Chit Chat Stocks - Jim Gillies - Sin Stocks, Bubbles, & RCI Hospitality

Episode Date: March 30, 2021

Jim Gillies joins us this week to discuss sin stocks, bubbles, & RCI Hospitality. Learn about Jim Gillies' background and how he got into the investing world. The group discusses how Jim invested during the dot-com bubble and the current value of some sin stocks. Listen in to hear some analysis of RCI Hospitality and reasons why the stock has done so well. Let's go! Follow Jim Gillies on Twitter: https://twitter.com/JimPGillies?s=20 Listen to A History of Financial Markets on Spotify: https://open.spotify.com/show/3sQa194vZT94e6hxIQvflQ?si=Ru-jpu2iQKatQJnC2RwEyQ Listen to A History of Financial Markets on Apple Music: https://podcasts.apple.com/us/podcast/a-history-of-financial-markets/id1559960525 Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Subscribe to our YouTube channel: https://www.youtube.com/c/ChitChatMoney Follow us on Twitter: https://twitter.com/chitchatmoney Visit our website to see more from your hosts Ryan and Brett: https://www.chitchatmoney.com Email us: [e-mail] Timestamps Interview | (3:27) Hot Water | (1:14:05) Buy-Sell-Hold | (1:29:56) Anecdotal Evidence | (1:31:28) 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 Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. Today is Tuesday, March 30th. We have an interview with Jim Gillies. Jim is a friend of the show. He's getting into the Matt Cochran territory, kind of. Kind of, yeah. He's been on twice now. Runs Motley Fool. No, he does not run Motley Fool Canada. He works on Motley Fool Canada, running Motley Fool Canada, Hidden Gems, or maybe just Motley Fool Hidden Gems, whatever. If you like that type of stuff, he's all over it. Great. You know, he's a foolish investor which we like but he's also he's got a bit of a twist so we covered sin stocks right uh we covered investing his with his barbell strategy some growthier stuff and some real you know berkshire like names and he's an edgy fool investor he is definitely an edgy one

and it's always fun to talk to him and we compared what so he lived through the 1990s bubble the internet bubble and a lot of people make comparisons now to then uh and he kind of talks about the similarities and differences he's seeing as someone who has lived through both periods yeah he's probably on my mount rushmore of other investors i know to get a beer with yeah probably probably uh but we also have a little in it well we're going to do hot water on the back end with buy sell hold and anecdotal evidence no stories for the week but we have a pretty big kind of big announcement uh new show called history of financial markets uh it's under another feed but we'll try to throw the link somewhere in the bio um and you can do you want

of just give an explainer of what the show is? It's kind of in a, you know, we're still kind of in a testing phase with this, but we figured we'd throw some things out. You could say we're kind of in tech terms, beta testing it, but yeah, it's a history of financial markets. So it's really in the name there. And we cover different periods of history. We focus on the United States in the first season, which is eight episodes, all about 20 to 30 minutes each. We We focus on the period of 1900 to 1909, kind of how the market was, New York Stock Exchange. And the big event was the panic of 1907, which is very exciting. But don't want to spoil everything and don't want to blabber on.

So I think that covers it. Okay. And then we have to give our sales pitch. Well, we don't have to. It's our choice. But new 7investing member. Big news. Big news.

What's his name again? Okay. I hope I'm getting it right. honor bond mahanti he's from i believe australia uh phd in computer science i'm seeing this from simon who's run seven investing his tweets so not only do they have new recommendations coming up but they got a new member that is going to be giving out some of those nice uh recommendations but ryan before we'll get we'll we'll get going but do you want to just give the the promo code and then we'll oh yeah it's code ccm you get ten dollars off but i listened to him on seven

investing now, and he's big on the innovation. So if that's your avenue, this is the time to sign up. But without further ado, here we go. 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. Ryan and Brett are also general partners at Arch Capital. And Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. All right, today we are welcomed by Jim Gillies. I think I first met Jim during my internship this

