Chit Chat Stocks - Investing Power Hour #43: Hindenburg Exposes Adani; Personal Finance Questions; AR/VR Busts Again

Episode Date: January 29, 2023

The CCM Investing Power Hour is a live-streamed show every Thursday at 9:15 AM PST. 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 Subscribe to our newsletter: https://chitchatmoney.substack.com/ ****************************** This episode is sponsored by Stratosphere.io, a web-based terminal for financial data, KPIs, and more. Try it out for FREE or use code “CCM” for 15% off any paid plan. Sign up here: https://www.stratosphere.io/ ****************************** Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. 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 a recommendation. Now, please enjoy this episode. Welcome in. This is the Investing Power Hour from Chit Chat Money, number 43. My name is Brett Schaefer, and I'm joined by my co-host, Ryan Henderson.

And today, it is actually 9.15 in the morning on the Pacific Coast, sort of in a little switcheroo, just a better time, we think, for anyone that wants to listen. These live streams are done every Thursday morning, we think, for the foreseeable future. They're going to be at 12.15 p.m. Eastern Time, 9.15 a.m. Pacific Time, and you can watch the replays on the YouTube channel, Chit Chat Money, or you can just listen wherever you get your podcast. We have no preference. We're going to get going today. We talk about on these shows any sort of investing topics. And today we got some personal finance stuff. We got semiconductor earnings, ARVR report, plus Hindenburg Research's latest

short report slash expose on the wealthiest man in India. Before we get to the episode, a few housekeeping items, two things. If you are a regular listener to our shows or watcher, You should subscribe to our newsletter for free and get our weekly recap on Sunday mornings plus analysis on our Tuesday episodes. The link will be in the show notes, or you can search chitchat money on Substack. That is the best way to keep up with the show. Second, if you enjoy the show, give us a review on either Spotify or Apple Podcast. Today's episode is presented by Stratosphere, our investing home screen for fundamental research. Stratosphere's dashboard tool lets us easily track our investments and stocks. We are researching

with a nifty newsfeed, SEC file aggregation, and a fundamental chart tool to compare companies. There is plenty more that is going on at Stratosphere. We're going to be using that during the show today, I am sure, to do some analysis, most likely for the semiconductor companies. And you can try it for free by going to stratosphere.io. That is stratosphere.io and trying out all they have for free. You can also use promo code CCM for 15% off any paid plan if you're a professional team and want to get all the professional tools that they offer. All right. Let's get to the episode. Ryan, how are you feeling this week? earnings season has

finally begun although whatever happened this time we've been left behind because no companies we report our own report till next week we're late for this quarter kind of boring it has been busy season

which I like it was getting a little boring there for a while honestly Tesla reported but we have our big tech layoffs and Tesla We're not allowed to say those So we're not going to talk about Tesla earnings I have a

Well here let me start off One quick prediction The Tesla earnings were very Normal I guess nothing surprising One quick prediction though There was a change in definition Within their On their balance sheet

They changed their marketable securities To Cash, cash equivalents and investments and they spent $4 billion last quarter on an investment. I predict that Tesla used their balance sheet to go into the Twitter deal.

What do you think? I think they would have had to file a certain SEC filing. Now, obviously, Musk has been known not to file certain SEC filings, but that would be... I mean, he loves his lawsuits, but that would be quite the lawsuit, a shareholder lawsuit.

We'll see when the 10Q comes out. I don't know if it has, but I think it would be such a coincidence for them to change their definition. The quarter that the Tesla, the Twitter deal closes, and you know they need financing. I would be it seems like a bit of a coincidence of course it actually could be a coincidence but that's my wild prediction from seeing that from following Tesla

for so long from following Musk knowing his antics he could do that but I guess we'll know for sure when they file their quarterly SEC filing but either way any earnings you've been looking at this week I followed Texas Instruments which I guess we'll be talking about on the

whatchamacallit I want to hit that semiconductor segment, but any earnings that have caught your eye? I read Boeing's. Boeing's looked fine. Microsoft's is interesting just because of its repercussions or what it signals for the cloud market generally.

I don't... I mean, I've read some other ones that were fine. I think SaaS as a whole is going to have a difficult period. I think... I think it's not like some revolutionary take, but we've been looking through Salesforce this week. I read through ServiceNow, and ServiceNow actually did all right. But I would just imagine that slower new business formation, especially in the private sector, is going to hurt a lot of these software companies overall. I agree. I agree. I think that's my big worry for a lot of these companies that sell to other enterprises that may have a focus on the startup area. It could be a rough three years. And the last, say, 2015 through 2021, where the revenue growth could have been phenomenal, and they were just talking about land and expand, land and expand, land and expand.

We could be going through a whole new paradigm the next six years where the sales staffs are smaller. Land and contract. Yeah, or just retrench. you know well i mean yeah that's one thing i'm thinking about is like for one there's going to be slower new business formation even if you've got a sticky product so you know salesforce for example we're going to talk about them probably tomorrow but it won't recording won't come out until next week um you are in 90 of fortune 500 businesses and there's kind of this there's obviously a lot of layoffs going on a lot of companies have basically

outline the fact that they're going to try to contract their employee base. If you charge on a per seat model, you're either going to have to raise prices, and for some software companies, that's a really risky proposition, or find new customers as a way to grow your top line. It's difficult. We will see. Yeah, we will see. It's, yeah, look, specifically, we don't need to talk about Salesforce too much, but yeah,

So if your market's contracting or going through a rough patch, it's going to be rough. And especially, yeah, and they have that activist investor coming in, actually multiple, which will be fun to talk about as well. But we don't want to spoil that episode. Let's go to any other topics. Ryan, we said we have this personal financing that you came up with. I don't know if you want to start with that or your VR. We don't have to start with that. Is VR really the future?

