Chit Chat Stocks - IPH #89: Investing Through Another Bubble; Ranking Magnificent Seven Stocks; Update On China

Episode Date: December 17, 2023

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hey guys welcome to chit chat money just a quick disclosure for this episode the youtube stream broke at about 45 minutes in so we had to do it into two parts we're not sure exactly where the audio cut off so it might look sound a little wonky there but we're just going to combine them together and don't think the podcast is going to be that big of a difference uh so yeah let's get Ryan to it. 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. This is the Investing Power Hour number 89 on Chitchat Money. Welcome in to anyone listening. I know we have no one joining live yet on YouTube, but these shows do go live every Thursday morning, 9.30 a.m. Pacific time, 12.30 p.m. Eastern time on the Chitchat Money YouTube channel, which if you're listening on the podcast, it will be in the show notes. You can watch the replays on YouTube. You can listen or fall on live there as well. Or if you'd rather just listen to the audio, go on Spotify, Apple, wherever you get your podcast. We do not care. But if you want to ask us questions, the only way to do that is in the live chat. On these shows, we talk about anything in the investing world. Could be specific stocks, could be macro, although we try not to do

that because that's where everyone wants to talk about. Could be businesses, could be earnings, could be anything and i am joined as always by my co-host ryan henderson ryan how are you feeling with stocks pushing towards all-time highs i think we actually passed it today upset very upset i just for full disclosure when we closed our fund we sent money back to our investors one but we were both investors. So a lot of my money was in the fund and it took forever basically to get that money back. And in that time, basically all the stocks I owned ripped. And so I did not get a bunch of the stocks I wanted to own. I was not able to buy them in time. And so unfortunately uh everyone's doing well but me it's funny it's kind of funny i know we're not

we're not going to talk macro but we started the fund at the beginning of the fastest and it's not an excuse but it is funny coincidence because we could have invested better we made bad decisions on our own in our own right we started the fund at the beginning of the fastest rate hike in history and closed at a month before it sounds like we're going to start easing so just unfortunate timing all around but yeah yeah it uh it's not fun to look at we would have had a good year let's just say that a lot of the you know it's it's unfortunate but all we can do is move on i don't think people want to hear us complain about that every show maybe we can say this is officially the last time we complain about that but one that i'm looking at

that is ally financial, that like the thesis seems to be coming to fruition, I still think it's fairly cheap. So it's one of those debates where, okay, it's not, it's gone up about 30, I think, percent, maybe even 40. I haven't looked at the price today. And, you know, that's quite a bit of return. That's probably two, three years returns of what you might expect in something that you own and you know i i still think they have a lot of potential i still think it's a great franchise but that it's just the debate of okay is now a good buying opportunity if i still think it's a high quality business um we do have some commenters joining john gallagos uh says good morning good morning john he says what is your current short list of stocks that

you're looking at thanks uh we don't have very many notes today and to be clear i think he's not saying shorting he's saying the stocks that are on our watch list which i think is actually a perfect question for ryan and i because we get some cash coming in that we may be uh buying ryan ryan just mentioned that as yeah we're basically just showed up this week so basically starting the portfolios from scrap um so like starting from scratch sorry so it's uh yeah what's at the top of my watch list like brett mentioned i think allies up there unfortunately it's a it's up uh seven seven percent again today great almost to 35 fantastic whatever um i do think it's i would be very frustrated if it were like a regional bank i was looking at and that was

happening where it was like one that i wanted to own where i don't think there's going to be that much growth and I was pretty much predicated on valuation. But with Ally, I do think there's a lot of upside and I think they're advantaged. So I think it's cheap. I think they're going to continue to grow depositors. I mean, I was looking at it today from 2014 to 2013, they basically, their retail bank customers went from 800,000 to 3 million. It's a little more crowded today the digital banking space, but still, it seems like they have a lot of... Because they don't have to pay out as much for the physical branches, I think that that savings rate advantage is pretty big and it'll help them attract customers gradually. And I think it basically trades

at like six or seven times EPS. Not actual EPS, but what they could earn if the interest margin begins to increase again. And if rates go down, voila, that interest margin should expand or should start to expand slowly. So yeah, allies at the top of my list. Coupons up there. Nelnet's up there. I bought a coupon already. Yeah. What was the other one? Sorry. Nelnet. But I already owned some of those. I'm trying to think of other ones. American Express is probably up there. Such a bummer. That list was so full three months ago.

