Chit Chat Stocks - Investing Power Hour #83: Munger Went on a Pod; $MTCH Earnings; What Went Wrong at Zillow?

Episode Date: November 5, 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/⁠⁠⁠ ****************************** Chit Chat Money is presented by Interactive Brokers. Switch to the best brokerage in investing today: ⁠⁠⁠ibkr.com/info⁠⁠⁠ ****************************** 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, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Anything discussed on Chit Chat Money by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. My name is Brett Schaefer. I'm joined as always by Ryan Henderson. Today is Thursday, which means the Chit Chat Money Investing Power Hour number 83. We're chugging along here, hitting earnings season. Going to be plenty to talk about. I think one that's going to be fun that had some, basically, I wanted to talk about it because it seemed like there was a lot of

interest about it on twitter uh is match groups earnings we also got some housing updates with this real estate lawsuit ryan has some interesting stuff on zillow as well as i forgot your notes what else do you got ryan solar maybe a little bit of solar because demand apparently just fell off a cliff so could talk about that yeah and the materials cost for those things have really gone in the wrong direction also i wanted to talk about the charlie munger interview as well as possibly the drunken miller interview although i doubt you watched the drunken miller one yet maybe we could save that for another week but did you listen to the munger interview if so could be fun to talk about yeah i did i like i like when we do this the pod about a pod

kind of thing that's true it's always fun it was it was i'll start by saying this about the charlie interview just a serial interrupter yeah i know he just doesn't care about what anyone else is gonna say but like i felt so bad for uh what what are their names ben and uh the other host and like they would make it five words into a question as soon as charlie had an any inkling about what the question might be about he just start his answer i know he has not had the formal podcast training that we have where basically if you're recording something you wait until someone finishes uh if you're doing an interview for us in these ones sometimes we interview or interrupt each other but it does not make for the best audio when you're

constantly just interrupting the other person um but yeah maybe let me check that one out or excuse me tweet out the link to this uh we did join a little late here although i think that's why we had some people hopping on early thank you for mr dapper capper and tyler for joining uh one of them says appreciate the transparency on the fun great podcast episode yeah check that episode we did kind of a post-mortem we decided to close out our investment fund and just focus on the podcast going forward we did a full hour discussion on that should be right before this one and i should reference that last week we mentioned that we sold uh sprouts farmers market the reason we did that is because we're transferring the money outside of the fund to you know our personal

accounts again so we sold that change our opinions on the business um did end up being good timing we sold everything that's what i mean it's because we sold everything so that's when we mentioned that last week someone had a few a few people reached out about questions about that i just want to clarify has nothing to do with the business just kind of timing we're in a weird limbo period there but let's get into it i think it'd be fun to talk about the monger interview first since on top of mine i'm going to tweet out the link and we'll get right going here yeah as tyler says it's kind of podception when we talk about another podcast but But like always great content, still incredibly wise, especially for someone that's about

to turn a hundred, but I just, the interruptions make it kind of hard to listen to, to be honest. And it's, I did find it funny that there was like that third guy. I don't know who he was. I don't know if he's like Charlie's like right-hand man or something that would just like he would hop in and charlie wouldn't interrupt him you know what i'm talking about like that background guy that would just ask questions i was like i don't know who he is but i'm glad he's there because it like he was like the glue for that whole show like stitching the whole thing together uh as far as content goes i thought it was pretty i thought there were

definitely some funny tidbits i liked when they asked about like whether or not the hot dog thing was real whether or not uh what's his name told told him not to raise the price of the hot dog i'm sorry my my costco history is not up up to par with most people's uh and charlie's like i don't know i don't think that's really a board matter a board meeting matter so yeah it's probably fair i'm trying to think of other ones i didn't really take like any mental notes so and any other content that you thought was like good from the pod i i thought it was interesting when they talked about he was pretty frank about john malone and the the he said i didn't like his

manipulations which i think he's a great manipulator right isn't that what he called yeah and i i don't think that is too far off because he if you kind of look at the results of some of that yeah there's a lot of history of him doing things that may or may not have been selfish or misleading to some of the some shareholders i'm trying to think of the other stuff he i mean he generally he talked his book a lot of the yeah like the same stuff that he usually talks about byd china byd he said byd was the guy's a genius which i guess makes sense given how fast they've been growing yeah yeah i thought it was kind of interesting that they also asked about like do you think you and warren would have done better with a little leverage kind of thing

it's like yeah and they're like do you think you could have blown up he's no maybe you should yeah that's true that is interesting how they could have been twice as rich or something if they decided to use some leverage i mean they could of the last like what 10 years they could have taken out a lot well i mean i mean i'm sure for example didn't they raise didn't they raise some debt in japan like denominated or something like that yeah yeah i mean of course and they've done that from time to time but they could have raised tons of debt over the last 10 years and just plowed money into buybacks and run a you know not as conservatively run they could also been doing that uh throughout time but i'll let the berkshire experts kind of maybe analyze what they mean

