Chit Chat Stocks - Investing Power Hour #75: AIR B&B Bust? Dollar General Woes; Instacart Debate

Episode Date: September 10, 2023

The CCM Investing Power Hour is a live-streamed show every Thursday. 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/ ****************************** 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 recommendation. Now, please enjoy this episode. This is the Investing Power Hour, number 75, live on YouTube. What are we? My name is Brett Schaefer. I'm here with Ryan Henderson. We're talking about basically whatever we want in

financial markets. I had the week off last week. I was basically off the grid. So maybe, Ryan, we can start out by anything I missed, anything, something like that. But before that, how are you doing? Are you ready to discuss any investing topics this week? I'm doing well. Yeah, I've got pretty much one thing on the docket. What did you miss? Well, markets are in turmoil. I think the NASDAQ is down like 4%. That's this week, right? What about last week? I honestly just don't remember. Okay. How was the show? I listened a little bit to the show last week with Jason. that seemed to go well that was good jason's really uh he's he's good he's kind of a banking expert and so it's always fun to pick his brain on banking topics and we did a little bit of that

we did we talked home builders we talked it's always refreshing to get a perspective of someone that's not me or you because we just like are like just a thought silo where we just like regurgitate each other's takes and it's like yeah houses are overpriced and it's like someone's like yeah you know people don't probably buy homes and they don't look at it for an investment like whatever but anyway yeah it was uh it was fun i don't know if you really missed that much um arm what about that what about that espn what about that espn charter thing i never really read that up but i just saw a headline oh that they're like withholding their rights or whatever yeah i yeah i didn't read up too

much on it apparently espn's holding out i guess apparently there's a really good strategy article on it the uh i guess just a holdout right but i guess no oh oh i read um it isn't about the pricing it was about charter being able to offer the ad supported tier or something for for hulu disney plus and espn plus yeah espn so i don't know i don't know why that's the hiccup but have you read up on it at all just a little bit it seems though i don't know what the dispute is going to end up being it's i don't like any of the horses in this race but it seems like this is an opportune time for the roku's the fire tvs and let's say an apple and google i'm forgetting some samsung it's an opportune time for them to try to take the reins here right

or try to offer something that a lot of these streamers might want yeah yeah maybe i don't know i mean i keep going back and forth which is like espn obviously great brand but it's not worth anything if if they don't have the sports rights so it's like uh i guess disney is just it's unsolvable it's uninvestable because i don't know i remember last time i said something that was uninvestable meta jumped like threefold but the that's the bias i can't predict anything with them yeah i it's uninvestable for me i think if people can get comfortable with it they can but i really hate the bd industry in all its forms right now uh i would invest in a company where it's a small portion of the business like an amazon or google but i just think it's too tough

it's too tough what maybe at the right price the uncertainty is okay but man some of the prices that these things used to trade i think that uncertainty was just not the risk reward was not reflected in that stock price maybe it is now but maybe um other things that happened okay latch you remember latch changed their uh changed their name to door.com thoughts um latch is a good name door.com maybe not as much maybe not as much i don't know i think okay door.com wow that i mean they're a little desperate they're a little desperate i was gonna say a name change that does not mark a change in strategy so like facebook going to meta or whatever which i still think was stupid is like please forget about our previous company

uh this is a new one uh and we are not the same people and it's like okay yeah forgive our previous uh mistakes but anyway um other things that were kind of interesting we got a question here from amir what about coupon boys i don't maybe clarify that if you have anything specific on that but i would disclose that over the last what was it two three weeks ago we actually did end up taking a position so um we're not gonna probably buy anything more sell anything more for a long time but it is a position we really like the company yeah no we did buy it um i don't know i'm being a lot this episode so i'm gonna stop i mean but the we'll have to have an um counter for you and then we'll add it up we'll have some listeners do a tally and then it'll really get

you going and try not to say him anymore. I really like Kupong. Like Brett said, we took a position, so it's a part of the Arch Capital holding, so keep that in mind. Exclude that. There's one.

There's one. I really like Bom Suk Kim, and they just feel really advantaged relative to a lot of the other players in South Korea. South Korea is just... I'm surprised by how good the economics can be there

for an end-to-end e-commerce provider. They're generating, what is it, 26% gross margins. And that is up like almost 10 percentage points over the last year. Granted, they had a fulfillment center fire last year, but it's a very profitable market. and it's a model that really works. And similar to Ryanair in a way, Bombsuit Kim seems maniacally focused

on building efficiencies within the business, which that's really how you get to operating leverage with e-commerce companies is just like redundancy, like this crazy focus on being efficient. Yep, little teaser, Ryanair is going to be our not so deep dive for next week. So if you're listening to this on Sunday, As the majority of you are Tuesday going to be a fascinating airline to

cover. All right. Have you heard about a dollar general? Better to sell or hold from a mirror? Well, I think that answers the question. We just said that we like it, but obviously don't just buy because we buy don't hold because we hold

don't sell because we sell. We're just talking on here and we like the company for the time being, but there could be something that happens and obviously do your own research. I would, But if you like, or if you're interested in it, though, we did do a coverage on the company about maybe, I can't remember. It was this summer.