Amex is up to 180. That kind of fills up my watch list for financials. When we maybe hit these first, these are the five that I like, obviously, at the right price. Maybe we can discuss which one

you think is the most attractive, or we can maybe debate here's the five. Ally, as Ryan just mentioned. American Express. Discover, Nelnet, Adyen all five actually Nelnet hasn't done that well but yeah

those are kind of the ones that I'm looking at that I'd buy at the right price I think some are kind of close Discover I don't know if I'm still sold on it yet but it's so damn cheap and Nelnet as people know who have listened a long time

we've followed along a lot Adyen is definitely very expensive but still a high-quality business. I don't know if we'll get that opportunity again, but hey, who knows? But one of those, I think right now, given the price, Nelnet looks the most attractive to me at a share price of about $88.

I think that's right around the book value, but let me check. But what do you think out of those, Ryan? Yeah, it's all concentrated in the financial space. i like all those that's uh that's uh the i'm i went through the financials ones only oh yeah i think it's hard to go wrong with that basket approach the only thing that i'm thinking about here is so if the reason that they're all up a lot lately is that net interest net interest margins should expand because interest rates are coming down they don't

have to pay out as much as savings rates, their cost for depositors should come down. But with the delinquencies and the default rates or the net charge off rate for a lot of these, do you think it really helps to have rates down slightly in this scenario? Yeah, no, I agree. Or just a slight different, it doesn't change much. Yeah, I wouldn't imagine that it changes the net charge off rate all that much. So I kind of liked it a little more, obviously, all else equal. It would have been great to hear this if the prices stayed the same,

but I liked it more before this Fed rate announcement because it felt like everyone was basically saying, I thought net charge-offs were going to be kind of stable from here. And I think they'll still be stable from here. But now all the stocks have basically ripped because rates are going to come down. So we're getting less return. Yeah.

And I think earlier this year, there was a higher margin of safety in these financials where net charge-offs could increase. And if you bought one with a good balance sheet, like they could you know weather the storm they're not gonna have any problem doing that and then you have that priced in almost i would say and then at the other side of things if things go poorly like it's kind of like a okay if things go poorly we probably don't lose that much money and then on the other side of things it's still a good franchise and probably does well but if we

if you know their performance is basically the same as it has been or maybe even just slightly worse and they keep growing the stock is going to do extremely well but that's kind of generalization i mean each one is different of course add yen isn't actually taking credit risk it's more of the payment processor but that one i mean yeah uh okay let's move to other sectors i got watch list it just depends how it describes it as a consumer discretionary i guess this is i don't know why they all get separated into this these two but these two are on the watch list in uh within there and that is airbnb and coupon now i will say airbnb let's look at its year to date share price uh one sec good audio good at it here today it's up 74 percent so

So, you know, it's not cheap. And I'm pretty sure the PE is like 40 now. It's not cheap, but Coupang, I think, is highly attractive. I wouldn't be surprised if I bought more over the next couple of months. I really like that one. And we did do a full show on that one. But Ryan, any thoughts on Airbnb? I like Airbnb.

I can't really get around the price. It just feels too expensive. like at that price it seems like you should probably just own booking holdings right similar business yeah we had a question from that as well where tyler thank you tyler says wouldn't booking holdings be the better equity to own in this period they are gross royalty and travel and hotel spending which should balloon if we don't have a recession yeah and it looks i don't have the metrics in front of me and maybe i can pull them up the stock is typically it's been cheaper than airbnb which you know like is airbnb that much of a better business than booking no and

booking might might be a better business i've heard some good arguments that booking is a stronger franchise yeah i don't know i'm just looking at this list looking at my own watch list and there's a lot of stuff that you know i once loved and i just don't find them that attractive anymore at current prices sprouts farmer's market oh what is going on i think it's a it might be it might be okay i saw that there was a goldman sachs upgrade but i think what's important for a stock like that to always look is it has a very high short interest so i think that adds some volatility yeah it's just getting kind of to an unreal or not unreasonable but the returns look pretty meager on that in my opinion and it's one we followed for a while

it's one it's a business that we think is fine it's not a great business but it's fine but it's trading now at what's the multiple on it i can't remember i remember looking at it at like 40 and we did or maybe even high 30s and we basically said like maybe we can get above 10 return here and it's up a lot since so i don't know it doesn't feel that attractive to me one i do like though no matter i was gonna go ahead i was gonna close the book on uh booking in airbnb before we move on airbnb evit evit 29.4 so basically 30 booking 16.2 so that's a big difference we should cover booking on a show it sounds really attractive i've heard or i've seen some commentary from the management team it seems like they're kind of rock solid so i think that