in that regard we've got some other comments here from andrew marshall over from the mindset oh god why yeah i always have it either mindset capital because there's another thing called mindset capital than capital mindset it's capital mindset not mindset capital says we've had some pretty big interviews lately rick ceo in the bear cave that is true we had an interview with the rci hospitality ceo that came out this morning i would check that one out and he said uh we have a question from tyler what did you guys think about munger's commentary on power laws investing in investing and swinging huge when you get a good bet yeah i think he's that's kind kind of what the talk is book thing. I've probably heard him say that 10 times or read about it 10

times. He seems to hit that in every interview. He's definitely right there, but you got to be pretty sure it's a good bet. So I don't think you can say, hey, I've been studying investing for a year. I see a home run opportunity. Now I'm going to buy. And there's probably only a couple that'll show up in your life if you keep studying businesses. So maybe he's definitely right, but You got to be really into the investing game, I think, to have that strategy work for you. lowest among margin fees, the ability to trade stocks, bonds, options, futures, commodities, and more with high interest rates paid on instantly available cash balances, and the ability to lend your eligible stock shares to earn passive income all on one single unified platform.

Restrictions may apply. For more information, visit IBKR.com. Member SIPC. Open an account with IBKR today. Yeah. It is definitely a thing a lot of young people fall into, where it's like, wow, this is such a great opportunity, especially if you invest in something that drops in price. The thing I thought was a really interesting comment from him was when it's like, you might not realize it's a sure thing until five years into your investment. like you might own it for a while and then the opportunity doesn't become like a perfect opportunity until you're maybe five years in and you see something where the price has gotten

disconnected from maybe the reality of the business and i i think we've we've had situations like that like failures like that where we thought oh this is a great opportunity buy in in size and then we realize it's not. And on the flip side, we've owned stuff where we're like, yeah, we think it's an okay opportunity. And then three years in, you know the business a lot better. You've owned it for a while. You get more familiar with the ins and outs and trust management more than if there's a price disconnect, it feels a lot easier to make that bet. it does discourage me from wanting to buy in and size in anything because right at the start you mean yeah and the thing is he said like maybe you'll find five to six great ideas throughout

your career whatever it feels like it feels like warren's done it once every three years or something like that over his career no no i mean his last good idea was apple before that his last good idea was i mean he said japan um he said japan was like that's not easy that's not yeah but that's different that's different that's not like a it's not just a pure equity traded in the u.s but it's no i think it's different because he would say that the ones are like apple you know uh sees candy coca-cola amex essentially yeah i think he's separating those out because japan was more i think those japan holding companies were more of a standard you know value play right when yeah but when i if i forget the term he used but i think he called

that obvious or something along those lines? That's so obvious. Well, it's because they could take out 0% debt and buy the stocks with 5% dividend yields. So that's more of just an arbitrage thing, I would say. And then they appreciate it in value by 100% in five years. I figure that's what he means by a great idea. but the uh i don't know it it does discourage me from wanting to just because especially in the three years that we've been investing four years five years whatever it is the learning curve's

been so steep every time i think like wow i found a really i've come across something really good i maybe need to check myself and just be like yeah maybe you're wrong on this if you're only find four or five in your life but i think it was a good point when he said that sometimes you don't realize it until five years in because when you own something for five years you know really well you're going to know it better than almost anyone if you consistently follow it it's not like you have to follow it's every move but if you just consistently follow the company and then you can sometimes find a mismatch where a lot of people who don't follow it closely misunderstand the situation you just got to be confident in that regard i think again it comes back time and time

again it's probably because it's the only one that's really worked out for us and in this regard it is sprouts farmers market for me where people are misunderstanding the situation i had followed it for a couple years and i was like hey i mean that's not a home run you know high moat business but i think that example rings true for me where if i hadn't followed the business i think i would have been in the same boat as kind of the mr market there but i had followed it for a couple of years and i was like oh they're misunderstanding the situation and the opportunity makes sense speaking of investments that you might not realize are great investments until a few years down the road match group should we talk about earnings well do we want to hit some of these comments

maybe questions first um what are your thoughts just in reaction to munger what are your thoughts on his VC comments. He said they're kind of like scammers almost. I forget exactly what he said, but he did not have kind words for them. I kind of think of VC as a crapshoot and also somewhat as like charity back to society where you're just finding a lot of people's high-risk bets.

So I don't think that was a crazy take by him. I don't like a lot of VCs, but I like the concept of venture capital. Maybe I don't like the concept of taking a 2% management fee on that type of stuff when it's just illiquid markups, but hey. Yeah, maybe I don't like that side of it. I do like the idea of helping young entrepreneurs

with early money because it gets them off the ground, but there's maybe better ways to do it than the modern way venture capital is typically done. But I was saying something about it. Yeah, you froze a little bit there. don't know if everyone can you hear me but yeah i can hear you now you might have froze a little bit there but i think people understood what you're meaning whatever let's leave it yeah he kind of had he rambled on vc so i don't remember i mean didn't have high praise i

remember him saying like at one point it wasn't needed but like the industry but i think it's hard for a lot of entrepreneurs to just get off the ground with without capital so i don't know i think yeah and the last 10 years there's been a lot of i wouldn't call them necessarily scammers but i think a lot of listeners know there's the ones that they have been they're kind of hype guys right like we all know that and they get into trouble and they're in the bubble you can get into trouble but i still think it's a great it's still great for the you know the world all other question you talked about the five-year uh owned or five every five-year events do you think or we have a question here from tyler that says do you think berkshires have another one of these