Which I think it was fun. And I haven't read that article yet, but I'm going to let you, yeah, I'm going to let you go through your summary without any interruptions if you want. Yeah. And I laid out, we never do these, but I laid out a bunch of personal finance questions for Brett and I to answer because I think, I've been listening to some other shows. I think that stuff really resonates with people, even though our situations might be different, but like.

Ryan wants to make money is what he's saying. Yeah. I want more people, some sort of candor around like how we personally invest, because I don't think we actually like talk about it that much and like how we spend money. But anyway, let's do that later on. Let's talk about the metaverse or lack thereof, I should say. Matthew Ball, who's really just a good writer overall, I think he's a VC, runs a VC firm as well, had this long piece about where really is the metaverse at.

versus how much has been spent, how much has been invested. And so he has a bunch of different terms for it, and I'm going to get stuff wrong. And frankly, to be totally honest, I stopped reading after a certain point, but I got the gist of the article. And he lays out a bunch of different, all the investments that have been made, basically, by a bunch of different companies. And this isn't everyone, but I'm going to go through some of them. So Magic Leap, which has – they're basically a well-funded private company.

I think they had at one point a $7 billion valuation in 2019. They were founded in 2010, and they launched – so far, they've launched two different versions of VR goggles. Microsoft started developing the HoloLens in 2010, and it's since released two different models, one in 2016 and one in 2019. Keep in mind, that's where a lot of their recent layoffs are focused. uh the first google glass prototype was launched in 2011 playstation debuted its vr platform in 2016 oculus was acquired by met facebook in 2014 and meta has now come out with a number of different models everyone kind of knows the the meta story um snapchat bought virgins labs in 2014 and debuted the snap spectacles in 2016 think about all this stuff that's gone on and

every time someone's oh this you know this could be a huge thing amazon released its first echo frames in 2019 um have you heard of had you heard of those i never heard of that i remember someone talking about like alexa enabled glasses um where it's basically like you've just got alexa and you can like talk but i honestly no i i i've never seen them i wonder if they like pulled them off the market. And anyway, and then he also kind of went on and Zuckerberg had mentioned in 2015 and 2016 that he thinks AR glasses are going to be, he said within a decade, AR glasses are going to be a part of normal life. And a lot of other CEOs have kind of reiterated that sentiment where it's like, it's just a matter of time kind of thing. And all these companies have invested and where

are we at basically now? Like what kind of development have we seen? Basically he goes in and says, well, the technology has gotten a little better, but the applications are still pretty niche and they're typically like commercial applications. So it's more like, you know, maybe someone uses them for like a simulation in a lab or something like that. But then he also has this really kind of interesting quote where he says, as of March, 2022, this is when he's trying to talk about the consumer market. The average PlayStation 5 owner used the device 50 hours per month or roughly two hours a day, 15% more than the PlayStation 4 at the same point in its lifecycle. Annual sales of the Xbox and PlayStation also continue to grow in their third year. And

this is in spite of supply chain shortage. While MetaQuest 2 declined in its second year, um he goes he goes on to basically talk about all the technical challenges involved in sort of a a successful consumer air glasses uh heat because you the you have to have the fans and there's so much computation that has to go on or compute processing power that has to go on in such a small um device weight because it can't be too heavy if it's on you know consumers aren't going to wear these 24 seven on their face if they're too heavy battery life resolution frame rate cameras sensors cost size it basically goes through all these different things these technical challenges where they've maybe advanced a little bit but they're still so inferior to any other computing

device that we have um i just kind of thought like people you know there was all this metaverse hubbub two years ago or when meta really started kind of plowing money into this one year ago but yeah one year ago the this was this has been talked about for so long it's been invested in and tried out by the most well-capitalized companies in the world for the last 13 years like and that we're nowhere closer to a really like successful consumer grade uh device And I just saw Microsoft shut down basically their entire division. Yeah, and my kind of takeaway here

in reading this article was that if I'm a meta shareholder reading this, I would be so concerned because number one, just in terms of technical challenges, and Zuckerberg said this before, it's going to be hard as hell to build. maybe impossible to build something really successful. It probably won't have true

consumer adoption, even if it succeeds eventually. It won't have consumer adoption for at least four years. And then the more progress they make, I think the more they'll spend because they'll feel like they're closer. And it's like, they're not going to want to make that progress. And then in three years say, we're not seeing the benefits. You've changed your name. You've invested all this stuff. You've got so much progress that you think you've made. I would be so concerned as a shareholder. I really recommend reading this article because it really talks through all the technical aspects and how difficult it is to build a you know a really good platform like this the other part our device like this is like the other devices they're competing against the phone

the computer the playstation the xbox like the gaming consoles like those are getting better each year like they're not staying in one spot so even if they release something that was like the equivalent of like it would be the equivalent of something a computing device 20 years ago so it's just like i i don't know i really don't see this being a huge success i mean vr ar yeah there's like a theoretical world in which like ar glasses are cool but it's still like a question as to whether or not they'll be worn on a daily basis and so i don't know i would be uh if i'm a shareholder if i'm a meta shareholder here i'd be concerned He talks about it as probably something like sort of like being – its first success will be as sort of an ancillary feature to like – or a supplement to people's work processes.