going to be a fun one to visit. Okay. We want to take another pause today to talk about our friends, Interactive Brokers, otherwise known as IBKR. We love Interactive Brokers. Ryan and I both use Interactive Brokers on a regular basis for our investment accounts. And the reason we love them is because they have the breadth of asset classes and geographical diversification. you can invest in options bonds stocks and in all sorts of markets that you can't find anywhere else whether it's the nordics where we like to research or down in latin america where we also like to research or in east asia you can find stocks that are listed in all these local exchanges and you can buy them on ibkr plus so many other features that we've talked about before if you want to

check out IBKR, make sure to go to IBKR.com, member SIPC. If you are a professional investor, if you like doing a lot of research, such as ourselves, which if you listen to our podcast, I think you do, you're going to want to check out IBKR and open and switch your accounts over there today. When WestJet first took flight in 1996, the vibes were a bit different. People thought denim on denim was peak fashion, inline skates were everywhere, and two out of three women rocked The Rachel. While those things stayed in the 90s, one thing that hasn't is that fuzzy feeling you get

when WestJet welcomes you on board. Here's to WestJetting since 96. Travel back in time with us and actually travel with us at westjet.com slash 30 years. Other company, Philip Morris. I still think Philip Morris is in a good spot. And I, you know, just in general, it seems like people are just like,

with the whole rate announcement yesterday, And we're still talking about macro, but the whole rate announcement, it seems like everyone thinks we're back. Consumer spending is going to rebound. I don't think it's going to make that big of a difference. I really don't. I think people's budgets are still pinched. We're not in the same spot we were in 2020.

I don't think we're going back to zero. So it feels weird to me that all these travel stocks are bouncing because of this, whatever. Big tech doesn't really interest me that much right now. The bummer is this reminds me of late 2020. We had this list of stocks. It was right before we we started the fund. A lot of the prices look pretty attractive. And in the four months that we needed to basically assemble the fund, all the valuations just ballooned. Now, I feel like I'm in the same situation again. And I don't want to make the same mistake where I've got this list of stocks in my head and I like them no matter what. And I just kind of close

my eyes and forget that the valuations have ballooned. So I think I'm going to end up going a little more concentrated once i start adding to my investments here yeah and there's nothing wrong with being patient and saying you know i'll build out a like if a lot of stuff gets too pricey for me keep it on the watch list you know and over the next six to 12 months like if it's on a retirement account strategy there's not the end of the world i think it's a good lesson that we're trying to learn from that mistake don't make that same mistake again rush in, have FOMO, don't say, oh, I'm going to miss out on this thing. And it's like, OK, yeah, you might have missed out on, for example, Ally Financial, but it

could also come back. You never know. Two months from now, it could be back to $25 a share and nothing may have changed. But if it doesn't, it's not the end of the world. There are so many other stocks out there and you just, I think, keep researching until you find them. And yeah, I don't think at this moment, especially because our accounts aren't extremely large as younger people, I don't think it's the end of the world to be more concentrated and deconcentrate over a multi-year period. Does that make sense, Ryan?

Am I explaining that correctly? I know we've talked about that before. Yeah, add companies gradually. like you don't have to you don't have to set your portfolio and then add money and do it equally across all the positions like you can well i'm talking to myself here but i can go kind of two or three companies at the start and add new companies over time as kind of new new money comes in but you got a question just just bummed i'm bummed that i'll have to be more selective it felt like six months ago we had like we're we're kind of rolling in ideas and it was like

where should we put it yeah it's interesting how that can change so quickly uh you mentioned tobacco philtmore's international i think is yes the currency is uncertainty but i i do i do like that business i think it's rock solid i think there's just literally low risk there we have question from john uh it says gents i have a tobacco basket of ultra british american tobacco and tpb which i believe is turning point brands haven't looked at them for a couple years but so i'm not gonna talk about them seems like they have been finding the bottom and have great dividends and plenty of time to see them grow yeah i mean look i i kind of like the tobacco stocks if they keep getting discounted versus other stuff versus treasuries that may have lower

yield now like of course i think they're a better opportunity especially if you're in a non-taxable account and maybe use it as a you know a bond like thing i think british american tobacco might be the better one at the moment just because of the price and 10 dividend yield i believe yeah like i mean that's if you just have to treat it like a bond that's pretty attractive I think, and I really like the idea, especially if, as you mentioned, if things, if we go into a true re-bubble period again, where we see stocks get even more expensive on a general basis and a lot of the stuff on our watch list, you know, it's like, okay, I don't want to buy this thing.