So pretty recent. Check it in your podcast feed or on the YouTube page. Today's episode is presented by the Science of Hitting Investment Research Service. The Science of Hitting was founded by Alex Morris, who spent a decade working as a buy side equities analyst before launching his own service in early 2021. You've heard him here on the show a number of times, but Alex produces really, really high quality equity research. And in addition, he provides 100% transparency into all his portfolio decision making.

We were early subscribers to the Science of Hitting Research Service, and we genuinely believe that Alex produces research that is on par with top Wall Street analysts at a fraction of the cost. The fact that you also get complete portfolio transparency and 100% accountability is just icing on the cake. Effectively, you're outsourcing a full-time equities analyst role for just $349 per year. Brett and I both pay for the service on our own, and we can tell you that it's honestly worth the money.

Some of the companies that Alex covers includes Microsoft, Netflix, Meta, Roku, Costco, Match Group, Berkshire, tons of others. So if you're interested, check out the TSOH Investment Research Service today at thescienceofhitting.com. but you were saying dollar general yeah have you kept up with this i saw the stock was down what's what's going on i thought this was a compounder i think it's still a compounder but the it seems like they're kind of getting hit from all sides walmart's starting to encroach little bit um keep on me whatever the other part is i think i might try to do like a segment on shrink which yeah is a common theme among a lot of retailers now and every ceo on it pretty much

every conference call for any retailer has called it out as a huge headwind more so than it has been previously because i remember five below their ceo was saying you know in some of our markets we just can't even operate anymore they don't prosecute for theft under 500 which if you're five below most that theft is going to be under 500 um certain cities just don't and i think a lot of people get attracted to the shrink topic because it's political and in a way like if certain local governments don't prosecute crimes or theft like shrink's gonna be higher there and so people want to comment on it but really i'm curious what kind of an impact it has on like actual retailers like what do you do yeah i'm curious can't hire police outside the store

like i remember nike was trying to do that within their portland store and the government whatever the um governing body basically just said no uh like you're not gonna be able to do that so they had to shut down their stores. Do you just fail to operate there? There's no way all these companies are just going to open up stores in Kansas or in the middle of rural America where there isn't that many customers. Can this be a sustained headwind for multiple years? Yeah. The big question for me is does it get better or does it get worse? Because if it gets worse, this can really, really hurt the physical retailers and it's gonna help the online operators because they don't have this yeah there is some porch theft that they have to deal with but it's not nearly as bad

as the shrinkage of some of these other other stores we got a comment here from game uh can't pronounce your last name but thank you for the comment but he says and you just missed a little bit of discussion on it but is what is your thought about disney at these prices i think i don't like them well i would i would get it where i think the parks business can give you good returns without raising too much on prices right because they've taken that a lot and people are getting very very upset with that so i would say a margin of safety with the parks business because that seems like a very solid business well doesn't seem like it i think we can all definitively say it's a great business it just this the video stuff it's so uncertain it could

be a zero this does those entire businesses i mean that that sounds that's a little bit extreme but i i would look at where the parks business is what what i'm buying and i don't know what number that is but that's the kind of the math i'd want to do and it's still not a business i want to own though because i just don't like the media industry right now because big tech is just flooding the market with supply and they don't care about the economics because it's a rounding error to them yeah and you know the people probably hear you say like oh it could be a zero or whatever and they're like well you know how on earth is that possible with the with the brands that they have and you know those brands are certainly worth something but there's

fixed costs a lot of fixed they they are just hemorrhaging money and they can't do that forever no matter how much the parks subsidize it so maybe they can maybe they can just be breakeven forever but the i mean the streaming market like you said it's being flooded with content from people that are not afraid to throw away money and and netflix has this big lead and netflix has this big lead and youtube youtube youtube is a giant whale in there as well yeah this week i watched i streamed plenty of content. It was kind of a long weekend, had some time and I did not touch anything Disney wise. I watched Apple TV. There's some new shows out on there. I watched Netflix. I watched sports all streamed by non-Disney assets. It doesn't feel to me as relevant in the media consumption

world the brand just the whole disney umbrella and so this yeah we're good it's just a different world for them and i think the changing of how people consume content is it could be really kind of detrimental to the disney business i disney plus is fine and i bet if i had kids i would love disney plus but eventually that i don't it's not a giant it's not doing that well i mean growth is muted they're they're raising prices which helps but and if i was a if i had a if i was going for the thesis of okay families have to dominate this i would be worried about the competition from roblox and nintendo because they are both doing extremely well with family content a lot of like go to netflix there's so many kid-friendly content go to um