So like construction applications or doctors performing like sample surgeries, that kind of thing. that would make sense to me, but for the investment that the companies are making in this field, like it's going to have to be more than those applications. I agree. I agree with all points. The, it reminds me a lot of the self-driving industry as well, where it goes through the hype cycle and then it falls back, but then it goes through another hype cycle and then people i guess or i think a lot of whether it's analysts or really probably the technology focused ones they take that gartner hype cycle which has the you know hype cycle then the trough thing and then you get back to the actual progress but i think that's a bit of

a misleading chart because a lot of the times you just go through the hype cycle over and over and over and over again and then no one actually cares about the product so it reminds the self-driving and the arvr stuff slash metaverse reminds me of everything and when you actually talk about who's what companies are succeeding with building and it's really just gaming entertainment or interactive entertainment experiences online you have roblox who is what i would say on a software front probably and this is conservative a hundred times further than meta in terms of just like what adoption adoption plus tech on the software front the i'm talking about you know the inner interactive worlds i mean look at the prototypes on the software front that meta puts out and then

look at what people can do on roblox it's not even close and then you also have the gaming companies which are pretty self-explanatory you have those interactive games like grand theft auto red dead redemption fortnite apex legends i forget i forget there's a lot of them so yeah i think it the people that i think it's just another example of not getting you don't want to get caught up in the hype cycle um it's really easy to do and then once you get caught up in the hype cycle because we've gotten caught up in hype cycles before it happens when you're a young investor try to learn from it because you can recognize the patterns again what's the hype cycle right now you know the answer right ai yeah and yep and specifically the ai um what do they call them

LLM, Language Learning Modules. Yeah, ChatGPT. Yeah, the news outlets talking about how the Google founders are flying back frantically from their private islands to stop this, even though Alphabet owns an AI company that solved all proteins folding structure with a simple tool like two years ago. so you know they're probably so far behind but either way either way that's off topic anything else here Ryan before we move on is there something else no no not really let's talk about Hindenburg because I found this pretty interesting yeah so I'll try to keep this as short as possible but just to summarize for anyone listening I'll I want to first off Hindenburg let's get you a formatter because bullet points for endless bullet points we're we got to stop

put that. Let's get you a presentation team. But besides that, good report. So Hindenburg is really trying, I would say, to take down India's richest man and expose him as a fraud, which if the report is true, he definitely is. So Hindenburg is the research company that exposed the Nikola fraud. They just wrote a comprehensive research report on this Indian company called the Adani Group, which is apparently committing stock pumping and accounting fraud. So those are the two main allegations. For more information, I would search Hindenburg Research online. You can find the comprehensive report. We're not going to cover everything here because that would take the entire show. For a little context, what is the Adani Group? I don't know if I'm pronouncing

that right. It's a conglomerate in India run by Gautam Adani. Again, Indian names might be mispronouncing it. And it's considered a family business. There are seven publicly traded stocks at the time of the report. They had a market value of $218 billion in USD. So quite large, one of the largest companies in India, maybe combined the largest company in India. I'm not exactly sure. And the founder is valued at a whopping $120 billion. So one of the top five richest people in the world. $100 billion of that has been added in the last three years, because if you look at their stock charts, they are soaring. And the company owns infrastructure assets. So it's not like they were a consumer platform, like they came up with the next social

media product and it just totally went viral like a TikTok. These are not things that are going to be growing at a rate that would allow you... The stock shouldn't be going up a thousand percent in three years. So what does Hindenburg allege? There are two overarching themes. One, stock manipulation. They have these shell companies that apparently do wash sales to drive shares higher and accounting fraud schemes. I have a few quotes here for listeners that I think are important. So here's one of the quotes that Hindenburg said, quote, we have identified 38 Mauritius shell companies controlled by Vinod Adani or close associates. We have identified entities that are also surreptitiously.

Hold on, Mauritius, what is that? Explain it. meridius that's a country okay I thought they kept saying meridius I thought they I thought there was like a subsidiary that they had anyway oh that's where they have their shell

yeah it's a country in east africa yeah I think it's one of those areas where you can do a lot of less regulated stuff sort of like some of the caribbean islands continue we've identified entities that are all also surreptitiously controlled by

Vinod Adani in Cyprus, UAE, Singapore, and several Caribbean islands. Many of the Vinod Adani-associated entities have no obvious signs of operations, including no reported employees, no independent addresses or phone numbers, and no meaningful online presence. Despite this, they have collectively moved billions of dollars into Indian Adani publicly listed and private entities, often without required disclosure of the related party nature of the deals. For reference, Vinod Adani is the founder's older brother. So right off the bat, that is suspicious, I would say. It doesn't prove anything, but that's suspicious. Here are a few other quotes. I'll try to keep it short. Quote, the Vinod Adani shells seem to serve

several functions, including one, stock parking slash stock manipulation, two, and laundering money through Adani's private companies onto the listed companies' balance sheets in order to maintain the appearance of financial health and solvency. I'll say that last part again. In order to maintain the appearance of financial health and solvency, this seems like a classic accounting fraud case, classic Enron-style fraud, if true. All right, here's another quote. In addition to using offshore capital to park stock, we found numerous examples of offshore shells sending money through onshore private Adani companies onto listed public Adani companies. The funds then seem to be used to engineer Adani's accounting, parentheses, whether by bolstering its reported profit or cash flows, and parentheses, cushioning its capital balances in order to make listed entities appear more creditworthy or simply move back out to other parts of the Adani empire where capital is needed. To sum it up, they are moving money around to make things look stronger than they appear, and at the same time are performing a lot of wash sales and stock manipulation to bump up the stock, I guess.