Well, instead of sitting in cash or treasuries, you can sit in this thing and get an 8% return and maybe there's, you know, some better opportunities out there. But obviously, there's still risk to those businesses too. If we do re-bubble, I'm going to make some changes to my investing approach. I'm going to make sure GARP's going out the window. Yeah. No, growth at a reasonable price, not 40 times earnings. Growth at a reasonable price, according to Buffett and stuff like that, that is 15 times earnings, stuff like that.

I know. It's so funny to think about that Buffett quote where it's like, much better to pay a fair price for a great business than a great price for an okay business kind of thing. And everyone's like, okay, yeah, then it is time. It's okay to buy Shopify at 50 times sales then because Buffett said this. it's like remember cease candy what like didn't he pay like 12 times earnings don't know i don't know the exact one but yes that's what he means and has meant about a fair price it's about it's about 10 to 15 times yeah that was their compounder that everyone's like look what seized it it's like yeah that was 12 times earnings we're talking i don't know i just i don't want to get back to that period but yeah i think i would probably if we're doing it again tobacco is probably a good basket look if if valuations across the board explode higher and tobacco doesn't move and then treasuries are much lower i mean yeah those

are all else equal i think those are better opportunities yeah i agree the uh it just i don't know i don't want another rebubble it doesn't sound fun to me i like the market that we've had over the last three years well we can just embrace it on the podcast and just talk about all the stocks it is good for listenership people people care more when Stocks go up. I think tobacco stocks is probably a good place to be. We can talk about all the hype stocks on the show to draw engagement, but my portfolio will reflect probably none of that.

So I don't know. Yeah. British American. I like that. Shareholder yield is like 14% right now. It's pretty attractive. and they're not going to have to pay that much taxes because of that ridiculous goodwill write-down they had.

Yeah, which is basically already priced in. That reaction to that was a bit strange. Question from Tyler. We got two. Actually, we got three just added here. Have you guys looked into home builders? Yes, we did last year, probably at the right time, but don't really like the business model too much.

He says they might be interesting here given the long-term housing shortage in the States and a potential trend back towards affordability. Yeah. One thing is I'd say on the housing shortage is the predictions from and the estimates from all the different economists are so wide that I don't think any number is reliable. Some people say there's a six million housing shortage. Some say there's no shortage. Some say it's a two million unit shortage. So I would say that no one knows exactly what the shortage is. There's too many variables here. and also we don't know what immigration is going to be what population growth rates are going to be all that good stuff there's there's way too many variables but at the right price a good home builder like nvr i think is a durable business they have a little bit of an advantage model but i would say in general after looking at all those companies the cash flow i think like can

The cash flow conversion, how a lot of stuff gets stuck on the balance sheet is a concern to me. It's not the type of business I like. I like one that has consistent cash flow generation. That's just kind of my style. Well, it's not. With NVR, it's different because of the way they buy the land. But the options agreements, they don't have the inventory on their balance sheet that much. but yeah it's it's better but it's it's still if i remember still not ideal

oh i could be remembering them wrong though it uh yeah we missed i think we missed on nvr and but we had reasonable i mean what stock's probably up double or triple since we looked at it but i remember we were thinking basically like we don't know what home prices are going to do and And if home prices come down or their average selling price comes down, then we're in a – basically, it's going to be a – we don't know what's going to happen to margins. But I think we're looking at it too much on a general basis, like housing prices across the country. Whereas some of these are, if you're a first-time move-up or a first-time home producer, like I think NVR is, in certain geographies, I really don't think the general housing environment is going to affect them that much or affect the average selling prices, which seems to be the case, and they've done quite well in spite of it. So I, I, yeah, I think house home builders, I wish we would have, uh, I wish I would have considered them a little more seriously back a year ago, probably a little bit more difficult

now, but yeah, I like them NVR, DFH or dream finders homes. Both. Those are good. The other thing I will say though, they, uh, the options model that they use where it's like, what's the term? It's like a land option. Basically, they don't buy the land. Someone else holds it. They have the option to buy it basically right before they sell the house. And then they pay a fee for it. I like that, but it's not that unique now. Pretty much all the home builders, except for a couple, implement that in some way. So I'm not sure that's like a, the big advantage that it has been for NVR since like 2000. So when I, when I expect the returns to mirror what NVR has produced over the last two decades,

other questions here. I was going to say something on home builders before, uh, reference NVR late last year, PE was below 10. Uh, and now we're back up to about 15. i think home builders are just all lsql if you obviously the moat with mbr seems good great management all that good stuff i just don't think it's a good it's not the industry that it's it's just not the best industry yeah maybe what you just don't like the work i'd rather have something that's a take rate it looks all lsql i'd rather own airbnb booking and expedia maybe not expedia