Summer at The Fool. He is the, and correct me if I get this title wrong, lead advisor for Hidden Gems Canada, a Motley Fool service. Am I getting all that right? That's perfect. Okay. And gave a great pitch on the 25 Stocks at Christmas, a company called Nel Nets that I recommend people take a look because it was one of our best episodes. Definitely. But for the listeners, a little bit of background about yourself, Jim, how did you get to The Fool? What's kind of your financial background, if you will? Sure. I come from a family with no financial background whatsoever. My family are not investors. I can tell you that I had as many conversations with my parents about investing over the years as I did with my dog. It just

was the radar uh my father uh my mother was a school teacher my father uh was uh an accountant sales marketing slash uh jack-of-all-trades for a company for 42 years um extraordinarily hard worker my dad but you know financial stuff was just was non-existent um and so i uh i actually have a couple of engineering degrees i went as i i i have a undergraduate in civil engineering a master's degree in environmental engineering uh i worked industry uh basically industrial process redesign uh for about a decade after i graduated um you know and that's that's kind of that's kind of you know in my engineering career i started you know once you start getting established you start making more money than you know you need to pay your rent and your food

uh it's like i should start putting something away and i should you know maybe learn a little bit about investing or whatever uh and the company i worked for at the time had kind of a savings and investment plan where you know you put aside you know six percent of your salary and they'd match it with four and a half percent and you know engineers tend to be fairly decent at math and i'm like oh i'm getting 75 percent return on my money on day one that's pretty good so i'll do that um and so uh my mom as i mentioned was a school teacher uh once i think my parents had paid off their house they were in their 50s at that point early 50s uh you know i think they they started talking about this whole retirement thing and my mom expressed an interest in uh i'd

like to uh you know learn a little bit of this investing stuff so for mother's day one year i bought her a couple of books that i selected with no knowledge whatsoever i just i just would be in mid 90s, I think. And so I just grabbed I grabbed a couple of books at random to buy her gift for Mother's Day. And I'm dead serious when I say this. It's a little ironic. One of those books was the Motley Fool investment guide. She never read it. I went, went back to my parents now live about a mile or two from me where I live here in southern Ontario. But at the time, they lived on the other side of Toronto. And so I'd gone home for a weekend, see my parents. I was staying over went out for some friends or whatever and so uh basically when i went to bed that night i just

grabbed a random book to read kind of before bed i just happened to buy you know i grabbed the book that i'd bought for my mom the motley fool investment guide uh i stole it the next day and took it home uh i read the book probably i was probably finished that day um and it quite literally uh it quite literally changed the course of my life uh because i started getting you know what that sparked you know it's a perfectly good book you know i mean it's been updated there's a few concepts in it that are now out of date the fool no longer uh really emphasizes i think probably the best book the gardner brothers ever did was probably rule makers rule breakers which came a couple years later um but what the most important thing about that book for me was

is it put me on a path it put me on a path to you know reading other things reading other books particularly uh peter lynch's one up on wall street and beating the street uh they talked about this buffett guy who you know i looked him up and read his letters and said wow like there's something going here uh and so this went on for a couple years where i was i basically was investing while in my engineering career and my my uh my then spouse said to me at one point you need to get new friends because i don't know what you're talking about neither do any of our friends um And so, you know, around that time, I started I started posting on message boards at Motley Fool, you know, kind of, you know, this is I mean, this was probably around 97, I think. And, you know, like this was basically like I was my job was a site was a distraction to to, you know, to my investing career or to my investing hobby, I suppose.

uh and so you know i went through went through the dot-com experience um i had uh i got some things to say about that as well i guess um but i ended up uh around that time i started making plans to um at the one company i was working for i just you know i i was a perfectly acceptable engineer i liked it i liked the work uh a lot of times if you're an environmental engineer and working in industry you you tend to put yourself out of a job uh because uh you solve the problems frankly uh you know and if you keep them solved then you know the the projects that are left you know they start to decline in interest because you've solved all the cool things and um you know so i was at this one company and they were kind of threatening to promote me uh i had a meeting

with multiple members of senior management where they said you know i was like number one or two on their list of people for their replacement, you know, kind of succession planning. And so, you know, they kind of, you know, they gave you the whole, you know, play your cards right and all this will be yours. And I said, I don't want that. So I quit instead.