And you can see with the stock prices, they are soaring. And if you look at the Indian market, it is at, you don't want to call it a bubble because I don't know too much about the Indian market, but it is at a premium valuation. If we also look, there are a ton of related party transactions that haven't been properly disclosed. So that's a violation of the Indian securities laws. And then as another note, the Adani companies have had five chief financial officers over the last eight years, which Hindenburg says is an obvious red flag for potential accounting

issues. Lastly, to be fair, as people that do not study the Indian market, we do not know what is true or not in this report. However, if it does turn out to be true, this will be, as they said, the largest corporate fraud in world history well i thought they were talking about american company and what they're uh i guess if anyone doesn't know they they did a very big tweet about they're exposing the largest corporate fraud in history a lot i think a lot of people thought it would be an american company given their audience and giving where they're located however we'll take this uh as a consolation

prize because if they did an american company with over a 200 billion dollar market cap that would have been some company that was huge and well uh well respected it would have been the only thing we talked about this show i mean i was yeah i was a little bummed to find out it was a company i honestly never heard of uh but okay i read through most of this i i don't think there's any way that they aren't doing something fraudulent like obviously there There is so much Irregulator I mean it's every red flag in the book

From like family members running your You know Subsidiaries and stuff to Shell companies with zero operations Yeah Flipping it around You don't do these things if you're On the up and up

Yeah No I mean And it's just like I don't know like you can go through all these things like there's why do you need 38

shell companies without operations there's literally no reason so I don't know

but my thing here is like I doubt anything comes of this

because of where they're located and their relationship to the government in India

yeah Yeah, maybe that's – maybe India takes a closer look or tries to audit them in a way that's like finds them or something. But I think for it to – and there was – Hindenburg said this today is Adani Group threatened legal action against them. And Hindenburg said bring it on, file a lawsuit in the US, and we'd love to partake. I don't think it's going to happen in the US. they're probably just gonna it's gonna become india's fraud over there and nothing's gonna come of it i also think it probably looks bad for india regulatory bodies to have it exposed by an american group and then like i don't know don't you think that's kind of a bad look

to say like some american company took down our richest man 100 and yeah he's there whatever bill Gates, Buffett, probably more Buffett, I guess, richest person in India, one of the richest people in the world. What's interesting though, is that it's only going to get bigger and eventually it's going to blow up. Two things here that I was trying to look at, like what the impact could be on this company. I read some article from somewhere. I'm not sure how reliable this journalist take it is because the companies are so complicated, but they said that Adani is one of India's biggest business groups, which I guess is true. And it's often deemed one that cannot be allowed to fail.

So there you go. As well, they talked about how a lot of, I forget what it is, like individual investors at banks and a lot of these pension funds and a lot of stuff owns these Adani Enterprise stocks. So if they went full Enron

and totally collapsed, it would be bad for the Indian economy. But here's the flip side though. Are they just going to let it get bigger what happens because there's no end game here where the stock shouldn't be down 80 to 90 yeah and i remember uh i mean my biggest tell here potentially is this was a pretty damning report like if you read through this whole thing it's it would be really hard to be an adani shareholder. But in that report, it said 30% to 40% of daily volume, just under half potentially

of daily volume is between their own companies, shell companies, they estimate. The stock after this like hugely damning report barely moved like that that to me is a tell that like they are not they are the ones that are trading that yeah and it's weird because you you can say on paper this person is worth 120 billion dollars but in reality unless they are able to do some sort of stock sale where he gets the cash out and adds on some bag holders, which, as we know, can happen in the US with some highly liquid stocks, but maybe not with something that is actually manipulated so much over in India. And not just because it's in India, it's just this unique situation.

The wealth isn't there. I just don't know what the end game of the Sedani group is. Are they going to just sell a lot of stock and raise capital or something? I don't get the deal here because, yeah, you can say, okay, I'm worth $120 billion, but your stock's at, I have no idea what it is, but let's say it's an infrastructure company. It's at 20 times book value. Okay, fine. Great. Congratulations.

Well, I think being on the Forbes searches list gives you almost unlimited access to capital. People, they can probably borrow at will because people are like, well, he's going to pay it back. He's the richest man. Right. Yeah. And we don't know there. We haven't looked at their annual report or anything. So we're flying a little bit blind here. But yes, here's before we move on to another topic, though, and we'll try to tie it back to any investing lessons. How do you avoid investing in companies that could be potentially doing this?

Because you can never guarantee that a company you own is not committing fraud, as Buffett once said. Then this is a paraphrase. He said, there's likely fraud going on at Berkshire Hathaway right now. We just don't know it. You can't stop. At some level, there probably is from someone. So at large enough companies, there's going to be fraud. But what about not? When it's fraud from the top, how do you look for the telltale signs? I'll give a couple. One, it is the complicated ownership structure and complicated corporate structures that you cannot understand. Two, it is the earnings don't turn into cash flow, I guess, in a manner where you can make sense of it. If you get what I mean, where you can't say, okay, this did this, and this should turn into cash, but where is it showing up? That's clearly what's going on here, I believe, if the Hindenburg Report is true. But what do you think, Brian? Any other red flags?