youtube youtube is probably eating the most share in terms of kids consumption youtube and roblox uh over disney so i i don't like disney here it's also i also kind of peeve with bob eiger is just a walking me egomaniac yeah all right back to looks like we got some comments here about the shrink and dollar general stuff so uh may i'll throw out these comments what about from brennan here what about walmart's new theft detection procedures uh and also julius caesar well thank you julius for joining says that aso which who is that aso is academy sports and outdoor okay it's pretty much the only retailer that hasn't mentioned shrink as an issue for them they have a good inventory management control in place plus their stores are primarily primarily

in the south and southeast maybe that helps yeah the i think the big thing at least the theme from both these comments are and what i was thinking about when you were mentioning stuff is that eventually it's going to be such a big problem that these companies are going to make it their number one priority and i think they're going to solve it when push comes to shove but things could look ugly for a while yeah and i wonder how most of it's being done i'm curious what whether it's people walk in and they know they're not going to be convicted so they just grab stuff and walk right out i know in seattle the city has a big problem with it honestly yeah my friend was a manager at a stick sporting goods and he said it was it was insane people would walk in take it

run out the door and the cop in the area would be like hands up i don't know man yeah i had family who worked at it was like a qfc or something and they said they would see people walk in that they knew weren't going to pay and they're not allowed to touch them they're not allowed to do anything they're not allowed to follow them out of the store they could just walk right in and take them out it's uh what do they call it the five finger discount it's yeah it's interesting it's interesting what how if it's going to get worse and when like how much it's going to affect these retailers. And I could see that being a labor issue too. Like if these people start to feel unsafe, they're not going to want to work there. I mean, there is general just resentment towards

working at retail stores because of that theft issue, at least where I'm our area. So I think it has to, and a lot of the CEOs in conference calls have been clear that they can't solve it themselves and it has to be done at the government level. Yeah. What's interesting, they might have to just cut their losses and pull out of some of these areas. Specifically on Dollar General, I wish I knew the company better. I would say that how I do follow the company is from our sponsor and great friend that has been on the show for a long time, The Science of Hitting Newsletter. That's really where I get the coverage from. But besides that, I'm looking at a 10-year chart of their price to earnings ratio,

which again, probably isn't perfect, but probably decent for a company like this. and it's at 12.8 which is their lowest in the last 10 years maybe maybe it's an opportunity to plug your nose here but what were the concerns that they had did you kind of look at this closely at all uh not not close enough but there was more than just the shrink issue is it was literal like competitive threats that were causing problems for them which is a little hard to like look past so um i don't know there's valid reasons for it and i recommend everyone look at that science of hitting article because he describes the situation well but feel a little unqualified to discuss it in any depth the i want to answer this

question about walmart's theft detection or theft prevention i'm not sure what their actual procedures are but i know every time i've walked into a walmart recently there's a cop at the door uh i walked into kroger based stores recently there's cops at the door and they are now doing receipt check for like costco like costco the other thing that's worth mentioning is walmart doesn't really operate in cities they are always outside the city i know in seattle greater seattle there's there isn't a single walmart so that can help prevent a lot of the crime to be honest and i think they didn't call out shrink as a percentage of their overall business as such a big headwind relative to some of these other companies

yeah as i take sporting goods said it was really really tough yeah i don't know the i don't know retailers that well i don't know dollar general that well i know they have a great book i would love to read some time seems like it's been a great business i wonder though I wonder the e-commerce threat with Amazon, does that ever going to push into them or are they too, are they so rural? Yeah. Timu is the big dollar general threat. I did see recently, I think I just like, I just liked that. I think like 30 minutes ago, there was a short report out on Timu, which we'll say time to ban them because as Amazon shareholders, we are very worried about our U S national security.

Right. Exactly. That's, that's, uh, we're not worried about our position on Amazon. it's national security this needs to be dealt with and it would just so happen to coincide with my portfolio exactly uh yeah the from what i've read about dollar general is they try to be as rural as possible right that's their core bread and butter they want to be the main store in these tiny towns so i would think they're insulated from e-commerce which is nice but i they already have so many stores i don't know i i guess i don't know the company well to comment

on it it seems like it could be an interesting opportunity at like 12 times earnings especially if they have that solid capital allocation in place i will look i believe they're a decent share cannibal i'll pull up the shares outstanding number here real quick how about the uh amazon shopify partnership okay yeah as a note 10 years that last 10 years shares outstanding down 31 and a half percent oh uh did not see that kind of fill me in fill me in on that this is when i was off i was gone oh they reached some sort of a partnership that um i don't think the specifics of the deal were disclosed or maybe i didn't see everything in particular but basically buy with prime is going to be able to be integrated easily within for shopify merchants

within their checkout process and the previously they had announced that they might integrate this there was some pushback from the investor community and then shopify was like they're violating our terms of service i don't think merchants should do this and if you want to it's going to be this really complicated like process for you to get it put on tier checkout process now they're adding just a simple button i wonder if amazon's giving them some sort of a royalty or kickback on orders processed through by with prime yeah i don't know my guess my guess is they probably are because what would cause this change of heart from shopify i think it's because the merchants are upset i think this is one where i'm pretty sure i'm pretty sure because