with occidental petroleum maybe i don't know the company well enough but they seem to like it a lot so probably would now when he bets heavily like this i wouldn't it probably pays to study closely Yeah. And I used to always think like, how hard is it really for Berkshire to get into positions? Because I remember they always talked about liquidity constraints with a lot of these stocks, like they can't even get in if they wanted to. And then you watch him build up the position in Oxy, and it's like this just slow grind of acquiring shares over, what, probably the last year and a half, right? Or maybe longer. I don't follow it that closely, but it could even be longer. i mean it'd be nice to have that much money but that would be a little annoying to like you're like yeah this is a good idea but it's going to take us two years to get a position yeah that part of the frustrating yeah and he said he i forget the person's name but they talk about the trader they have so they have i think a dedicated guy doing this type of

stuff that basically implements all the trades for buffett and the team and i think that's quite interesting that guy would probably probably be a fascinating person to interview that guy especially after buffett passes on or something like that if that would be a i think a fantastic interview so we're not going to be able to probably get that interview unless we somehow get a to be a giant show over that time period but hey the acquired guys patrick o'shaughnessy if you are listening somehow i would uh that's a guy to go after because i would love to hear his thoughts but here's that's enough unless you have you have one more thought here here's my conspiracy todd combs two recent interviews public interviews never did those prior charlie munger podcast are

is berkshire the new podcast promoters are they are they the uh the promotional company that that's running all these podcast interviews to pump the stock yeah i don't know there could be something scammy about them do you think buffett ever does one of these no well he only does it in a crafted situation which is with the journalists he trusts a lot becky quick is probably the one only one left right now essentially he does the interviews with her and that's it yeah i can't think of anyone else you don't think buffett's gotten on the joe rogan podcast no although people would say that that would be like awesome or whatever and i don't he would ask the wrong questions i would much rather have him on invest like the best

or or one of those type of shows i think it would have happened by now if he was going to do it but the uh they probably reached out i like to have them on a business breakdowns let's get him on right one of those where they bring on those guests uh okay it's like let's we're breaking down like you know welcome in today we're breaking down geico we'll be a special financial analyst warren buffett but yeah let's talk let's talk we got a lot of topics today and we're already 20 minutes in so match group match group yeah i think that's fun i'm curious uh i throw out quite a few tweets on it and a lot of people had varying thoughts on the report and i thought it was quite interesting to see everyone's opinions on it so i'm curious your thoughts because

for any listener we haven't talked i don't think at all about it yet now so mixed mixed bag this quarter hinge uh we can talk about quickly wonderful quarter they are are growing in influence throughout the world very quickly, record downloads. And I think they might even surprise management with how much people are willing to pay. So I think the ARPU might be higher than management's expectations for Hinge. And they're really not even turning on the monetization lever in Europe, from what I understand. So it seems like we are poised for a pretty good 2024 fiscal year for Hinge, which probably means $500 to $600 million in revenue.

tinder though the frustrating part is okay obviously it's not sustainable to lose to have download counts trend minus three to four percent let's say for the next several years and keep raising prices it's not a cigarette business i don't think they can just do that in perpetuity and to be fair for people when they maybe have read the call it's not negative downloads because you can't have that but it's like the amount of downloads per day or per week are a little lower than they were so their funnel of inbounds year over year download download count is down even though it's a funny way to word it it's declining the

i wonder if it's fixable so this is kind of the interesting thing because it's a good example of an investment where you get paid to make decisions in uncertainty. And with Match Group right now, I don't know if Tinder's going to fix the user issue. I don't know if they're going to be able to make it where people spend a little more time on the bios and suddenly filtering's a little easier and they kind of fix this scale issue that they've been running into. If they do, this is going to be a good investment. It's going to work out well. They're going to print well north of a billion dollars in cash flow annually on an $8 billion market cap. And they're probably going to buy back. They said 50% of their free cash flow,

but I'm guessing if it stays around here, it's going to be more like 60% or 70%. So it's kind of one of those where it's a toss up on what happens with Tinder. But I think at today's price, you can get a decent return, even if Tinder downloads do continue to decline a little bit yeah and i think it's just a good bet like there's some like obviously there's a chance that tinder doesn't turn around i think the main concern for me is the minimal disclosures among active users on tinder where people are concerned about the pet your stuff and rightfully so over the long-term. Payers matter, but it's only one part of the equation. They raised prices by 50% in the US to catch up because the old management team was either afraid or inept or whatever

happened. And they just brought their prices on par with Bumble, Hinge, some of the other players. And they saw, I think it was 500,000. Don't forget, I can't forget the exact number, but like a 10% decrease in payers in the US. I don't think that is the end of the world, especially as they added the weekly stuff which uh had some volatility there if you raise prices by 50 and your payers only go down by 10 it's not the end of the world but the one thing that does concern me is active users like if if they gave out a disclosure that said either weekly active users or maybe even monthly is probably a fine number given that people hop on and off these things because daily doesn't really make sense if they gave out some numbers that said