I mean, the executive turnover has got to be one. The financial department shenanigans have always got to be something. Oh, yeah. I mean, five CFOs in eight years, that's a red flag. Like the biggest one – because you read through this and you think like, damn, it would have been really hard to – with like the shell entities, unless you did some like real investigative work, like it's hard to figure that stuff out. So just like understanding the corporate structure, for one, invest in geographies where you understand the rule of law, that you trust the rule of law, that maybe you know the auditor. That hasn't saved every one, but like an auditor with a stellar reputation. Yeah.

They talked about their auditor is for the Adani group is, is a total sham, not a sham. I don't want to call it a sham, but I think they have captured that auditor group because it's so tiny and they're probably their largest client by far. Yeah. So I don't know. It's like hard to find these ones. I guess there's a lot of just gut feel around management. Also, if a company larger than, I would say, $50 billion is up, what was it?

1,000% in three years? I think it was three. Honestly, I think it was 3,000, but I don't remember exactly. Let's say at least 1,000%. If I ever see that, that type of growth, you got to stop and pause. Even if the results are phenomenal on paper, it's like, obviously, that can't continue forever. Yeah. Honestly, if that happens, it's uninvestable to me for multiple years following.

Yeah. I agree. This is just like, and I think this is so important for people to look at, because again, it comes back to that, you know, we're Buffett and Munger fanboys, the classic Munger quote, I want to know where I'm going to die, so I don't go there. And that's really this, like, it's a good lesson in that, because if you're an investor in the Adani group, you're saying, like, you could die, like, not actually die, but you could die. And basically what he means by die, what Munger means by die is permanent loss of capital. And this is the situation where you could die. And you just don't want to go there. Why would you risk jumping off, you know, doing some evil Knievel stud?

And we're going to do this analogy further. But I think that covers that unless you have anything else, Ryan. Let's do personal finance. Should we do that now? Yeah, you lead that. Why don't we? Yeah, we'll hit the stratosphere segment. for the semiconductor one.

While you load up the segment, I'll try to look at some charts on here that could be fun for everyone to see and listen. All right. I just threw out a bunch of quotes because we'd never talk personal finance, but I think people, we've gotten kind of inquiries before

about how do we invest kind of thing. So I am going to give some of our, I've given us some questions that hopefully will be of interest to listeners. Some of these are kind of, I guess, difficult to answer or very like everyone's own situation. I think, what's the quote from Morgan Housel? Personal finance is more personal than it is finance. Brian, you would call that what? Personal. Yeah. It is personal finance. So I don't think.

You know? Yeah. All right. Let's start with this one. What are two things you do to save money this is like very basic i know but uh is there anything you do in particular all right yeah i can go first i am frugal with uh restaurants and alcohol i guess at restaurants or bars i try to just eat out once a week or so if i'm by myself and obviously if you're with the group you might do it more and then if i'm drinking away from home or if i'm in a situation where you can buy drinks away from home. I mean, I try, and again, sometimes this might not actually happen, but I'm trying my best to only have two to three drinks maximum because it's just not worth what you're going to be spending. If you have $100 weekly alcohol and restaurant

tabs, which is easy to do if you go out to eat, say, four to five times a week and have alcohol each one of those meals. That can easily add up to $500 a month, even $1,000 a month, depending on where you're living in savings, which I don't think it's worth it on the flip side, especially the alcohol part of it. And then the third one is I strictly, unless I'm in a situation where you really need an Uber, I strictly avoid DoorDash and Uber because there's money sucks. So thoughts on that. Do you do those at all? That was my first, my first one, uh, no, the, is the more so the drinking, honestly, because the drink, I think like, maybe this is more like a life habit, but the, uh, if you spend

a lot of money on drinks throughout the week, especially if you do so in sort of one night, if you want to be an alcoholic at home, go right ahead. That's pretty cheap. If, if it has knock on effects or has knock on costs as well. For one, obviously, drinks out at bars and restaurants are going to be more expensive. You probably lose track of your spending if you have too much. And then on top of it, you likely require an Uber, which is expensive as well. um you might feel less uh you might feel so hung over that you want to order food as opposed to make it yourself the next day that kind of thing it just really i found personally like you know and it was tough because there's like the college period but the less the

the less i consume alcohol the more money i save just in general um 100 and i know like it's fun for some people and you can have a good time but still just wait a minute. Yeah, you can have a good time with one to two drinks. Maybe the young people are rolling their eyes that listen to this.

Well, there's very few looking at our analytics. There are very few people that are younger than us that listen to the show. I truly recommend if you're in that situation and you're trying to save money, let that be the first thing you pull back spending on. yeah so easy so easy other things i do to save money well i drive to the office which is which

i know brett you you know you live close to the office and you usually work from home but uh trying to prep everything for the next day the night before also saves me a lot of money like talking food food um making coffee basically having it set up so that i can just make coffee easily on my way out as opposed to like picking something up, having anything that I need for like the gym ready to go. So I don't have to like drive to and from like just being prepped for the whole next day prevents a lot of like random costs throughout the day. Um, so that's a huge one. I still eat out. Like I still have like my Chipotle throughout the week, but I try to limit like the big restaurant bills. Yeah. And here's the thing though. Everyone's got their,