toby and andy jassy both publicly stated like oh we're you know we're happy to be doing this partnership and amazon hasn't specifically called this out with any other um cms providers or content management systems i think there's a kickback here to shopify in some way but it's going to be lower than shop pay i think this is one where andy jassy is basically walter white and he's calling up bezos and he's saying the you know the i won thing right yeah i think i think so all right ryan's changing his mic but it's i think for shopify's perspective the most concerning thing is that the economics are not going to be nearly as lucrative as shop pay processing through their internal payment system hey the stock jumped oh well i mean

yeah great you know what else was funny i just remember remember when shopify announced that they were buying 83 billion dollar mark wow it's still god that thing is still expensive sorry okay remember remember they bought that delivery last mile delivery company and the stock jumped and then like a year later they sold it and the stock jumped yeah no and it's Shopify is almost like Apple when Apple reports

earnings they don't have to all they have to do is report earnings they don't have to be good the stock will jump they're like okay the earnings are out we can buy this thing yeah anything that Shopify does people seem to be taking with a positive light at least over the last five years

all right any other things financial markets wise that excited you any companies you're looking at today instacart ipo i got some information okay give me so not sure what the expected valuation is going to be but for those that don't know instacart filed their s1 to go public. They're actually called Maple Bear is the full company, which is a pretty bad name, but who cares? I guess everyone just calls them Instacart. They plan to trade under the ticker CART. Good ticker. They have more than 1,400 national, regional, and local retail banners.

More than 80,000 stores. They represent more than 85% of the U.S. grocery industry. The majority of grocery stores are saying, yeah, they're fine accepting Instacart orders. Gross transaction volume, though, has been stagnating over the last year. So it's been consistent growth in total transactions, so both active customers as well as average ticket. But now you're starting to see that basically flatline. It was up just barely a single digit percentages in the most recent quarter year over year. so that's been a headwind but advertising revenue has really been growing now i personally am a little i don't know if i like to see advertising revenue growing quickly for

platforms like this because it feels like kind of a last lever to pull so with amazon everyone knew it was always there you could always do product promotions eventually airbnb you could eventually do that but even brian chesky is like listen yeah it's obviously there and we could pull that lever if we want to but it's the easy that's that's the easy way to grow is to basically pit these retailers against themselves and make them promote their products and give them you know preferred spots or preferred placement on your app yeah it's growing quickly for them which i guess is a positive but it just feels like an easy way to grow i guess but it's high margin I imagine

they are profitable cash flow basis it looks like a decent business I know people that use it that love it and it really simplifies their routes so expensive though

so damn expensive yeah I imagine if you're like a family and you've got a bunch of places to be you know let's say you got kids they got practices after school you got to pick them up you got to go to and from places to like get them there and you just don't have time to make that grocery trip you're willing to pay the extra ten dollars for the trip if you don't think uh well i don't know

i guess i've never used it but i've heard it's pretty egregious but i guess i don't know for sure yeah i don't know i see the benefit well sure for sure if you can afford it what are instacart fees let's look it up all right part that would frustrate me is the getting the orders wrong god that would just work oh yeah well yeah is this a fine replacement it's like a totally different right or whatever i used it in like yeah i used it when i was in uh out of the country in a in a cheaper market and all that it's so annoying when i didn't have a car like it's it's so annoying um yeah it's it's tough let's see well it looks like they're very complicated fees so i guess it's not great to just read those off on a podcast but yeah you know it's an interesting

business but i don't think it's i i don't think this how big can it get because you have to be fairly wealthy to use this no no i don't think you do i think you can get pretty big i really do all right there's a lot of people that use this purely for the convenience factor how many people order doordash that you know friends are are they do they have to be wealthy no but like i mean not that many doordash uh breeds or something there's always these promotions always discounts to me it's just like well sure if they're going to discount their way but i'd say you know excluding that i knew you'd have a gripe with this i just knew you the consumer

habit you wouldn't like but i'm telling you people love this service the same way they love doordash it's just like maybe it's out of laziness but the convenience of having it delivered is nice yeah and it honestly makes more sense to me than like a doordash order where it's like yes the doordash order you're potentially paying you know 50 of your food cost to have it delivered to you whereas grocery you can make a big grocery order it's much smaller percentage yeah no it makes more sense than doordash for sure at least in most cases the i just don't know if it's going to be that big of a business i really don't I just feel like a lot of people went from thinking these marketplaces were just, or okay, in my experience, we watched a lot of these marketplaces subsidize, or well, VCs were basically subsidizing the cost for customers. And there was just all this really unprofitable growth.

Right. $2 billion venture rounds. Yeah. Right. And I just thought there's no way any of these can be profitable. But watching Uber do it, I'm starting to think that whoever the category leader is, they can be profitable if they choose to. Yeah, I agree. So I think DoorDash can do it. I think Instacart's really the leader in grocery. I think they could probably do it. i'd be more hesitant on doordash because i think well here's the interesting part they're all trying to get into grocery now doordash is trying to get into that so i wonder if there's going to be a price war there but we'll see we'll see what happens i don't think my gripe would be on grocery delivery that it's going to be unprofitable because it makes sense how they can be yeah you

can just change the knobs on what things cost and you can make it profitable i just would worry about how big this thing is going to get. It is starting to mature, starting to saturate. I mean, you just said that. Which I imagine kind of coincides with the fact that discounts are starting to burn off. Right. And you mentioned the advertising thing.