i don't know like you want to take great on stuff like that you want all i'd rather own visa mastercard american express like don't i want to ask the light businesses all else equal and yeah these can claim else all else is never equal with these you know what i mean like these valuations are never the same american express sure okay amex i'll give it to you and american express at this point it's probably more like 20 20 times earnings but like visa and mastercard those aren't trading it those are not trading below 10 times ever the uh john says brett what do you consider the best industry the most asset light well like oh well the best industry it's hard to maybe sector is the best way to do about it i mean the payments networks are extremely attractive i would say

that any sort of online platform is also extremely attractive, right? Like YouTube, Instagram, stuff like that. That's, I think, fantastic. It's kind of hard to go off the top of my head, but I love the kind of e-commerce platforms around the world too. Amazon, Coupang, MercadoLibre, not Jumia.

That was a scam. but uh yeah i think those are good any any on the top of the head for you i failed what is what did uh trevor milton say when they uh in his trial it was like uh he said like trying to be an entrepreneur isn't a crime like yeah exactly well committing crimes is a crime as an entrepreneur uh oh other one other one um cpg businesses that now some people might argue ozempic is about to disrupt this whole thing but this brings us back to the nicotine pouches why we're we were so attracted why we've been talking about them for three to four years we actually just had a good interview with spencer sabelli talking about a kind of way

to play that with this company that does online stores within that. But yeah, I think those type of businesses are attractive because you have a consistent customer with a specific brand, specific taste, and it can be durable and the margins can be good and you bring cash out of the business that you can return to shareholders. I mean, just think of the businesses that Buffett has bought over the years, right? But See's Candy, American Express, Coca-Cola, Apple, and then also high quality if we go outside of asset light are ones that have just an infrastructure remote because obviously those e-commerce platforms aren't asset light.

But the vertically integrated e-commerce platforms such as Coupang and Amazon and Mercado Libre, I think are fantastic businesses as well in the best industries where you're going build out one set of infrastructure and then the economy or civilization is not going to accept 10 because who's going to build 10 railroads through all the towns right that's why the railroads are also highly attractive businesses too it is yeah i was looking through that mobison list it's like his wide mo business list and it's 98 companies and i remember just going through each one thinking the big commonality and the big advantage between a lot of them is either scarce assets. So there's a lot of airports and stuff like that where it was probably purchased

from a government or there was a government auction for them way back when, especially with the Mexican airports. Scarce assets where either you can't reproduce it or it doesn't make any economic sense. So airports is one. Railroads, you probably can't at this point reproduce it. Cell towers is another one, American Tower, Crown Castle. There's so many zoning rules that it's hard to reproduce the network they've built. And then the other one was a lot of the companies that showed up on this wide moat list, it was just companies that had built out either a massive logistics footprint or tons of infrastructure over three decades, Amazon's probably the one that comes to mind here, where they have been plowing so much money into CapEx over the last

20, what, almost 30 years now, that it's so hard for anyone to reproduce that. And even if you do, you have to have the revenue to back it up in order to finance all the CapEx. I think that, yeah, situations like that, like you said, where companies have built up massive infrastructure over a couple of decades, those are big advantages. That list, the average returns were all like rock solid. I think a lot of it has to do with that infrastructure. And the big question always as an investor in these companies is not what was the moat in the past? it's will the moat stay the same will the moat deteriorate will the moat expand over the next five to ten years as i guess we just we're talking luxury this month those are also wide

moat businesses i think that are a great industry to look at although there's only a few companies out there a lot of them are private and then the last one i will put down is what i would call enterprise or worker software and maybe specifically put it more to like employee uh core software that people use within an industry the core examples here for any anyone knows like excel right that's an incredible business just giving the switching costs giving what i would describe even as a network effect where you're if you're doing any sort of file sharing you know especially within the cloud and all the the shared file tools that everyone has now and then another example is autodesk products which are fantastic businesses because again the

shared nature the switching costs the learning curve you also have the resume mode the resume mode yeah that's a good yeah yeah exactly you're putting it on the resume if if you have to put it on the resume to get into the workforce like okay i'm proficient in whatever your specific industry's software is then it's it's got to be pretty hard to replace because the company probably has a whole bunch of whatever it is architects engineers using the same software they just don't to switch so i think i don't know if that's can we say we coined that the resume moat i think other people have but i think we are we've talked about that a lot and yeah i don't know if that specific term maybe you can you can take claim there salesforce step type stuff is a good

example although all these companies seem to spend a lot and uh have frustrating management teams and capital allocation but i will okay best businesses highest quality i do think software is in there there is just a plague of expenses there's an issue there's it's spread throughout the entire software industry and i've now having worked in a software business for like three weeks i gotta say These things are good businesses. At the core, the incremental cost once a customer has signed on is very low. If you have a sticky product or a sticky platform that your customers are going to continuously use, very, very good businesses. And I just have to believe that Salesforce, Autodesk, Adobe, they could have significantly higher margins. They just have an expense problem. Yeah, I think Adobe might have extremely high margins.