hey, these are either stable globally. I mean, especially in the US. I think US probably isn't stable. But if we talk about globally, if either active users were stable or still growing, I mean, I would be uber confident in this investment. But they don't have that. So that's the big risk for me is that KPI isn't disclosed because I think that's the big concern for me. Besides that, there's people calling for the management team to get fired. That would probably the exact wrong thing to do just because some of the problems stemmed from historically having a lot of management turnover and now i think we need whoever it is and i think this is a solid team as ever given their mobile gaming background you just got to ride for them ride with

them for a couple of years no matter where the stock goes but yeah i think it's a good risk reward here. A lot of people hate it, which I like. And you get a lot of hate for saying that the business still grows. And what's interesting is, look, revenue continues to grow. And yeah, they're juicing stuff in the US. But if you believe what they're saying, it's because they just did a giant catch up in prices. Now, do you think looking back on the price increases, were they too aggressive here? Should they have done it on a multi-year? time frame no i don't think the price increases has any variance on the download count so that's my concern like the payers who cares it doesn't payers genuinely doesn't matter if there's less

payers on the platform it doesn't detract from the platform value if there's it's only 10 of the people yeah like it does it doesn't really matter the let fewer and fewer downloads which i'm saying downloads but you could equate it with active users that becomes a problem and it's obviously geographics like specific to geographies but that starts to detract from the platform and maybe it's not even that like maybe all these users are moving to hinge maybe they're moving to bumble hinge blk chispa archer probably not that much an archer i do find it cool that archer within like three months of launch is basically two-thirds of grinder already Yeah. Yeah. From a download perspective intake. Yeah. And downloads aren't exactly equivalent to users, but it's, it's the most important intake. So it's, it's a very important KPI. That's why Ryan's for any listeners is, is harping on it so much.

Yeah. It's frustrating, but I think you're right. Switching the executive team is not the right thing to do here by any means. And I would be actually, you know what, if they did switch the executive team, I would probably be reluctant to own the business here because it does feel like what we're seeing today, let's call it 5% declines in active users is a guess in the US, let's say, year over year. That is from previous management errors. That is not from Bernard Kim not doing a good enough job revamping the product. I think the changes they're making today, I saw one of their recent ads where it's like, have your friend swipe for you. I don't know if you've seen this. Have your friend swipe for you. It's like TV ads. I think that's a great way to attract women to the platform, which the easiest way to attract men to the platform is to attract women to the platform. So I think that's a great marketing tool or a great kind of advertising route. And it seems like they're making the platform safer, at least from what I'm hearing. So I think they're taking the right steps. Also, if they can really start, they talked about surveying their user base where they're going to start to ask questions like, hey, do you like whatever? Do you like drinking? Do you like asking all these questions to basically get some data on them so that they can help users filter their searches? that will help them kind of get on par with i think hinge in terms of actual functional use

cases as opposed to just people going on there for two days and having so many people on the platform that it almost ruins the experience yeah and then having that data that comes in will be good for the ai matchmaking stuff as well which is basically it's not super complicated you just have the right data and then surface the proper people for the the other person so yeah i i i i seem to reason to to sell my own shares my personal account right now uh i could sell at any time though so this is just information i uh i i like i like what would cause you to sell though what would cause me to sell well here's what they're saying today that they're going to recover the download numbers

given the marketing campaigns and given the revamp and all that stuff and they expect that in 2024 they also expect hinge to continue to be about a 40 percent grower give or take i think that's what would be my expectations for 2024 and then they also expect tinder to grow about 10 percent give or take with fx foreign exchange via headwind they also expect payers to stabilize so conversely if most of those things don't happen i would be out because if you look at the financials the business doesn't look to be in the worst shape they're going to have the cash flow coming in from the google settlement where essentially the free cash flow a little bit of a bump and they should have that uh you had a nice chart on the conversion

ratio that should recover. It has recovered from the litigation. I think a lot of the stuff's behind him. And they've, I think, improved greatly on their capital return strategy after I think a lot of people such as us yelled at them for about six months about how dumb they were being with buybacks. Yeah. Do you think the... Okay. So the acquisition of Hinge looks brilliant, right? You pay $25 million for a business that's now generating $400 million in revenue annually. Great choice. Great decision of investment. Do you think the HyperConnect Xs out that?

Because they spent $1.7 billion on HyperConnect. Let's see how big Hinge is in three years. And then I would say it probably Hinge is worth way more than the HyperConnect mistake Because if they continue on their trajectory, given the margin profile, if they get to that billion-dollar revenue number, a billion-dollar revenue dating app that doesn't need insane amounts of marketing to kind of keep a hamster wheel spinning is worth, what would you say, at least $5, $6 billion? Yeah. I just think about it like this. Okay. $7.5 billion market cap for Match Group today.