I think those are two hints. Also, you mentioned the GMV was stagnating? Yeah, just transaction volume. It's stagnating. Yeah. part of that was transaction value has come down

a little bit just I think people are buying less at the grocery store with the kind of inflation or they're buying

less items maybe trading down in quality but the it's still gonna be I think it grows just slowly and

there's a lot of adjusted numbers in this S1 which kind of bothered me but yeah I will say I haven't read this S1

so if I do read it maybe I'll change my entire opinion But we've got a comment here from Julius Caesar, which I love that name, says Uber is in the best position compared to DoorDash. Ryan, agree or disagree? I would have said yes, probably like a year ago. But free money has pretty much gone away, right, for these companies. And DoorDash still is growing transactions because I think the – okay.

This is really anecdotal. But people just go to DoorDash now. They don't really think about Uber Eats. They just go to DoorDash. My anecdotes would be that everyone hates, that I know hates DoorDash. Not just the food delivery in general because it costs so much.

But they, I don't know. DoorDash just has the brand notoriety. I live with five people for, I've lived with five people for five months now and we haven't had one DoorDash order. Really? I've had quite a number of DoorDash orders star place the uh all right let's look at their numbers let's look at their numbers okay might be

a little more might be a little more expensive the further out of the city you get that's true that's very true all right let's see last quarter revenue of 33 percent gap gross profit 951 million dollars contribution profit blah blah blah gap net loss 172 million it's improving but still loss yeah i don't know it's probably it's like okay like it's fine but like you're not going to go out of business but well why does that excite me what do you think about this arm ipo 52 billion dollars yeah i was shocked at how slow growing this thing is and the price people are willing to pay for i don't understand why everyone's so excited about this but are people that excited yeah i mean softbank was right five years ago didn't they pay like the same amount

or or just a little bit less they paid 64 billion valuation for the remaining stake like three weeks ago or no they bought out they bought out from the vision fund so they could pay the vision fund investors which son bought arm from son so that son could dump the bags on retail maybe maybe the he's a uh let's say complicated figure i remember reading a quote from the wall street journal and son basically said like after they acquired the majority stake in arm he said he was so excited because this was his destiny. I was like, what do you mean, dude? The numbers don't look that good.

It's a very profitable business, but I mean, right? I think it was doing half a billion in cash flow annually. That's expensive. $52 billion? Yeah. That's expensive. It's not a cheap business. And it's not young.

just because they're plowing money into R&D doesn't mean growth is guaranteed. The business is growing pretty slow. Yeah. I wonder if NVIDIA got lucky that their acquisition of ARM from SoftBank got blocked. Honestly. Yeah. I bet they probably are a little...

I bet. Look, there's going to be someone out there that's like, no, you don't understand the strategic rationale. This is going to help them dominate the industry. It's okay. Great. They overpaid. yeah i read this one quote i think it was from doomberg or whatever i was i can't find it but it was like son but his son bought a stake from son then paid extra uh then son paid more to buy

more from son right before son sold 10 to shareholders in the public markets yeah just to mark up that stake it's quite interesting i would say yeah they've never had any uh bad never had any examples of that going wrong yeah yeah not with them not recently no shady transactions that are a little bit of self-dealing we would never do that adam newman yeah okay here's one that i thought was interesting and there's two things that maybe don't seem related at first, but I think are going to be very related this decade. It's kind of a burgeoning thesis for me. That's not going to be an investing one, but just more of a hot take.

So we had yesterday, Sean Fain, the United Auto Workers president, go on CNBC. He's been doing a media blitz. They're maybe about to strike, trying to get better wages as a lot of the forward GMs, Stellantis, are getting, they're earning pretty strong margins right now, and the workers want to get those wages up. At the same time, I just read an article in the Wall Street Journal about BYD. They're exporting a lot of stuff outside of China now, mainly to Europe at first, not really in North America yet.

No one has seen these. But the reason they've dominated and what I think is so interesting, and here's the quote from the Wall Street Journal, BYD's formula for success in its home country could likely work outside China. UBS estimated that the carmaker has a sustainable 25% cost advantage over other legacy automakers. This includes Europe and North America. The bank said the BYD seal carries a similar profit margin to mass market internal combustion engines globally. And blah, blah, blah, blah, blah.