So maybe we're... They're 40% for cashflow margins or operating cashflow margins, but they spend 13% of sales on like stock-based comp. yeah let's look at true operating margin how about that gap which no one likes to talk about 27 34 34 although it's a little yeah it has treaded higher over the last 10 years so kudos on them all right i have another topic chinese stocks seen a lot of talk about them lately because, well... China's back. You'll never guess.

What? China's back. No, the stocks, you'll never be surprised, are falling. If we look at... Let's look at the price of both the favorite ones among all these people out there. JD.com and Alibaba seems to be the value investor camp. Over the last five years,

they are both pretty much two all-time lows for the last five years, and both are down about 75%. And look at the P.E. ratios. Let's get the number here. Obviously, these can be wrong. We're just an aggregator. Both of the P.E. ratios are around 10. I think that's a proper discount for the geopolitical risk, right?

It doesn't mean I don't want to buy these things. But when people argue that these deserve to trade at 20 times earnings, I just don't get the hype around these things still. Of course, they should trade at a discount, right? The country is saying- They traded at a discount five years ago. Where did the cash go? I think they should, yes, you're right. They deserve to trade at a discount. I honestly, if you look at the cash flow from these businesses over the last five years, and see where they ended up like where where most of the cash went i'd be curious yeah well don't think it came back to shareholders yeah i mean i'll if you do all the sum of the

parts stuff with alibaba uh basically so many people argue that it's the cheapest large cap stock in the world and i'm kind of like yeah that makes complete sense it's like do you follow the story if you follow what country they are operating in who did the i think it was willis cap on twitter did like here's my alibaba dcf and it was like all the cash flow that it generates over like 10 years then it said like cash flow paid to government cash flow available to shareholders is like zero dollars like 100 because whatever yeah it just feels yeah i had it's pretty easy just say no for me with china i've never understood like i don't know doesn't yeah there's doesn't really interest me and then on beyond just the geopolitical risk

it's a very different like consumer the very different habits it's a country i've never been to a country i frankly don't understand that well and there's been so many like fraud cases that for me it's a little hard to like if a company's saying this is how relevant we are within the country here's our numbers here's our revenue here's our market share that kind of thing it's hard for me to say like oh yeah i believe that seems valid because i you don't have any boots on the ground you don't get a sense of whether or not the relevance is real you see you saw that in a big way with uh luck in coffee like they talked about stealing all the share and And now the stock's done quite well since post-fraud, where it's like, I think if you

were there, you could maybe understand, you would maybe have a better sense of whether or not all that success they were hyping up in their investor presentations was legit. Yeah, that's fair. And I will say, if people are comfortable with the geopolitical risk, I don't understand why you wouldn't just buy Taiwan Semiconductor. because if that's what you're comfortable with why don't you buy the one maybe the widest moat business in the world doesn't have the discount maybe i don't know i honestly don't well maybe not anymore yeah i don't know what their multiple looks like maybe maybe it's worth

the uh i don't know maybe it's worth the risk 10 times earnings alibaba like if things don't things don't get worse for them and if geopolitical uh i don't know turmoil situation is kind of at its worst there could certainly be good returns there yeah but i think this is a much more like what i think they should be trading at versus before when they were at premiums to do western democracies they were at premiums well at some point yeah just because the growth rate the uh people love china stocks like five five six years ago we brought up taiwan semi and we talked about buffett earlier did you see this stuff about it's like a berkshire lawsuit it's not the one

it's not the issues that they're having with the pilot drama but it's like this apparently Buffett entered into this agreement where he owned 40% of some business and it was basically in six years, we'll buy the remainder from you at 10 times earnings, which they said in advance. And now they've got these... The management's trying to boost short-term earnings for the year as much as they can like they've got this is the pilot thing right no well that's exactly what's

happening with pilot too wait I think that's like the pilots weren't getting paid no I thought that was like the net jet drama okay oh there was some net jet drama with the pilots that I saw this company is called

this this company one of its names is called pilot so that's where the confusion is oh okay so So maybe it is the, I wasn't sure what the company's name was, but it's so bizarre to say like, we will pay 10 times earnings for you in 2024. It's like, there are so many ways to massage that number. So it'll be funny to see how this plays out. Basically, I believe Berkshire sued that – I don't think it was the person running the company because they technically had majority ownership, so Berkshire had their own CEO in place. But it was the outside owner had all these sweetheart deals with particular executives or managers that said, if you get these deals over the line before the end of the year, I'll give you an extra bonus here or whatever.