So I walked away from my engineering career. I was 32 years old. I walked away from my engineering career, did an MBA in finance, timed that exquisitely in that approximately a week after I finalized my, my work in that program, uh, my former spouse gave birth to our first child. Um, and, uh, you know, there were some things that happened there such that I had to stay home for the first year, um, you know, which was fine. Uh, but you know, so now I'd already been out of the

workforce for over a year anyway, for the whole NBA thing. Now I'm out of the workforce because of uh because of complications post-birth and so i had a lot of time basically a lot of time i've also done i during that time i also went after like i've written i've written and passed all three levels of the cfa never bothered to file my paperwork because it doesn't really it's not going to make a difference in my life motley fool is not really doesn't really care whether i have it or not um but you know i've done them and it's fine but i had a lot of time in my hands in that first year, you know, when the kid was asleep or, or what have you. Uh, so, uh, I got real active on the Motley Fool investment boards and, you know, got into a few, uh, deep

discussions with people you've heard of Tom Gardner, David Gardner, Bill Mann, um, you know, and so, uh, this ended up with me coming on with the Fool in 2005 as a contract, contract writer, not direct guy and uh i haven't left you know i've uh i've i've um it's funny because when i actually ended up having an interview with tom um it lasted like five minutes maybe 10 minutes and we shot the breeze and you know after you know after the fact tom you know it says well we didn't really need we had like two years of these in-depth 5 000 word investment valuation posts that you've been sharing like we we knew who you were we knew how you thought um you know but uh you know i've i've greatly enjoyed working for the motley fool uh i've been an analyst or an

advisor for multiple services um my career has tended to go into some strange areas uh i am quite possibly the world's worst growth investor at uh i don't think i might be embellishing that little bit, but growth is not my focus, which is, of course, a very popular subject in the investing world at this time. Certainly, The Motley Fool, I would suggest, is probably fairly growth-oriented. I've always been a special situations, deep value, cash flow guy. I'm also a fair hand with options. I've used options a lot. I worked for Tom and Bill on the original Hidden Gems. I was co-advisor on Hidden Gems Pater, which was small cap value investing. That service shut down during the credit crisis. I was the front alongside Jeff Fisher for Motley

Fool Options for a decade. I did a stint on Special Operations, which is a service that the Fool used value in special situations called Special Ops. I ran pro-Canada for the entirety of its existence uh and now basically i'm in front of hidden gems canada which is small cap and don't tell anyone i have kind of brought that whole pay dirt ethos of little weird stories there forward uh as well as i contribute to stock advisor canada to dividend investor canada we're a small team up in canada uh but greatly enjoying greatly enjoying the whole thing and and uh you know i i it's funny because when tom when i did that interview with tom you know now 16 plus years ago i think um i'd already accepted a job with uh with deloitte i was going to go

there was going to be kind of a hybrid engineering slash financial career there and then tom you know during our chat he's like you're going to work for us at some point why as well be now and i said okay so i i quit deloitte three days before i officially started uh and uh took less money initially to go be a fool and it is uh without without question the best decision i've ever made in my life so uh you know like i said i've been there about 16 years now and uh having a ball every day to this day right yeah it sounds like a fascinating career path and yeah you've been you know the molly fool or you're uh i almost call you a molly fool veteran now but the yeah yeah it feels that way yeah yeah but we want to get into your style so you have uh what you

describe and as a barbell approach maybe could you explain that quick and how it works for you and why you choose to invest that way sure uh so i've got uh one end of the barbell we've got uh we'll call it uh the bedrock i'm not sure that barbells and bedrock work together but let's go there uh so that's your bedrock companies your high quality uh ideally cash flowing not ideally you best be cash flowing um you know companies that the price may or may not fluctuate with the market and that's fine um you know like look in in a downturn you know a 50 market downturn berkshire hathaway is going down brookfield asset management is going down um and that's fine uh but they're probably also going to come out of it pretty good and you know in a in the mythological

50% downturn where, you know, the world is collective gnashing their teeth, that's when you can pick up bedrock companies, as I call them, at fantastic prices. So, you know, like during the credit crisis, you could have bought Starbucks for like $4. You could have bought Home Depot, I think, as low as $19. Like just, you know, who was going to supplant those companies during the worst of it, right? And so even a year ago, March 2020, when we had this pandemic thing going on, you could have bought Brookfield Asset Management for about $32 Canadian, I think. You could have bought Kinder Morgan, a big cash-gushing pipeline company. You could have bought that for under $10 a share.