Cost advantage, cost advantage. The key there is that 25% cost advantage. That's huge. And I think that BYD could really go on a tear here exporting cars, plus the other Chinese ones. this decade what do you think especially the electric vehicles yeah unless there's uh export bans of sorts yeah that could throw a wrench into the mix but what's interesting is stuff about china trying to not allowing government officials to use iphones anymore i did see the headline i was going to read it today it's a lot of tit for tat stuff

yeah yeah i could see that happening yeah for sure although i yeah i could see that happening especially in the united states but what's interesting in that regard is that tesla has a lot of their manufacturing based in china which was a very smart move because it lowered their costs right similar to a byd how are people going to look at that right i think are they going to be able to throw the needle it's a very fine line there of okay you have these you know right the chinese auto plant there is it the same as byd exporting it it's maybe they're going to ride the line and musk is just going to ride out and be the you know what i mean the the ultimate victor there but i find that to be a little bit of a complication and i think i would be very optimistic

on byd if there wasn't the china factor what do you think what are your thoughts on unions in general because as an investor like as a from an investor perspective stuff it's yeah i agree because part of me thinks like it i'm sure people in the union feel motivated to create the union because uh for good reason it's not like they're just doing it because they want to shoot the company in the foot but it really does make it tough as a shareholder i think you're seeing that probably with ups yeah i think it's tough shareholder i'd be a little worried yeah ups fedex the american automakers the american airlines not american airlines but all the united states based airlines they all have they start earning a good amount of money those unions ask for raises

which is their right to do and typically they can succeed as a shareholder i think you have to factor that in now sometimes you can balance it out but if if profits start surging i think with those businesses you may want to have a margin of safety there i think or be a little bit cautious as a as a shareholder doing any sort of projections yeah the other thing is i think i think unions do well because of what they're called like for some calling it a union just makes it feel like it's this very like camaraderie based you know like we're we're working together to stick it to the man but in reality it like hurts a lot of businesses and we just saw it with that uh logistics company yellow right right i mean it killed them it's a

fine line yeah you have to you have to balance like we talk about all on the show the most sustainable businesses are the one that balance the needs of all stakeholders because without a lot you know if you lose one of them a lot of times the business falls out and if the union if the workers take too much profits the business isn't going to be there anymore so it has to be a balance for sure this is where it helps to have like a master card or visa model where you really only 50 50 employees well here's here's one uh that i want to talk about and i will say as a disclosure uh we don't own the stock but we this is one we would like to own at the right price and it is the airbnb bust that reminds me of this right where people are talking about this

there could be some property managers that go under it seems like a lot of them may be over levered there's a lot of new regulations coming in we just saw the thing in new york city however explain what it is for people that don't know oh okay yeah so basically a lot of people during the pandemic uh there's a little bit of a boom in the demand for airbnbs right and a lot of people said hey look if i buy this house or rent out to this apartment i'm able to put on airbnb there can either be a little bit of an arbitrage or i can take a cheap loan buy this house rent it on airbnb take that cash flow get another loan blah blah blah scale up this business And then when some of the demand fell off, a lot of these businesses have seen prices decline.

Airbnb is trying to increase their total supply, which has brought down the average daily prices. There's a theory out there, could be true. I think I could see it reasonably true that a lot of these businesses or small businesses, these property owners are going to go bust over the next year or two, maybe even an extended period of time. And the next logical step for these people is that Airbnb is going to go bust. But I think similar to Visa and MasterCard, Airbnb is above kind of the fray here, where it doesn't matter for Visa and MasterCard if a million restaurants in the United States go out of business every year, because a million are going to replace them. with airbnb i think it's the same thing there and it kind of relates to that union aspect where if you can be above that right you don't have to worry about those things it can be quite wonderful yeah maybe from a business perspective i think there's merit in the the airbnb

especially in cities like the airbnb model or the the apartment rental arbitrage does hurt affordability yeah if it's big enough yep yep if some of these other cities see what new york is doing where new york is essentially banning with some of the policies that they're putting into these new leases they're essentially banning the ability to airbnb your apartment the if other cities see what they're doing and they're like listen we have an affordability crisis on our end we should implement the same things then i think it's a problem for airbnb And I will say, I think it's fair that a landlord or a property manager can tell their tenants, you're not allowed to Airbnb this out because the renter doesn't own the property. You shouldn't be able to rent.

You should not be able to rent what isn't yours. But I think for the state or the city to step in and say, you as a property owner aren't allowed to. And some of these rules were weird. It was like, you have to be in the property at the same time as the tenant, if it's 30 days or less of a rental. For them to add those kind of rules, I thought that was kind of overstepping, but I don't know. Do you think that the Airbnb arbitrage model was creating an affordability issue or is creating an affordability issue for renters or wannabe homeowners? Okay. That's a great question. I think the theory makes sense, and at a large enough scale, it would, right? Because if you put an Airbnb on the market, it's taking out one unit that someone could rent as a long-term renter. But I don't know if the numbers support that specifically in New York City, because if we look at the number of Airbnbs in the city, it's 40,000. And the 40,000 didn't appear overnight. It's been built up over many years. As of 2017, this is a number I'm just pulling off of some websites. So again, take it with a grain of salt. It's probably not exactly correct.