$8 billion. do we think they can generate a billion dollars in free cash flow at least a year for the next four to five years? That feels very achievable to me. And if they can return a lot of that in buybacks, it's hard to see how this doesn't work. Yep. And they'll probably pay down a little bit of debt given the interest rates they hinted on that. Yeah. Like I said, I think it's a good bet. A lot of people are very pessimistic on it and frankly i've at this moment i think that is a good sign now is this one that you want to go all in on no i think it's a good bet and size accordingly if you like it but yeah you know

i've been wrong in it so far so it's kind of one i think a lot of uh it's gone down for so long that we're getting into the state where people are capitulating and just hating it so much because the price and they don't want to be in anymore and this is a lesson or another lesson i'd say in we should have put the stock on our watch list and waited for these type of moments oh yeah that's you know yeah that's a mistake okay let's let's pivot because yeah we can talk about it for the rest of the show but yeah zillow i want to talk about real quick and then this can bridge into our housing discussion or the the news from this week i'm just going to give some numbers okay and

you kind of tell me whether you're surprised or not over the last 10 years like if you're looking at zillow in 2013 and i told you that zillow which has 50 million unique monthly visitors which is huge. It's like the biggest real estate platform at the time. 50 million unique monthly visitors is going to quadruple its monthly unique visitors over the next decade. So 220 million, I think, monthly unique visitors now. Revenue is going to grow tenfold. And they will... What do you think the total return would look like on that on a business that's kind of like they're losing money but they're not you know the path to profitability seems to be there if i told you they're going to 10x revenue and and 4x users

what do you think the total return would be i'm not sure what the valuation was like but yeah and i wonder revenue per share it's a bit of a leading question but i would expect it to be up I don't know, at least 200, 300%, at least even if there's valuation headwinds and dilution headwinds. Zillow's total return over the last 10 years is 30, a whopping 30%. Let me, actually, it might be lower today.

I think they're down 5%. Zillow total return, 10 years, normalize, 30%. I want to do market cap though because this is kind of interesting they have added they have added it looks like about

maybe a billion dollars to their market cap in the last 10 years maybe less they have spent roughly $5 billion on acquisitions. It's such a... This quarter, too,

they have not generated positive earnings per share in 10 years, given nothing to shareholders. On a trailing 12-month basis or something like that, maybe one quarter was positive. Not a single annual year of positive EPS.

And this quarter, after a bunch of pointless acquisitions that obviously have not driven per share value, because we're still in the same place on a negative VPS basis, they decided to spend $400 million on some real estate CRM called Follow Up Boss with a potential for another $100 million earn out. So it's a half a billion dollars. they aren't generating any money they're spending half a billion dollars on these freaking acquisitions i am blown away the rich barton is still in there it's for such a useful platform this has been like one of the primary examples of wasting shareholder money yeah and it does talk a good game shares outstanding

up 97% in the last 10 years. That's a major headwind as well. I would say that, Ryan, real estate CRM. Maybe they just saw some of those Salesforce ads and said, wow, it is the age of AI. Thank you, Matthew McConaughey. Salesforce is the real estate CRM.

I know. They are. You don't need another one. They probably are. Zillow is a great case of, and this is where I think it's dangerous, when there's companies that we like, some we own, Some we have owned in the past.

Some are on the watch list. It could be the likes of Spotify, Match Group, as we just discussed, Wix. Great platform. Great tech. Yeah, like the management team is important. And if they're going to be very undisciplined, that can hurt you even if they 10x revenue. You know, I think a good warning, this is a good example, I think, of maybe why I should be hesitant to pay up for Spotify. Because I still like the business, but I think you want a discount there for that management team.

Now, I think Spotify's management team is a bit more disciplined than Zillow's, but I think that's one of those where you have some concerns in that regard. Honestly, Amazon's is a little bit similar. Honestly, I think Amazon's is a bit similar. you know what i love amazon now because the price is up but i i do you agree or disagree on that that amazon is similar stuff maybe i think they care a little more about shareholders they yeah probably the other part is zillow may be the number one company best in class top tier best of anyone at making bad results look good and they did that in an extreme way this quarter you also will not find in any press release earning slides or anything like that the term

per share you won't find it you have to go to the 10q and which is just disheartening yeah and i bet that proxy looks pretty disheartening as well that's why i think proxies are extremely boring the only thing that matters in the proxy for me is the executive compensation section and the and i've learned this after probably doing 100 of these as that's my job for the non-so deep dives and the only thing within the executive compensation because they're going to dot a lot of bs just about we want to incentivize properly look at what their incentives are and look at what the like hurdles are for those incentives and ask yourself are those the right incentives and i bet zillows are probably pretty bad ask yourselves are those

are those the metrics i'm tracking do those if i'm the shareholder do those metrics matter to me because if they are evaluating their performance based on monthly unique visitors and adjusted EBITDA and you as a shareholder don't get those that like they can't put monthly unique visitors into your brokerage account. They can't return that to you. They can't return adjusted EBITDA to you. If that's their metric to evaluate performance, you probably are not aligned with them. Yep. Well, I think that leads into one of my topics, which is a fascinating case that came out we're not talking spf although maybe we'll talk next week if there's a final decision they're actually doing that today so honestly as we're recording this there could be

a decision that comes out from the jury i was just gonna add real quick i started reading the book number go up highly recommend yeah is that the one i've read that or yeah yeah i think i did i think i may have been the one that recommended that to you yeah from the guy that was the actor turned investigative journalist yeah and gary gensler had it in like his background on the interview you remember oh wait is that gary gensler was interviewed and no it's the one you recommended to me but gary gensler was interviewed and i had a number go up just in the background on a shelf yeah actually i may have not yeah i haven't read this one yet i read the other one that was from uh an actor from the oc back in the day uh but both are very critical

so i'm going to read this one too i'll say if you were like skeptical of the crypto market if you were at all critical and it was kind of frustrating to you to see everyone like loving it even though you thought like what the hell is going on this is like the perfect book because the first two chapters, he goes to the Bitcoin conference in Miami as just like an onlooker. He's like, what on earth is happening right now? There's some really good anecdotes

from that whole conference. I'm going to read that one. Yeah. And as someone who follows this industry, that industry much too closely and probably just waste time because I like learning about it. It is worse than everyone thinks.