their own preferences or what they enjoy. And personally, I don't think it's worth it to spend $150 on alcohol at a bar. If that's really what you enjoy, go for it. But you got to find something within your life that you're probably spending money on that you don't enjoy that much. And then just take that part out because that's going to be the easiest one to eliminate. But let's keep moving, Ryan, so we can get to other topics before the end. That leads well into my second one, which is indulgences, two things that you actually choose to spend up on that maybe other people don't. Okay. I have a few. I will spend up on electronics, so computers, smartphones, whatever, if I need to, because I think it's worth it to have really well-running

electronics. I also think that includes fast internet as well. You got to pay 20 bucks more a month for good internet. I mean, that is well worth it. And then I will also pay up for fresh food or high quality produce, whatever it is at the grocery store, because I think the value there is very high versus the price you pay. And plus something I enjoy cooking at home. So what about you? All right. To, I guess, travel. I know that's super basic, but I'm- I know. I try to avoid that one because I know that's everyone, but yeah. All right. And this one is maybe a better takeaway for investors. There's investing blogs or like memberships that you have to pay for.

And this is not a plug for anyone in particular, but I used to be really reluctant to kind of spend up on like my own, like if I wanted to read like an investing blog or even like the Wall Street Journal or something like that, I was reluctant to do it because unless that we got like some sort of a discount through the podcast, like if someone was like, oh, you sponsor us, then I was like, oh, then I'll do it kind of thing. They are super valuable. and even if it's like not necessarily for like recommendations but just for like process and seeing how people kind of analyze information it constantly gives you something to read

so it's not always just for generating new ideas as opposed to like seeing how other people think in the industry i think that's like and i think those are the kind of things that are worth paying up for yep all right third question this one is uh we might be way off the mark or i might but how much do you think you would need to retire at the age of 50? Okay. So in this one, I'm assuming, because I thought about it for a little bit, I'm assuming no inflation. So all prices for everything are the same as they are today. And I'm assuming I have no pension or no income stream. So you can have a different one if you assume inflation. So at today's inflation prices, I'm assuming $2 million, just looking at it.

And I'm also assuming I have no family at that time. So yeah. And if you have a family, Obviously, you might bump that up to $3 million or something. Yeah, I think I was probably in the same ballpark. I assumed costs would be higher, so some inflation. I said $4 million. Which could, that's pretty much pricing and inflation from now until then. I know some people might think that's either high or low. So my thought here is that, how much do I need to have a portfolio where it dividends me 100K?

And so I think that's like a two and a half percent dividend yield on 4 million. I think that's very doable to do without trying to go just purely for the dividend players, where I could also have a portion of my investing that's pure total return efforts versus actual income. So that was kind of my thought. And then on top of it, you know, you're going to have, that's kind of 50s pretty early to retire those like your prime earning years. You also want to be conservative on that type of stuff. You don't want to run out. You got to be conservative. Yeah. But as you can see, we're not retirement specialists. Okay. These ones are a little more fun, investing related. What is the best investment you've ever made? Well, I'm going to go with numbers, and it is buying Stitch Fix Call Options in 2020. It's like a year-long one. I mean, going on the numbers, that's the best investment I've ever made by far.

And then worst one is I put some money when I first started out into a penny stock, which turned out to be classic penny stock scheme, when I first opened a brokerage account. Luckily, not an absurd amount of money, but literally the worst investment I've ever made because it was easy to see why I shouldn't invest in that. But what about you? Yeah, I think the best one in percentage terms for me, and we went in on that stitch fix call option, which we're just not encouraging in any way because we really just pure luck, frankly. In percentage terms, and maybe nominally, I think Square was the best investment I ever made. I ended up selling it, and I don't own it today, but it ended up just being kind of coincidentally really good timing. And then probably kind of more recently, Sprouts Farmer's Market was probably the best nominally. Yeah.

What was great about Sprouts, and I hate that this is a part of my mentality, is that no one was with us, except for one person, Mr. Jim Gillies. no one was everyone was I would say oh yeah what was your favorite stock right now I'd say Sprouts

Farm and Sparrow they go eh yeah I don't really like that but I'd go alright and then it

like not doubled but went up like 50% and I was like that's right but in reality it doesn't matter even if everyone

liked it and it did well it shouldn't it shouldn't it shouldn't matter we're like it's a good business like we're like

we're like it's a fine business and it's it's six or seven times cash flow and people are just like you know it's

grocery right like It goes to show you don't need a great business to make a great investment. Yeah, that is correct. Also, it can also be an indicator if no one else is talking about investment, you got to trust yourself that you're making the right call. Because a lot of the times if you're saying, and a lot of people do this, they just want to be comfortable within the crowd. But if you're only going to buy something because that a lot of people are, say, talking about is on CNBC, on the news all the time, you could be the last one up to the table and there might not be any opportunity there left. If you know for a fact you're not seeing any discussion on this around the internet, TV, wherever, on a company, you're the first one, say, from your sphere that has found it, that could mean an even better opportunity because it's undiscovered.

Okay. Worst investment for me, and this is kind of funny because we still own it. I think it was Spotify, honestly, like nominally and probably on a percentage basis too. Granted, our cost basis has come down, but I think it's ironic because that's the business that I feel like I understand the best of anything I own. And a lot of that just comes from like running the podcast and having the distributing on a podcast-owned platform or Spotify-owned platform made me think like, oh, I know the business better than most and I can see the opportunity here. Don't conflate understanding of a business with the actual return potential. That's the easiest thing to do. It's very dangerous. You can research any business for four hours a day and you'll convince yourself it's the next. It doesn't make it a better investment the more you know about it. Yeah.