And you were getting 9%, 10% dividend on top of what you were buying. those are not going to be multi-baggers to knock the lights out but they're going to let you sleep real well at night and at the other end of the barbell so and then you got you go you got some things in the middle you know like you know like i um you know you could say well i got a bunch of positions in the middle but the other end of the barbell is um more speculative bets but not speculative in terms of the big growthy growth names of the day. I have nothing against the growth names of the day. I do have personal difficulty squaring some of the valuations with the tools of valuation, your traditional discounted cash flows and where the cash

flows are coming from and coming up with a good cash flow forecast that you can discount. um but you know like a speculative that one one which you guys have heard of you know like i i 2016 i bought a decent little position in some company coming out of ottawa canada that's you know going to revolutionize online shopping yeah i've heard of that one yeah like some some little shopify company so my average cost basis in them is like 47 48 canadian so multiply that by 0.8 If you want the current U.S. price, it's it's higher today. Right. But it was, you know, but the speculative nature of it was, look, this is a company that's trading at 10 times sales. Now, sales are growing like gangbusters and the finite or the the size of the potential runway they have is almost infinite.

Like, we've called it Amazon-esque before because, you know, how many small and medium-sized businesses can be enabled online? Well, ultimately, probably infinite number. And then even things like, I actually just noticed this this morning, which I thought was interesting, the Globe and Mail, which is the Canadian national newspaper, their website is now powered by Shopify. So if you buy a subscription to the Globe and Mail, it's now powered by Shopify. Well, I know for certain that was not the case a number of years ago. And I had some friends who had started businesses before Shopify even launched, or sorry, before they were public. And I remember talking to my one friend who had started a business and was using them. and they'd had prior uh they'd had prior exposure with um you know using contract coders and what

have you uh for their business and it's had some horrible horrible experiences and so basically you know maybe a year after shopify went live i was asking him hey how do you how do you feel about shopify and he's like we will shut down the business before we leave shopify and i'm like well well that's a vote of confidence um you know and i say well you know in the very peter lynchian move i tried to say hey do you own any shopify because maybe you should because you seem to be a very satisfied customer um but also in in that other end of the bare barbell you know it's a real catch-all it it's not all gross stuff i i mean i own paypal but i i own paypal because of the special situation right i i owned ebay before it spun off paypal so this is where you're kind of

your special things land um you know i own square but you know i bought it for other reasons uh you know that was like i could see this being bigger so that but it's more of a speculative size but also down here you get these uh strange businesses that are left for dead uh that people uh you know well or just people aren't interested in looking at them uh call them small apps very very often they're small caps uh i love to find businesses that are that have characteristics of uh the things that can grow into the big success stories of the day but they're just too small like i think we recommended acuity ads holdings which i know you guys have talked about with ian gray um i think we recommended that when it was about a 50 million dollar canadian market cap

i mean who can buy that right um you know uh uh contour brands is another one that i just i i love the story here they're the they're the ones that own they own uh wrangler jeans brand and they own the lee brand of jeans um you know who doesn't want to invest in the third and fourth tier level jeans brands right uh but you know if you actually did the work. There was a spinoff from VF Corp. They got a pretty steady $300M per year EBITDA profile year in, year out. They themselves tell you there are no growth, but they can make a little bit from cost containment and whatever. And they were paying this big fat dividend. During the credit crisis, big fat dividend goes away. Stock gets shot in the head. You know the dividend's coming