It said there are around 2.2 million renter-occupied units. So I don't think it's going to have a material effect because we're not taking all these Airbnbs away overnight. It's not going to move the needle. And I don't think it's causing the housing problem. Yeah, I think you're probably right. second thing second thing here wait wait here's my second thing is if the supply gets restricted enough it actually will benefit airbnb because prices on airbnbs are going to go up which

really helps with their margins yeah it could be tyler in the comment says banning airbnb solves the housing crisis about effective as effectively as banning hotels does i'd agree yeah yeah i bet it's like big hotel marriott lobbyists like these airbnbs are causing a housing crisis yeah no i i honestly would not be surprised if the the hotel lobby lobbyists were the ones planting this seed would not be suppressed it is yeah it's interesting i always think it's funny that there's such big affordability issues when there's so much open space in america like if you drive outside of the coast every time i do that i think i'm blown away that it's so hard to afford homes like everyone just consolidates into this like

10 miles 10 square mile radius oh yeah the seattle area has so much potential i mean the east coast is a little more dense but the west coast specifically has so much area to to develop And it wouldn't even take up that much space comparatively to how big the areas are. Especially in a world where hybrid work is potentially more common or even remote work. I know I'm kind of a remote work skeptic, but relative to pre-COVID or just in general, I think remote work over time is going to be more and more common. i'm i i would be long rural areas yeah or the price of land i guess yeah in middle america yeah well maybe not middle maybe i should just be a dollar general shareholder then yeah i was gonna say i was thinking about dollar general maybe that makes sense

the thing is everyone still wants to live in new york city apparently i guess doesn't make sense to me but hey it's what they want it is funny that it feels like there's a lot of people that live in new york because they feel like they have to yeah they have a job there or something and they want to get out and then there's people that are like clamoring to get in there that i don't i don't understand the appeal i and you know what maybe for a few months not yeah i could do it for a few months maybe but i'm pretty sure like three or four percent of our listeners live in new york i was looking at the literal demographics but i don't get it i don't get like i know it's an exciting city but i don't paying that much

would that's the part i don't get is the affordability stuff i could understand it for a few months maybe a year yeah but yeah that's probably true do you think here's running back to airbnb and airbnb bust do you think the governments have the ability given the how much money they make their supply which is the host and how popular they are among consumers do you think governments have the ability now to actually ban airbnb without a huge backlash from both constituents there i don't know and i kind of see it on both sides where it's like if this is actually causing some sort of a an affordability issue the airbnb model and you have a growing homeless population right i can see the government incentive to want to

intervene but it feels too small for that to be happening right now and i do think in general i'm a fan of this kind of stuff being regulated at the private level so having apartment owners say no you can't rent out your airbnb like having them giving them the ability to say that which i think most apartments can already say that i prefer that but there is you know kind of this bit of a growing homelessness crisis so i i don't know i understand this incentive from big cities yeah i totally get that too anyway i'm still i would still be long airbnb if it got to the right price yeah i don't think this is a concern especially when we saw the doomer rich dad poor dad guy

say that did you see that i saw you like that the tweet i had i just that guy is just the worst what happened the boomers need to get this guy in line because he's his book was solid and then wow i'm gonna sell you this course he has yeah it was honestly if you're starting out like if you're just getting interested in finance for the first time rich dad poor dad not a bad book i'm glad i read that before i figured out who this guy was because now if i saw him first calling like what is it a hundred of the last two bear markets he i wouldn't have read his book so it's just it's i don't know yeah it's it's wild how it's like perma bear just perma bear every three months he calls a new recession yeah it's great he is a little

bit of an attention hound i don't don't underestimate the saying never meet your heroes because you do seem to get disappointed michael burry someone yeah well i was thinking that too yeah yeah i don't know yeah maybe it's right just uh i don't know i think buffett would be just fine yeah yeah of course of course but you know we can't disparage him yeah all right our saving grace oh and happy happy late birthday buffett 93 still puttering around down there in omaha good for him man good the uh what's the combined age now him and charlie be like 102 almost or sorry 202 no no isn't that 199 yeah so it'd be 194 no no right or 190 oh yeah right Or no, sorry, sorry.

192. Minus one, not plus one. Yeah. Well, slowest aging executive team. That's right. That's right. That's what they like to say. Anything else?

Oh, we saw Huawei came out with a, this is way out of our wheelhouse. I was trying to write something up on it, but the Huawei came out with a new phone with like a seven nanometer 5g type chip thing could impact apple i don't think that's something we really can discuss but it's yeah yeah short apple no i just it's just i think i'm gonna ban myself from talking about semiconductors just as a whole like every stupid take i have i hope people don't listen the uh i don't know it's been kind of a quiet week to be honest The Markets

Keep going down I kind of like it Yeah I do like that I do like that What are we looking at today I'm growing more and more intrigued by Treasuries Do I sound like a boomer