But let's move to real estate. collusion in real estate commissions, I thought, well, personally, I loved this verdict because I really hate the real estate leeches, as we might call them, the people that just leech fees and provide no value. But it was a super interesting case on selling costs and real estate agents. So the context is that a Kansas City jury found the National Association of Realtors, NAR and others like them guilty in price fixing and collusion for commission rates on selling costs. The exact details may differ. I'd look up all the details yourself. So I'm not just going to list them off on here. The damages are $1.78 billion with a potential to 3x the payout

to the winners, which is they call some like treble damages. I think it's just kind of the rule for a case like this is kind of the 3x thing. And I guess it's going to potentially lead to more cases, more precedent in the industry. Apparently these costs, these selling fees that happen when you sell a home can earn real estate agents upwards of collectively like a hundred billion dollars in this country every year. And just for what this is, is when there's someone sells a home, when there's a home that gets bought and sold, there's two parties. And then there's like, you know, the agents, I think there's the buyer's agent, the seller's Sometimes, I've never done this, so I don't know.

Some of this could be wrong, but essentially, there's fees on both sides. The buyer has fees, the seller has fees, but a lot of times, the seller pays a fee, and a lot of times, apparently, these fees have been fixed, and the jury ruled that it was anti-competitive. I guess, and I did not know this, when you sell a home, the selling cost can be upwards of 5% to 6% of the home value. Did you know this? uh yes but that's yes and it's split between the buyer and sellers agents so like the seller

pays but the seller apparently the seller pays for whatever but the seller pays for the yeah a lot of it gets passed to the sellers that so so in reality it's five to six percent and there was stuff that was like there are people that said said like yeah it's it's a cost but it's going to be a lot costlier to try to do it yourself because you're going to make mistakes. I'm like, that is exactly what someone who wants to take the fees wants to say. That's what the incentives would say.

Well, it's interesting. I'm sure there is. I mean, they do provide some, there's some value. Like they having a buyer's agent and a seller's agent, at least,

you know, someone is in your best interest. Can you hear me? Don't know what's happening on there. I think you froze for like 10 seconds there. Yeah, Brian's got bad internet today, but I hope that was funny for everyone. Okay. Maybe it was mine, honestly, but what were you saying there, Ryan?

There's some value that's provided. I can't remember what all it was. I was going through the Wall Street Journal had a decent article on it. And I mean, it's not worth 6% of the property or the transaction, but they do help in the process, especially with the buyer's agent specifically. If there's stuff that is not on Zillow that they can find you like a home, there's areas that maybe they can find what you're looking for a little better than you might be able to. They might know what to look for in like uh some of the quality checks on the house but i would think if you're reasonably intelligent

you can read some of these documents yourself and just look up whether or not it's like common practice and whether it's safe but i certainly don't think anyone should be paying six percent of their home sale price unless you're paying this unless the seller's agent is the only person that can find the seller like if you can't find the seller yourself maybe he's got like some network of like willing buyers that you can't access i don't know if that's common at all there's no reason to pay six percent yeah there was some anecdotes some stories out there about how someone tried to evade this and they basically got blackballed by all the realtors which again is illegal and i think the interesting thing from this case is it's not like okay eliminate

real estate agents they're basically said and i think this is what the verdict was from what i was reading is they are they want a free market here they want the price to get set and not get fixed and i think that makes a lot of sense as a teaser right after we record this we're about to interview a housing expert lance lambert i think current or foreign former editor at fortune he just launched his own thing we're going to be interviewing him and he'll come out in a couple weeks so we're going to talk about this as well on there if anyone's interested in that i would listen to that one as well i think here's maybe for listeners to close things out here and why these fees can be so uh destructive because i was thinking about this i was like

does anyone truly make money in real estate except for these real estate agents because let's say you have a million dollar home and you want to sell it within a couple of years and you have a hundred thousand dollars in equity and you've probably put after a certain amount of time what would you say fifty thousand dollars in uh renovations upkeep whatever you know what i mean maintenance capex yeah if you sell it and prices haven't soared yeah maintenance capex yeah that's a good way to put it. Obviously, if prices have soared like they were from 2011 to now, then you'll probably make out fine because the price has gone up so much. But if you have only $100,000 in equity, you put in all that money outside of what you're putting in to pay for

your mortgage, and then you sell the home, and you have the seller fee, which is $50,000. You make nothing. You have moving costs. You have all this hassle. Is it worth the time and money to try to trade up on these houses and stuff like that. It just doesn't seem – the juice doesn't seem worth the squeeze unless housing prices are going up a ton every year, which doesn't seem sustainable over the long run. I think it can still be a good alternative relative to renting. Right.