back because that's what they were telling you. That's how their shareholders are going to get their returns. You buy it at $15, dividend comes back, cash flow is great. The stock, I think today is around $50. And you've locked in a 10% dividend yield from the purchase price. Oh, and by the way, they're probably going to get bought out. Because if the market doesn't, You know, the regular stock market maybe doesn't understand the attraction of a $300 million perpetuity. Trust me, private equity understands the value of a $300 million perpetuity. So once the two-year anniversary of their spinoff from VF Corp goes by, which will probably

be, I think it's late May of 2021, it wouldn't shock me if the company was gone within a year or two. You know, so that's, I hope that answers the question. I mean, I've got a bunch of other stuff I like to do, but like, again, you got the bed rock at one end of the barbell you got a few things in the middle like you know i i don't know what you call um you know like i've got i got some canadian bank stocks or some canadian reits uh you know that's probably falls in the bar barbell stuff i've got i've got a little bit of like the the average stocks and tiny middle but really it tends to be either the bedrock at

one end or the special situation slash strange valuation slash speculative bet at the other end And, you know, frankly, it's been a pretty decent way to invest. So it's definitely a unique portfolio. Yeah, definitely. And how do you use options still? Do I use options? Is it just a positioning thing? or is it like uh like i mean have you basically do you do it as a as a replacement to just buying

the stock outright well i think there's a lot of like maybe listeners look at options and say all right that's gambling but how do you look at it guys we could have a four-hour show on options um the the quick answer is yeah like i said i i did i was in front of uh uh the motley fool options service for a decade from 2009 to 2019. Um, uh, what Jeff Fisher and I did, and it was a real, I mean, Jeff Fisher, I think you've met guys have met him. Jeff Fisher is just, you know, if you had a list of people who are the nicest, most friendliest, smartest, best people to work with, um, wow, Jeff Fisher. I mean, I think Jeff Fisher is holding the door to let you in because he's absolutely fantastic. And he's a fantastic investor. He's just an overall great

human. So, that was just an utter privilege to work with him for 10 years. And we just really synced up on that product. And what we synced up on was the notion that, look, options are tools. That's it. Okay? We are investors. So, you should be spending 95%, 98% of your time on getting your investment thesis right, understanding the business, understanding the cash flows, understanding the opportunities. We're not talking about options at all, right?

For the entire time. And once you think you're in a position where you think you know what's going on and you've got an appreciation for the value of the company, notice I haven't said over or undervalued. I've just said the appreciation and you you you understand your investment thesis then you can bring those tools forward

to express that investment thesis so in a lot of and and look options um they can be gambling certainly the way that they've been used in the past year or so with the game stop saga uh you know where people are buying out of the money the so-called gamma squeeze people buying the so-called or the out of the money call options to, you know, force the market makers to buy more shares, to be, to keep Delta hedged. I know Tesla, that's one of the things probably that lay behind Tesla's meteoric run of late 19 and 2020.

They can be used for ill, but you know, and that's cool. And, and maybe, maybe you'll strike it rich on your game because someone wins the lottery, right? Every week, someone wins the lottery, even though you know it's uh it's probably not going to be you uh but and god bless those people if they if they get lucky and i i never begrudge anyone making a dime anywhere but the way i use options is i need to understand the underlying company and when i understand the underlying company then i can use options to express a thesis uh and also options you know they they get a they get a run of being um difficult or uh or or too hard to use um and and and my stance has always

been they can be you can over complicate things uh i'm not a big fan of buying options standalone um that's usually a good way you'll you'll what usually happens is you'll buy a call option which of course appreciates you you make money if the stock goes up underlying stock goes up uh what will usually happen is uh you know any gains you make will be already you know will be lost because you paid for the option in the first place and uh you know and if the stock doesn't move up for you and your option you have to sell at a loss it'll probably move after you sell the option um it's just it's not a you know i i tend to focus my my strategies in in a couple ways um one is an income strategy so it's put writing but put writing done well um you know the biggest problems i've seen