Yeah A doomer boomer I don't know I mean Five and a half percent some of the companies the market's overvalued except for all the companies that we own oh yeah of course of course okay here's okay so here's here's one maybe this is fun to close things out i don't know if we can come up with any on the spot so there's one from uh acquirer's podcast tobias carlisle that had the last time the nasdaq russell 2000 traded here was march 2000

the very peak of the dot-com bubble. So it's the NASDAQ 1000 divided by the Russell 2000. So the higher that number, the more the NASDAQ 100 has outperformed the Russell 2000. And the Russell 2000, I believe it's just a small cap index. So what he's basically implying there is that small caps could be undervalued. There could be some opportunities there. So our friend sin stock poppy said what's your favorite small cap idea that has the potential to compound earnings at 15 or so but that is also a victim of the rotation out of small caps i.e multiple compression despite strong historical and forward growth anything come to mind there one from our portfolio would be it's a little big it's too big i would say ally would still get fit in there even

though it's not in that small cap range it's more mid-cap but again definitely do your own due diligence on that that could be dangerous as a financial something i think for the listeners maybe to think about it could be some opportunities in that range for for people but any thoughts for from you ryan i'm a little reluctant to talk about anything that's too small in our portfolio just because well of course i don't want us to be because we're such influential finance figures that don't want to take the price. I don't know. Something that I just feel like

every time I look at a small cap company, I think like, wow, this is a great opportunity. But this business is just horrible. What about Revolve Group? Are they that small? Yes, I think they're very small. And stock's down a lot. Let's look at the PE.

Just do a quick PE check. I think I'd rather own Ulta. yeah it's like 23 the piece at like 23 but the but i mean the potential the market gap's below a billion dollars and i believe if revolve hits their margin they could have a margin inflection that brings it higher but yeah i see what you're saying ulta could be a better anything that is in the fashion retail space it's hard i just gotta toss it out of course a lot of comic here comments here rick's cabaret yeah of course everyone loves that one how's that let's check out that was a fan favorite not from our show but specifically thin twit the

finance world for a while see how the performance has been rick's down basically hospitality yeah down basically flat over the last year yeah it's kind of had a little hey there could be opportunity there who knows don't know well interesting yeah sure yeah i don't know i don't know anything about that there's honestly i know the company well i read a lot yeah yeah um the yeah no they're honestly they're not even in our area they're like the south from what i remember from what i remember i don't know that i don't know that for a fact okay we got a question here that could maybe close us out do you guys have any thoughts about lvm h well great story great history uh the guy that runs it cannot pronounce his name

but he has done fantastic basically the logan roy really yeah they're doing this succession planning duking it out for succession he's like the joker in the dark knight he's breaking the sticks doesn't know when you guys get out of here the i don't it's just too big for me and an industry i don't understand so i think that's that and i worry about i worry about succession i love yeah i like bernard arnold is that who said right arnold yeah yeah yeah something like the uh i like him i do think it's a little too big there's too much louis vuitton out there i see too many i like him i see too many bums wearing louis vuitton i'm sorry i think that's honestly it's a risk for me i don't know if the brand's been diluted down but i just don't

i like the area like the category of luxury i just think louis vuitton's too big honestly i like hermes and ferrari better at obviously at the right price that's the other thing it always feels too expensive which maybe that's just i should get over that and forecast better growth. But it's just not in my wheelhouse. It really isn't. Yeah, and you have to predict the Chinese consumer market, which, man, I don't want to do that.

And everyone has been dead wrong on that for the last two years because everyone was predicting the China recovery, and it just hasn't been there. Yeah, it seems like it's just whipsawed from back and forth. But hey, stock's been down. If you like it, you'll like it. Tyler says, it feels like ironically, they could save the brand by bumping prices by 20% overnight.

True. I guess they still have that. But I do worry about the balance, right? The balance. It's almost like the- They could save the brand, but hurt the financials. Yeah. It's more of like the bigger you grow in luxury.

It's one of those balances. I did read the luxury strategy book, which I thought was pretty good. a little bit um it could have been shorter i think but it was a french guy kind of elaborating and he was very let's say you like the french a lot which i thought we didn't need to have in that book but the interesting thing is that oh it's hard to describe but yeah the the true luxury brands are the ones where the customers want them to raise prices because it increases the exclusivity i worry and again i'm not an expert on louis vuitton but i worry that unlike a ferrari or an hermes or a rolex they are straying a little bit away from that i agree you're we

should get someone on to talk about lvmh though could be interesting oh uh you know who owns it our friend um i think he does let me double check here well don't need to either way way we should find someone to get on to talk about it because it's not one that we're going to probably cover on a not so deep dive it is too out of our wheelhouse and it looks like we have some stuff that says like love the podcast well thank you everyone i think that's going to be it unless ryan can find the person we're coming up on the hour mark here so for anyone that's listening these are live on thursday mornings on youtube you can watch them on youtube you can also listen sunday mornings on your podcast player we don't care how you do it but if you want to join

live. You can ask us questions, which we think is fun. We love the discussion there. 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 everyone for listening. I think Ryan is frozen, but that's perfect timing because I just ended the show and we'll see you next time. Bye.