The returns are going to be the returns no matter if you spend an hour looking at the summary on the annual report versus if you spend three years looking at how the sales staffs go to market strategy and taking 20 expert calls. If you buy the stock at the same date, the returns will be the same. all right uh this one's a little more fun you have to guess if you're looking at your roth ira in 2033 so 10 years from today what do you think will be the largest position i think it will be and this is not recommendation at all it's just how i go about it i'm reinvesting dividends with that one and the way i'm running my roth ira is just to give it to some conglomerates i think are very smart and have a great long-term potential, so I think it would

be Nelnet. Pretty boring. That's just a boring conglomerate that I think is really diversified, but what do you think, Brian? Yeah, it's kind of funny because Nelnet is my largest day in the Roth IRA by a long shot, but I would say probably

Match Group or Autodesk just because I think they have more compounding potential. and markets to, to grow into. Although now that I think now that could be just like a much different

business in 10 years, mash group and auto desk, I think could just be much larger businesses. Yeah. Well, that's why the opportunities in L net, because they probably compounded and book value is not the right term for auto desk,

but they probably compounded their intrinsic value at a higher rate than auto desk for the last 10 years, 17% a year book value per share plus dividends and now that so maybe, Hard to tell. I don't know. I feel like the audit is revenue, but yeah. All right. Last one here. If you could give one piece of advice to someone who is trying to work in the world of investing, what would it be? Okay. Well, this one is hard because I've never worked in the investing world in a formal capacity except for myself. So really don't take my advice. But that being said, I would say you got to choose an area that you want to work in

are also passionate about so are passionate about and think you have skills in so skills plus passion regardless of what the company offers like or what company or organization offers you the best salary when you're first starting because if you provide value the money is going to take care of itself and you just could see all these people get trapped and like oh i gotta have the best salary coming out of college and i just think that's the wrong way good about it because I don't know. Do you agree or

disagree with any of that? No, I think that's the right way to go. You're also going to be like, you can earn a lot of money eventually, I think in

like most fields, but so finding something you actually care about to do, like even if you do it for cheap at the start, like if you're really good

at it and you're passionate about it, I think you'll eventually get compensated for it. And if you become the best at something or a top in your

field, you're going to get compensated. All right. Mine was a little more investing centric. This is more like ways to kind of better yourself as an investor, but I'm stealing this idea from, there's this kind of famous value investor who's passed away now, but his name was Peter Kundell. I think he ran a Canadian fund and he had this philosophy that there's always something to do, which is kind of interesting given that you'll also get paid to sit on your hands if you're an investor. You're not supposed to do a lot, but there's always research to do essentially. So I think if you're looking to work in investing or just become a better investor, you benefit from – this is like the form of hard work in the industry, which is find something to do. So read a 10K of a business you've never heard of. Read a book on an industry you aren't familiar with. If you own companies, but you don't really try financial modeling or anything like that, maybe just try once.

Just go out and build a spreadsheet for a whole thing you have on what you think the business will be able to earn. I think a lot of people don't really or are maybe intimidated by doing the valuation work. And don't worry because no one's going to look at it. I don't want anyone to see our spreadsheets because they are hilariously low complication. so if anyone saw ours the people that love making complicated spreadsheets would laugh us out of the room

you can make it as simple as complicated you want as you want they're only for yourself so they can be very helpful I think also within that make some charts of it because when you look sorry I'm stealing your thunder but if you make it it's way easier to see the numbers you're looking at

yeah you know make charts to track your KPIs hey that's a pitch for that is a thank you for the advertisement uh for stratosphere.io that that is pure because they make the charts for you so if you're trying that go go check out stratosphere for free let's say it's like a dead period between earnings you know you have nothing to like add on to like your current holdings build do the research too and we're in the process of kind of doing this too do the research like you would own something or like of a business and then don't just end with like, oh, this, you know, whatever this business sucks, like assemble, if it's a really,

if you like the business, pick which price you buy it at and continue to track it. That's just kind of the philosophy of there's always something to do. There's more than enough work to go around in the industry. I think there's a couple of benefits too. Like for one, you'll become a better investor. You'll understand a wider array of businesses, which is going to make you better analyzing businesses you already know well, you'll get better at saying no to ideas, the more businesses you study. And then if you jot stuff down, you write about it, you track it, you'll have more value to share with other investors, which if you're trying to grow your audience in some way or grow your network, or even have a resume of some sorts to offer to

companies, this is one way to do that. Yep. That'll make sense to me. Should we talk semis? Yep. Looks like from the start of the show, we started a little after 9.15. We got about seven minutes left, which I think will be perfect because I don't have too many notes here. But we've had the majority of the semiconductor companies report their latest earnings. I took a look at really for the last two weeks or so, Taiwan Semi, Texas Instruments, ASML, Lam Research, to see what is really driving the at the moment. I think the big takeaway I saw is, if we look at 2022, TSMC saw 74% growth in automotive, and then, and this is revenue growth, and 59% growth in HPC, which is kind

of AI, cloud, it's high-performance computing. HPC is a much larger portion of the revenue, but automotive is driving a lot of growth right now. Then if we look at Texas Instrument, they said that they had 30% growth in automotive of revenue last quarter, so Q4, but the rest of their segments have been declining and the consolidated revenue actually contracted a bit. So I think one of the keys is that automotive is driving a lot of the sales right now. If we look at ASML and some of the equipment companies, they continue to grow, but their bookings have declined.