If that's the opportunity cost you look at. But if you're looking at it as an investment purely versus US equities over a 10-year run, It's hard to ever argue that you're going to generate better returns because you got that seller's fee, you got the interest you're paying on your mortgage, now you're levered up so it's going to juice your ROE. But there's also, like you said, the maintenance capex, which is maybe you're adding air conditioning, maybe you're renovating the shower and the bathroom or something.

Something goes wrong, right? Something always goes wrong. Yeah. you're not just capital, you're labor. You got to mow the lawn. You got to keep up the house. Like that's time you're investing into it. Now, maybe, you know, the people love that,

but if you're looking at it purely for the returns, the ROI, it's, I don't think it's a good alternative relative to just an index fund. I don't think most people look at it that way though. I think we do. We look at like, oh, is that worth it? But if you're looking at it relative to renting over the next 20 years, you're more than likely

going to save some money and get a better return buying. Yeah. What's interesting is people talk about, oh, you got to build up the home equity and stuff. In that example I gave, you built up the home equity, but you put in those extra costs. Say those 50,000 is extra costs that you wouldn't be paying as you're renting. And then you have these seller fees on top of it if you decide to move. yeah if you don't move probably work out fine but you got to be patient it's got to be the place you want to go you have no flexibility i think in the end yeah with renting you get nothing right

but in a lot of these cases you're probably getting nothing as well and there's downside risk as well there's more downside risk i think people uh trading in and out of homes is tough yeah there's there's a lot more downside risk yeah if you're trading in and out of homes or if you're not sure on like job security or maybe location security that you want to be there for a while it i think renting is probably a good alternative in that case yeah but downside risk yes certainly but you don't have to unless you're like a forced seller you don't have to sell it at these lower prices. You can just opt to stay in your house, which I think most people today are doing that we're thinking about maybe selling over the last two

years. And now their neighbor's house didn't go for as much as they thought their house was worth. And all of a sudden, like, yeah, I guess we're going to be here for the next five to 10 years. Yeah. All right. 10 minutes left here. I think it's funny. Oh, one more thing. Okay. I think it's funny how many people say like, once rates come down, I'll do something. it's inevitable like it's like it's a guaranteed thing like oh i was thinking about buying a car but i'll wait for rates to come down like uh oh you got a direct line future yeah you got a direct

line to j pal's future brain huh yeah his brain in 2024 you got it you got a direct line on what he's thinking yeah people are it's maybe just wishful thinking all right if unemployment stays low and gdp is still rocking like they're not lowering rates 10 minutes left you want to talk about the drug man sure speaking of macro we'll probably not have any strong opinions on this but it was a good interview of anyone paying us we'll send you the link uh i actually only watched some of it ryan you said you didn't watch it uh first off i think he thinks he spoke about how corporations and individuals extended all their debt, speaking of those mortgages, right, at low interest rates when they could.

But he thinks one of the dumbest things, he said this in the whatever 200-year history of the US Treasury, was that the dumbest thing they've ever done is not extended their duration at low rates while the Fed offered it to them. This was when he was bashing Yellen, right? yeah yeah and he's yelling was in charge at this time yeah uh it was a discussion with paul tudor jones also another legend i don't have that many takes on that but it makes sense i think i agree with him i don't know makes sense i agree on i think i agree with drunk on pretty much everything just because he seems really smart when he says it so i'm like yeah you know that seems sensible

He's a good kind of man. Yeah. Okay. Other quote, he said, I think this is fascinating. Quote, for 30 years, I've never let my obsession with the deficit interfere with my trading. So he's kind of a deficit hawk. He doesn't like the federal deficit spending. Some people agree, disagree on that.

The reserve currency, modern monetary theory, I think it's Austrian economics, blah, blah, blah. what do you think about that quote separate the personal beliefs and gripes with how the country is run and if you think a stock is cheap buy it or commodity yeah it i mean theoretically if we're extending our if we're levering up more and more it's a better environment to be buying equities in right like i don't know how it trickles all through but for the u.s economy i think it's going to cause a bunch of yeah if you think it's going to cause a bunch of inflation maybe you shouldn't get long gold and bitcoin you should get long visa mastercard amex and some financials that you think are quite healthy yeah i mean if credit is

stimulus in a way like it feels like it's good for the u.s treasury to a point or for sorry not the u.s treasury for u.s equities um and the u.s economy at least to keep up with inflation yeah if you think it's going to be highly inflationary yeah it's got to be hard though to like i mean drucker miller's different than a lot of people just in that he's so active it's got to be hard not to let your opinions on because it's not like it's not just politics it has weight on the economy so if you think it has bearings on the economy i'm surprised he hasn't allowed it to impact his asset allocation in any way. Yeah, maybe it has, maybe it has.

