actually doing as an investor. Yeah. And so, yeah, seven investing does, I mean, they kind of stick by the long-term approach. And I would say generally long-term for me is, I'd call it five plus years. I used to think when we started, I thought long-term is 10, 20 years. if you're a long-term investor and or if you're investing for 10 to 20 years or longer just you

better index because there's no 10 to 20 years you're saying 10 to 20 years like you buy something and go to sleep like you're saying you're setting it and never re-evaluating yeah or you better think very highly of the people you're giving money to and know that they're going to be around in 10 years with some sense of assurance. So like Berkshire, you might as well be an index kind of. It's close. It's not great. Those are some strong words that some listeners might.

But I agree with you. Actually, maybe I'll take that back because it's not recycling the companies. I think the index is really the only thing. If I were underwriting for 20, 15 plus years, index is the only thing I don't. But with that said, I think you can still make bets today for companies where you could forecast out five plus years and be generally in the right ballpark. You're not going to be right, but at least be directionally correct and think it's going to be a bigger business in five years, that kind of thing. It's really hard for me to predict that 10 plus years, the world changes so much. however

this kind of relates to my next point I don't think every investment has to be a long-term investment I don't think there's anything wrong with making short-term investments

if you treat it as such keep it on a short leash we've made we've made investments where we say yeah a deep value

kind of yeah we don't know what's going to happen and we don't know what the business is going to look like in three years but

we think over the next year or two it's going to generate enough cash and we will or it'll be raised in some way. It's below a liquidation value, something like that.

Yeah. Yeah, I agree. Like, even if you're a long-term investor and the most, you know, like if you're going to have a hundred bagger, you probably need to hold something for 20 to 25 years minimum, unless it's an extreme example,

like an Amazon or something like that, which are few and far between or Netflix. The, it kind of goes like, you're not, you don't have a 20-year thesis. you kind of have you know a three to five year thesis or maybe even shorter that just continually updates each quarter and that's probably the best way to go about it where you're not because it can get overwhelming to say all right i'm going to be a 10-year investor or or i'm gonna have a multi-decade time horizon at first you think that you know okay i should invest for something let

it sit forever no no like i think that's probably the wrong way to go about it because if you do that then you're gonna i think it it gives you a false not a false a lazy excuse to ignore things that are happening if you know what i mean i think it just hurts you because you can if you're wrong about something then you can and you have this say no no i'm investing for 20 years i just kind of disagree and say if you know that you're wrong you should probably sell and uh that might be a slightly different topic but um it it's it's really hard yeah it's hard to balance because sometimes a lot of people hide behind long term that that's yeah it's probably a better way to put it yeah when maybe it it shouldn't be an investment for you at all yeah but you're you're

willing to you know look past things because you believe in the long term yeah i think that's a real problem the um i think that three to five year the rolling three to five years is great i would love to own something for more than 20 years, but I don't think anything in my portfolio right now, I'm going to own for 20 plus years, regardless. It's like got to prove it essentially. It has to prove itself 15 years from now that it has, there's a good enough thesis for the next five years after that. Yeah. I mean, I totally agree. It can be intimidating too, to try to do a 20 year thing and you get confused and you're like, oh, am I just spending on a long-term trend that some analysts put out

that may or may not make sense. Am I just betting on this global thing to happen? It's tough. It's a lot. I think it makes it a lot more difficult when you can just simplify it to a few KPIs. You know, is the stock cheap? Do I believe in the management?

Okay. The next three to five years, I feel comfortable with this thing. It just makes it a lot easier psychologically, I think. And maybe, you know, sometimes people have different strategies for different things. did you see bang so the parent company of bang energy drinks filed for bankruptcy protection

after a federal jury ordered it to pay monster beverage nearly 293 million dollars yeah i don't know the the investigation but bang energy if you invested in that um i hate to be this might sound harsh i don't think any investors in bang energy are listening to this but you invest in that the money you lose is your own fault because if you saw the guy's instagram page um the ceo's instagram page just look at it and ask yourself ask yourself whether that's someone you want to trust you with your money and if your answer is yes that's your own fault hey they were insanely popular for a while so was jewel i mean both probably i mean jewel probably used a little bit more uh immoral strategy of instagram ads to kids but for addictive products but