So we look at ASML's bookings. they went from, I think this is year over year, 8.9 billion euros a year ago in Q4 to 6.3 billion this year. So it's kind of showing that the forward contracts are declining a bit. It's not like a terrible thing if you still have $6.3 billion in bookings in the quarter. But they still talk about the long-term opportunity for these semiconductor equipment things. If you look at management at ASML, they talk about $30 to $40 billion in revenue

in 2025 versus, and just as a comparison, just in Q4 this year, they're at 6.4 billion euros. So again, that would be quite a lot of growth. And if we look at ASML sales, half of them are from the EUV things, machines. So those crazy complex machines that everyone talks about. And then we've got LAM Research. They put up strong growth in the quarter, but had weak deferred revenue as well. So as a whole, they're expecting there's going to be a slowdown in 2023 compared to 2022. It was kind of a banner year. I want to show some charts if I share my screen here. Yeah, we want this one. And first, I want to talk about ASML. So just to describe this one to the listeners, one of the KPIs they have over at Stratosphere for ASML, again,

that's stratosphere.io. If you want to look up all this stuff, just make a free account. They have net EUV system sales revenue, and it's gone from in 2013 when they broke it out to only 60 million euros to over the last 12 months, 7 billion. I think that's annual. Yeah, annual. And it's grown at 70% a year. Is this one of the best business segments because of the monopoly, because no one has gotten even close to this. There's no one showing like China. China's government said, we want to do this. We're throwing as much money as a government into this

and they still can't do it. It's a 70% kegger. 70% kegger. And I don't think 70% is going to continue, but this kind of nominal rate, could they double this revenue from EUV over the next three to four years? Probably.

and you have all these orders from the companies that are launching factories in North America and Europe now. What are your thoughts on the industry right now in general? I know this is something you don't follow as closely, but it seems like automotive could be a near-term risk, but long-term things seem fine. And all these companies are so well-run. I'm seeing all of them return capital to shareholders. I'm going to show the Texas Instruments chart later. All of them returned capital to shareholders consistently, some buyback plus due dividends. But I think the key from their financial departments is they're just so consistent, which is probably my biggest highlight if I'm looking at a finance department. Yeah.

I mean, I have zero relevant insights on the industry at large, but I remember ASMO was pitched by Leandro on the show a couple, I want to say a couple months ago. and I remember we were both talking about it and it's like well we don't know you know of course we don't know the technology behind it and like we have sort of a lack of understanding but he kind of made the case it's like no one does like no one really

knows what's going on other than like the engineers that created it what's really they only know one part of it they only know their part yeah and it's like sometimes you just like understanding using anecdotes around the moat like seeing

seeing the moat test, seeing that China, the government tried to do this and couldn't, seeing the contract, the backlog, and then understanding management's strategy and whether or not they're competent and you think fair and honest, that's probably enough to invest and obviously taking into account the valuation. Yeah. And here's the other chart I want to have before we wrap up, we got about two minutes left, is what I've seen consistently looking at, whether it's semiconductor, I guess the software kind of like NVIDIA and AMD, maybe not as less,

or sorry, it's not as much, but if we look at the manufacturers and the equipment companies, like Texas Instruments here, I'm showing on the screen now, is they've just shown consistent buybacks, consistent dividends paid. And if we look at their chart here, And this is just for the viewers.

They can see it if you're watching, but I'll just describe it. It's pretty easy to understand. Over the last 20 years, so from, say, December 2002, the Texas Instruments total dividends paid has grown at an 18.4% compound annual growth rate. And it's just been very, very consistent. It's gone from, OG said, well under $250 million, Ryan, to over $4 million paid. This is the type like annually annual. Yeah. Each year, each year. Yeah. This is the type of thing where you're, I mean, that's just when you see a chart like this, that's just such a positive indicator for me that the culture at a company is, is strong if you get, if you get what I mean. Yeah, I agree. And kind of funny anecdote, Texas Instruments CEO, long-time CEO stepped down, I believe.

That is right, yeah. Passed on the reins. That is correct. Yeah, he is the one, I guess, that was in charge while they went through that really good capital allocation strategy. If you are interested in that company, who did we do an interview with? John Rotante. John Rotante, yeah, on Texas Instruments. That has been very popular among the listeners. So check that out. Yeah, it's probably still relevant. Um, now, even though it was a little bit ago, I think it was about a year ago, but either way, I think that's going to do it for this episode, unless you have anything else, Ryan. And, uh, maybe thanks to Scotland in the chat says, good afternoon, guys.

Good afternoon to you as well. It's actually morning where we are. We should probably mention that we've, we're changing the timeframe that we're going to do this. We've kind of been experimenting. I apologize to the people that actually tuned in on a regular basis. Matt H being the one that comes to mind. we're aiming for this time yeah so we're gonna yeah it'll take probably a few weeks or maybe

in a few months to get people any sort of on a regular basis on the live stream but that doesn't really matter for anyone listening to the replays or listening to the podcast but we're going to try to do a thursday mornings more of a noon eastern ish probably noon to 12 30 on the lunch hour and then kind of not which is 9 a.m pacific time hopefully that's better for people across the country and then possibly in Europe as well. But either way, you can watch the replays if you want or just listen. Okay, that's going to do it for this episode. Thank you, everyone, for tuning in. 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. Thank you all again for listening. We'll see you next week. Thank you.