But I remember Paul Tudor Jones in an interview said, basically, it impacted mine over the last 30 years and it's been detrimental for me. Now, here's the other thing that, and this is why he's the legendary trader. I will admit before this, I do not know much about bond trading. I do know one thing though, when yields go up, prices go down. That's what I know. and he said or paul tudor jones was trying to kind of gas him up here and they said back in 2021 late 2021 druck told him that he was shorting the front end of the curve which is basically two-year bonds

ish is what he said and he was calling it the greatest trade he's ever seen to druck miller was telling paul tudor jones this well literally immaculate timing because inflation was running hot and then the federal reserve went on the fastest interest rate hike in history and the yields on the front of the curb absolutely skyrocketed and i'm sure he made a fuck ton of money oh sorry trying to be no family friend here a lot of money yeah we might have kids in the car brady might be a lot of money yeah apologies uh we try to keep it yeah but a lot Yeah. I can certainly see that. It's funny how looking back on it now, it was obviously hindsight 2020, but inflation was quite hot and rates had not risen. And if I'm not mistaken, it was telegraphed that rates were going to rise and maybe that priced it in, but- I guess no one, I didn't think of that at all.

Well, yeah, I guess we're not drunken Miller, but, uh, I still think we got to get those like chit chat money merch shirts of like drunken Miller, you know? Yeah. Maybe. And he's like, it's a cartoon of him chugging something. Yeah. Yeah. Our favorite, our favorite man, Stan drunken Miller.

Um, okay. We got like three minutes, four minutes, solar, solar edge and phase tough reports. basically a whole bunch of cancellations from distributors and push-outs or requests for push-outs. No one wants to install solar quite as much anymore. And it turns out that there was kind of a massive bump in demand for this caused by Russia-Ukraine conflict. So did you see this coming i did not see this specifically coming but i have been weary over the last or cautious over the last couple years about these renewables companies specifically anyone exposed to wind and solar because of what i've basically learned about of the cost of these things the input cost

how it's you know maybe not as sustainable as people think and it's it's people are talking about it in a Moore's law perspective, which didn't really make sense about the prices coming down and stuff like that. And we've seen that there's been a ton of news reporting, at least from what I've read, I guess it's not a giant story, but how wind projects, offshore wind in the United States has this cost of skyrocketed. So the estimated cost of all these things are just going up and up and up. I don't want to touch any in this market because it seems like the economics might be entirely subsidized and do you want to really bet on government subsidies and basically where the political winds are favoring? Because we took out these political

kind of favors that they're giving to the industry, how they're kind of pushing their hand on the scale to say, go for wind and solar. And even in this case, the industry is not doing well at all. And I mean, how much value has been created in the renewable space? Like not much shareholder value and if we take that off we probably go much more back to you know fossil fuels and probably nuclear i would say i just don't i don't i'm a big nuclear head so if if uh i think if people came to their senses on that that would be terrible for this market i don't want to touch renewables at all at all too much supply chain risk too with china i mean come on it's it's a financing cost i mean a lot of people pay for

these with with loans a lot of people a lot of residential customers you know finance these uh solar installations so when rates go up unsurprisingly demand goes down a lot of story stocks here yeah yeah yeah anyway uh 10 40 almost here on the west coast do we want to call it or we got some time yeah maybe we just plug some interviews we got rick ceo coming up or out today we have value stock geek who is a let's say well we've talked to him once we'll call him a friend of the show he's coming on to talk tractor supply we've already recorded that we got edwin dorsey from the bear cave discussing his shorts or bearishness on hershey and then today we're recording with a housing expert lance lambert so toss out you know any of those

they'll be coming down the line just follow the show it'll show up in your feed and then we're also doing on our tuesday episodes a fantastic i think set of sin stocks i think we got a great balance there. We're doing British American Tobacco tomorrow, which is a very interesting stock. Trades at a dirt cheap PE. We've got MGM Resorts. We've got Smith & Wesson, maybe the sinniest of sin stocks. DHAO. And then Altria Group, where we're going to probably change up the format. We haven't finalized it yet, where instead of, since we closed the fund, it's basically going to be since i kind of like altria group i may be doing a pitch and ryan's going to try to poke holes in it do some devil's advocates stuff like that different scenarios kind of run

through that where essentially i kind of like the business don't own it today but have it on the watch list and would buy at the right price maybe the other person ryan in this case tries to poke holes in it and in other ways you know we might flip-flop that do other stuff so yeah gonna be a fun month. Ryan, anything else before I close things out here? No, sin stocks, I think that'll be a really fun one because a lot of them trade at reasonable valuations and have historically pretty good returns for shareholders in the long, long run. If not, I mean, British American tobacco we'll talk about a little bit, but there's certainly some promise with a lot of these businesses as opposed to maybe some of the other companies we've looked at. Yeah. A lot of operating

profits being generated now what they do with that well i think that's going to be something that we discuss all right as it is also last thing i don't know if anyone's still listening but uh we said we work might go bankrupt they'd have filed for bankruptcy hey we got a bold prediction that we might go bankrupt when we're like basically on the fringe well when we did the show we said we're like we basically ran the numbers and said wait they're going to file bankruptcy within a couple of months. And Hey, I wonder what, I wonder what happens, but we can discuss that whenever that finalizes and they probably get absorbed by softening, but let's say the disclosure, we are not financial advisors. Anything we say on the

show is not formal advice or recommendation. Uh, I guess we're not general partners of a investment fund anymore. So don't need to talk about that one. Uh, but yeah, none of this, none of this is financial advice for your own research. We talk about stocks we may own on this thing. All right. Thank you everyone for joining in and we'll see you next week.