bang energy a little bit different the the ceo risk which is pretty clear you didn't have to meet the guy just look at his social pages i was listening to value after hours i think it was a show from like two weeks ago maybe week and a half but basically something came up that when buffett bought c's candy and i didn't know this but c's candy was a public company at the time um yeah i guess so he could have bought hershey's at like a 200 million dollar market cap at the same time i'm surprised i'm really surprised that they didn't see the same thing with Hershey, at least to make it like take a $10 million investment

in that. I'm really, really surprised. It's similar to Seas. Well, it's more similar to Coca-Cola because Seas is premium, but it seems so similar. I would love to ask them what they're like. Clearly, he saw it because he knew every single business in the world at that point.

I wanted to know why he took the pitch. It'd be fascinating to hear him talk about that. Yeah. I mean, today it sits at almost a $47 billion market gap. So the returns on Hershey would have been quite good from there. And the dividends they would have gotten would have been, I mean, immense total. Yeah. And it's a fairly similar business to what it was then. It wasn't like, I'm pretty sure they already had. I don't know if they bought Reese's, but Reese's turned into a monster, but you could assume that.

I think they already had Reese's. I mean, it maybe would have been hard to predict Reese's turning into the number one candy, but you could have seen that along the way and updated your thesis. I'm sure he was trying, you know, I'm sure it was a customer. The man is a sugar hound. Yes, I'm sure. Maybe he just didn't like Hershey's bars. They aren't that tasty. Hershey's bar, well, you know, hundreds of years of customers would disagree with you. no i mean they're not on their own i know they they're not that like tasty versus a different chocolate bar but they're like they have a unique taste similar to maybe a coca-cola and they're the they have the s'mores moat which people might laugh at listening to that but

they have a s'mores moat i don't know reese's might be entering that s'mores game either either way the either way both those have a s'mores moat like it's the same company i was uh for some reason a whole bunch of like michael burry's old posts got like his old value investors club posts got brought back up this week either before you start either i don't know what happened but maybe it's because of his political takes but people either love or hate this guy some people think he's like a fraud almost not a fraud but like not that good you got to read these if you think he's not that good i know he he has some absolutely wild takes but if you think he's not that good i recommend reading some of his vic pictures from back in the day he's uh do you

have a link you want to put him in the youtube chat yeah let me find control control v that in there unless if you can't it might not might not be problem is he gets rid of these tweets he posted a couple oh yeah yeah look at the there's the archive one too right so that can help but it's yeah it's so hard to see his tweets he's he's cryptic i don't know if i'm gonna be able to find it but when he found ross stores it was such a home run but why didn't he hold he that's the whole thing like if he held on to that isn't that a hunter beggar that's kind of the thing like probably maybe his investments have probably

been a hunter-beggar as well but I guess it comes back to what you're comfortable with he used to get so many comments too on these pitches it does not surprise me that Greenblatt found him like this VIC used to be more popular I think as

well I think I think it used to be a little bit more lively yeah let's see if I can go to the Burry archive and find it if you had to bet on what your raw stores is of today of today yeah i want to find what what's what was the pitch on that was it like i mean i was it just cheap and have growing store count or what let me uh yeah and let me just pull it up because it's pretty concise and it's pretty easy

20-year performance of 2,000%. Give the pitch. All-time performance of 20,000%. When was the write-up? Early 2000s, I'm assuming. Early 90s? Yeah, hold on. Yeah, I think it was 2004.