so could be i don't know but on the flip side i think they sued berkshire for saying that berkshire was trying to depress earnings because of some accounting gimmick yeah like we're using real accounting now guys i think uh the easiest way to fix that is just have a third-party auditor right they just decide it that would just make sense in these type of deals but yeah they are sticky situations i think that'll be interesting to follow and it is a classic buffett deal i guess he this is one of the few where he missed you know he always says that i do handshake deals with people that i think i can trust i guess this is one of the few that he made the mistake and maybe it went with someone that was it could have been berkshire that makes him made the mistake but

what was someone that was a bit sleazier that could be the case here because typically they they do these type of deals which are more handshake ish agreements but it's with the the culture of trust the seamless web of deserved trust as uh the late monger love to repeat so eloquently the i wonder if he's ever done deals like this before where he says how much like what earnings multiple he will pay in advance because it's kind of a like you're just bound to run into conflict like obviously they're going to try to juice that earnings figure and you're going to try to depress it like i don't know it's not it's not gonna end well that's it yeah yeah the incentives okay we have a follow-up from tyler saying he just checked taiwan semi is at a ev

to ebit of 13.3 trailing 12 months i think that's a better bet if you're comfortable with the geopolitical risk nice i'm not comfortable i don't own it but i think you know what i mean because you this business is more understandable for western investors i think yeah probably i was looking at like i don't know if tsm would fit in here but i was looking at a dashboard like a general dashboard, general watch list. And the companies on that were Berkshire, Google, Microsoft, Tesla, Netflix, Apple, like the Magnificent Seven plus a couple. I just thought if that was my portfolio, I would stop investing.

It's so boring. I find that so boring. Tesla, I don't think will perform that well. So I think Apple, I have worse expectations and the market seems to be pricing it. It feels to me like Apple just has no one that's going to sell it. Like the indexes own a ton. Pretty much everyone that owns Apple feels like they have owned it for a while and just have a huge tax bill that they might have to pay.

I don't know anyone that's buying it. it just a three trillion dollar company right it's massive iphone sales i have a hard time seeing them grow above 10 from here hardware sales in general i see having a hard time growing above 10 from here so yes could generate 100 billion dollars in cash every year for the next five years that doesn't make it that could have investment from here uh nvidia no you know what i'll change it up from you i'll put microsoft in the underperformed camp and nvidia in the perform well camp all right the ai boom continues did you see google's the google epic games lawsuit news i did uh says there's well it's some big i guess

risk for them but i guess we don't know what's going to materialize yeah i read into it a bit this morning so i guess first of all they had secret revenue sharing deals with the hardware makers that like basically said like hey prohibit the other app stores from coming on and we'll give you a cut of the google play revenue they also had they also struck secret deals with every basically rival app store and said, we'll give you $10 million in marketing revenue. Google will spend $10 million in marketing revenue if you shut down your app store kind of thing. So yeah, guilty on all accounts. They were striking deals that were anti-competitive and prohibiting other app stores. So yeah, they lost on all accounts. They said they're going to appeal the deal. It seems unlikely that they're going to win the appeal. It seems like on Android, it's going to be an open ecosystem that if you want to build your own app store, you can.

i wonder what kind of benefit this has for companies like match group where they're potentially paying now way less on any other app store i bet there's going to be a flood of new app stores that are like zero percent fees or like one percent fees something ridiculously low to try to just garner revenue. And if people download from there, I mean, or they use those billing systems, MatchClub's going to be in a really good place profitability-wise.