Gosh, no, that's not it. Well, I hope I'm able to find it. but if I don't anyway it was man well do you remember

what the pitch generally was like about him was it just was it really really cheap or was there a store expansion strategy kind of just hit everything it was really cheap

I think it was like four times EBITDA yeah I mean my pick would be something we've owned in the past that sprouts farmers market that'd be my pick

it's cheap enough same thing it's not as cheap as it used to be but I think similar just because you need

that store expansion uh opportunity so something like Costco is too big Home Depot is too big at this point it's a different

investment thesis there um it's really tough though anything that's not oh what's another one is uh the joint corp although the franchise

model is a little slightly different but that one makes sense to me as well I think anything that's not so food or something that has to be done in person just scares me

from a retail concept right now if you know what I mean because I don't know there's a lot of uncertainty about what's going to play out on e-commerce penetration and consumer habits I think it's very very uncertain right now

yeah perhaps but I feel almost always comfortable I think betting on like the brands that are super popular if it's cheap enough what do you mean yeah but that's

the Hershey's oh yeah that's fine with me but I'm talking about someone that owns fiscal real estate oh i don't know there's still i i think there's a few bets i'd be make comfortable making there even i mean chipotle owns i said food is no food yeah food i said it's excluded i said excluding food or something that has to be done in person like say the joint corp with chiropractic

what about lululemon a little nervous but they have the omni channel so i wouldn't be if they If it was only in-store, yeah, but I wouldn't be nervous with them. I'd say the businesses, you mean just the purely physical businesses? Well, someone with a lot of, say, yeah, in-store exposure that doesn't have a good online strategy. Everyone's kind of got a good online strategy now. I feel like most of the businesses that are still around today that are still doing okay, it's because they have an omni-channel strategy that succeeded. alter beauty yeah that's they have a great omni-channel strategy yeah i think i'd be comfortable making that bet yeah maybe yeah maybe that's already happened but it makes me a little

bit nervous just because i don't have any good read on where i think you'd have a much better read say two years from now on what the long-term trends on e-commerce and consumer habits are post pandemic than right now. So I don't... Maybe there's some great opportunities out there for investors, but I would be much more comfortable. And I think the risk-reward potential... That might be the wrong way to describe it. Just the risk-reward might be a lot better two years from now. So I'm comfortable being patient, especially also, and this is in general for retail, and why we've been nervous about... We looked at Chipotle and we're like, man, And this looks promising.

I mean, valuation is a bit expensive. What I just get nervous about is input costs right now. I think, again, maybe I'm being optimistic about inflation, but two years from now, we're going to have a much better read on input costs for a lot of these companies compared to right now. There's just a ton of uncertainty there. And maybe you're going to get paid to have that uncertainty, but it feels tough, especially because some of them, like Chipotle,

are that cheap. And yeah, I can see World War II stock does really, really well over the next decade. But again, I just think there's a lot of uncertainty.

On the flip side though, in general, I think some of these retail, restaurant concepts, even grocery, if you can see the customer value proposition and it's a smaller company

and it's something that can be replicable across maybe not the whole globe. Not everyone's going to make McDonald's. But the predictability of that is extremely attractive to me. What do you think on that? Compared to so many other businesses

that seem much less predictable, these ones seem to be predictable if it's a concept that is replicable. And I guess in online formats, that can be as well. Music streaming, video streaming. Stuff like that. I don't know.

I think you're getting paid for... I disagree that it's worth waiting on some of these businesses. Those input costs, let's say they're a little bit higher, that's going to work itself out in two years. Maybe.

What do you mean? I guess, what do you mean? Let's break it down. What do you mean by input costs? The cost to set up the physical storefronts? No, I'm talking... In general, yeah. I mean, just materials costs, labor costs, energy costs, transportation costs, food costs, going back to restaurants too. I mean, all those. Yeah, it's stabilizing. It seems like it's stabilizing. But I think those are more unknown now.

there's a lot of uncertainty around those things that it just makes me more less comfortable I'd want a bigger discount if I was going to buy them I think a lot of these things are trading at pretty sizable or pretty fair valuations two others that I want to

bring up that I think are both I would call very high quality that trade at reasonable prices Lowe's and Home Depot why would those make bad investments over the next decade. Yeah, those are unique ones that seem

to be undisruptable by e-commerce. Yeah. I mean, it doesn't feel like those are kind of fat pitches. Yeah. I don't know much about them. You got Asian homes, right? I think

the average home today is at one of the oldest periods or whatever. But home shortage, however you classify that, I know it's hard to kind of tell how much of a home shortage, but basically I think new home supply is going to be coming on constantly. If not at the current rate, or if not at a higher rate over the next couple of years, at least at the current rate, new homes will come onto the market. Those are both huge benefits, huge tailwinds for Home Depot and Lowe's. They've got obvious competitive advantages because suppliers know they're going to sell a certain amount of volume through Home Depot and Lowe's that they'll get better rates. Home Depot and Lowe's are able to pass those rates through to customers, which attracts more customers, kind of the flywheel effect there.

Yeah. Well, economies of scale. Economies of scale. and they both trade at pretty reasonable valuations and they've got both of them

have really good pros businesses from what I can tell yeah it seems like it'd be hard to lose money in either of those stocks seems like it'd be hard

to lose money now I think it's at like 20 times for cash flow and buying back a good chunk

yeah but buying back a lot at 20 times is not that attractive unless you're growing really quickly. Oh, they're both growing. I know, but how... Price to free cash flow over the last 10 years.

Coming out of the GFC, those are cheap. Those are really cheap. Lowe's price to free cash flows looks like maybe in line with the last 10 year average.

Home Depot is up, but I think free cash flow is depressed. So maybe I'll use operating cash flow and see if that helps. Yeah, but I mean, both have been monster winners over the last few decades. It's pretty easy to understand their mode. It's hard to lose either of those right now. Yeah, I just don't know what. Yeah, I mean, I'd much rather on them than Costco, given the valuations disparity.

Yeah, because I think they have the same comfortable with Costco's valuations over the last couple of years, I think. So, like with Costco, the big concern with me is that it's not going to grow that fast compared to its. versus whatever, trailing earnings ratio. And it's kind of hard to see where the outside returns would come from. For Lowe's and Home Depot, I think that the growth being kind of not that impressive. I mean, they're already at,

well, Home Depot projected fiscal year 2023 to do almost 160 billion in revenue. It seems tougher to grow at, I don't know. It's going to be tough to grow that fast. However, you combine single-digit growth, margin expansion, and then buybacks plus dividends, you could probably work out solid returns. And then the risk-reward seems very low. I mean, yeah, they seem attractive. All right.

I've got a little background noise apparently right now, but I don't know if that's coming through. It's not coming through, so don't worry about it. All right. I'm looking through the portfolio right now. Bummer day on the questions. Not getting a whole lot of questions from the chat. But look at the portfolio right now. Everything's up except, well, I think one company.

One company, yeah. Match Group. Yeah. Any idea why that's down? No, I was confused. I was going to research that later. Someone's, what's the nonsensical thing that people say? More sellers than buyers.

Someone might be selling at a large position. Who knows? Yeah, that's a lot of news. I didn't see any analyst change updates. Yeah, I don't. I mean, it's not even like they're tied to interest rates. Believe me. Oh, I hear something.

The Fed raising rates isn't going to stop me from getting that. Paying for some online dating apps. Unless they integrate with Afterpay. um but if you're buying roses on hinge with buy now pay later with buy now pay later you shouldn't buy them that's um nice all right yeah well here's the only news from this morning this is the headline jim kramer's take on the biggest losers of the nasdaq 100 match group is one of them quote if you're living in a house of pain you should move tell me that that guy's not entertaining I don't know if that's

that's not driving it down but I love you know he's dunkable on a regular basis well he's dunkable he's very dunkable but probably the most entertaining personality in finance yeah

he's captivating yeah what did he say today we're about to wrap up what did he say today Jim Kramer give me him over some of those CNBC guys I don't care if it's nonsensical takes and you know what the best part

about him is I feel like most financial analysts kind of like to sit on the fence and not say anything of certainty he says it with the utmost certainty even though it could be totally wrong at least he gives a stance he tweets a lot yeah he does

and he shoots from the hip Yeah, he does. All right. We're running up on time. I know you want to watch that. He tweets too much. He tweets too much.

Yeah, I've been watching the Mariners right now while simultaneously play up baseball during the day. A little unfortunate, but yeah, let's end this. Thank you all for listening.

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