Well, a lot of their revenue comes from Apple's app store, but they're going to be in a much better spot in terms of gross margins. Yeah, I think two things for me there. One, this is probably less hurtful for Alphabet because this is a tiny business for them and more beneficial for the mobile apps that the big mobile apps out there do lingo match group

the games all the big games stuff like that and second i would it would be hard to argue it eventually won't hurt apple because aren't they doing why would you have one regulation for that one app store but not the other it seems like the regulations are going to end up being similar it was yeah from what i was reading a big part of it is that it's not for the most part it's not Google's hardware. So it was striking the deals, like the backdoor revenue sharing agreements with the hardware providers was one of the big reasons that it was anti-competitive. So Apple doesn't have to do that. But my thought here is that if you're Google now, you can maybe even advertise like, hey, all the apps you want, all the stuff you pay for in the

apps, they can be whatever, 20% lower on our phones. Because like if the match group, for example, if Tinder plus or whatever the subscription is today, Tinder gold, if you can have it be whatever, if you're not paying the 30% commission, you've got 20%, potentially you could shave off and still make that extra 10%, you can offer lower prices to people through other app stores, which you can do on the Google Play Store or not the Google Play Store, the Android ecosystem now, potentially this hasn't all come to fruition yet. You can't really do that on Apple.

I don't know if that's enough to draw people over to Android powered devices, but I think it's pretty appealing that basically everything's 20% less, maybe potentially through Android ecosystem so it could ultimately even be a win in terms of like pixels growth that's i was going to say it's going to incentivize i think google to invest more in pixels which frankly they're already doing maybe they've seen this light at the end of the tunnel i think like that's a realistic way that things could happen i think generally what i'm more confident in is that no one wants these app store fees to be high except for the two app stores and i think eventually people keep saying well i don't know none of this ever actually materializes it's been 30 forever and nothing

actually happens but i think eventually you have to expect that the fees are going to come down and that look i believe according to we don't have the actual numbers that are audited but and this is kind of just from reporting that the app store on apple has like 60 margins could be doing like 10 billion in earnings a year maybe even that's not a bad that's not a insignificant part of the business it's not a bad business yeah it's a great that's a great business and i'm it's shocking to me that they've like why didn't they just lower it to a smaller fee because it's not going to kill your business but you're going to make everyone in all your stakeholders excuse me happy yeah i think apple might still be in a decent spot because i don't necessarily see people

switching like switching from ios to android devices purely because there's lower prices in the apps maybe yeah i think people just love iphones for whatever reason and once you're kind in there you're stuck uh but yeah across the world we're now seeing legislation or verdicts that rule against apple so maybe it starts to come down but yeah it would be something that i would probably do proactively yeah it seems like maybe but they're incentivized to keep it high um for short-term profits i don't i would say as an investor i would price in that which is why another reason that i'm not attracted to apple and it looks like they're going to lose the google

search apple anti-competitive thing which is a fat fee could be up to 20 billion dollars a year that's another risk that is look apple could make it up somewhere else with another deal or doing their own search engine but that creates a lot of uncertainty that was a 100 margin 20 billion payment a year they had to do minimal work and if that just kept going that's beautiful but if it if it goes away they got to do a lot more work there's a ton of uncertainty there and it stocks at 33 times earnings do you think that was probably just like a they google got 20 billion dollars in mobile ad revenue or 25 billion let's say and they said apple will give you 20 billion uh no unless you're misinterpreting what you're saying there apple got 36 percent of the search

google revenue search revenue on safari so they probably make like i don't know if i'm dividing it probably 60 billion 55 billion in revenue which seems like a decently fair cut but you could i mean it's it's clear how it's anti-competitive yeah in a world where safari is open to any browser well it already is right i mean you can change it can you yeah you can change the search to anything else i don't know that the uh It's just a fault. Do you think most people just download Chrome?

Well, I mean, half download Chrome already. That's what I do. Because I like connecting it to the basically Google account stuff where I have all my passwords saved in Chrome, payments and stuff like that. So, yeah. I think a lot more people download Chrome, but they already are. So, it's going to be interesting how it shakes out.

Yeah. I think we're running up on time, but it got a little messy after. Yeah. Let's see. yeah looks like we did another 10 minutes um yeah i think that's probably whatever if it's not exactly an hour it doesn't matter uh for anyone that's listening hopefully we'll probably toss in something at the beginning saying that the stream broke uh but we got a good 45 minutes in there before for some reason the zoom update didn't work very well so sorry zoom sorry for

everyone but it shouldn't be too bad for the audio quality uh these goes live every thursday day if you want to ask us questions join in the chat 9 30 a.m pacific time if you like the show please share and tell a friend i think that's a good one that ryan mentioned that i'll probably say every time now and give us a five-star review on apple or spotify you can listen to this wherever you get your podcast uh let's go through the disclosure we are not financial advisors anything we say on the show is not formal advice or recommendation ryan i and any guests on the show may own stocks discussed on this podcast, may have owned them in the past, and may buy, sell, or hold any of these stocks in the future. Thank you, everyone. And for the few asking the

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