with put writing or when people over lever themselves, uh, you know, so if you can afford 200 shares, you sell two puts, you don't sell 20, um, because one put contract is a hundred shares. Right. Um, you know, so, uh, but you'd be surprised like the, I've, I've never seen anyone get in trouble in their portfolio. It doesn't mean it hasn't happened, but I've never seen anyone get in trouble with their portfolio, uh, with, um, uh, iron condors or some of the crazy um some of the crazier uh strategies you can put in place doesn't mean you can't but they they tend to be more difficult and people tend to use them uh smaller because they are you know they're more attuned to the risk uh but put writing is the number one thing i've seen people

blow themselves up with um because they just they sell too many uh but i do a lot of put writing uh i i have very rigid uh controls over my own portfolio i like to think i got pretty decent discipline um you know and i have rules for myself where i uh reduce exposure from certain times or at certain times um i've had to do it exactly once in my career uh my own self-imposed rule but you know and that was fine um but you know as i've gotten older my my options fit into the income, which is put writing and or covered call writing. Or I like to do a lot of synthetic longs, which is probably my favorite option strategy. I do some spreads as well, bullish and bearish. But probably my favorite strategy is the synthetic long, which is you sell a long-dated

put option, you take the money from that, and you go buy a long-dated call option with the same strike and expiration. If you pull up your Microsoft Excel, you will see that this gives you the payoff of owning the underlying stock without the pesky need to actually own the underlying stock. So as you can imagine, this is a really great strategy when the stock goes up. It is a significantly less great strategy when the stock goes down. So in the spirit of Will Rogers, don't buy one that goes down or don't set one of these up on one that goes down. um but that goes back to what are you investing in and so what is the situation that you're coming to um you know and and we can explore that if you want but you know the uh synthetic long if you

were to approach uh i'm just going to pick on shopify because again it's one that i own and know and um if you were to come to shopify with a synthetic long in the last couple years it's probably worked out for you but it probably would have been an absolutely just terrifying ride um and some of them won't work for you like if you if you were if you slap a sin long on shopify at 1400 us dollars which i think it's gotten up i mean you are sitting here probably you know kind of worried about at this point when the stock's closer to 1100 you're probably worried And as well, too, because I don't like high-priced stocks for the strategy because, you know, 100 shares in an option, you know, this Shopify at $1,100, that's, you know, what, you know, $110,000 per contract per synthetic long. That's great and all on the way up, but it's less great on the way down.

um so you know i i i'm very rigid about controlling the the exposure of my portfolio uh but i also don't think you know like look you the the things you want to use for this particular strategy are not companies like shopify or snowflake or palantir pick any pick any of your growth favorites just buy those and hold them just you know uh but you know intel when they change their ceo boy that looks like a nice one uh philip morris at generational lows or it's not philip morris now altria at generational lows boy that's a good one ebay when they're eating themselves apple when they're eating themselves boy those are good ones to to goose with a synthetic lawn so um yeah i hope i think that answers the question

i think we gotta bring it back i use options right yeah bring me back we gotta bring it back and do like a whole show on options because i think we're understanding it a bit but a lot of people really just like it's like uh it's like a whole new language uh but i think it really is it's easier to look at it really is and if i can throw a cheap promotion out there uh i'm no longer involved with motley fool options i say that i'm not making recommendations there of the gentleman who took over for me is is is um jim mueller uh the service is is a little smaller than when jeff and i were there but it's still jim is doing great work uh jim and i talk daily about options among other things uh but we talk daily we're good friends uh we were friends before we both worked

for the motley fool which has always been funny to me um but uh he's doing good work and we do talk about options all the time and if people are looking for i know this is shameless promotion i'm so sorry um if they're looking for an education and options they're willing to put in the work there are worse things you can subscribe to than motley fool options and i'll leave it at that um so yeah but i'd be happy i like you can probably tell i love talking options so yeah no no it's fascinating topic but you mentioned growth stocks i think that could segue to um so you you know you mentioned before that you started investing kind of at the start of the dot-com bubble you were there um do you see any parallels to the market today i know a lot of people like to make

those comparisons but history isn't going to exactly repeat itself so these two environments how do you think about them um yeah history doesn't repeat but it does rhyme as they say um i was there uh i was i was the idiot i it's funny it's funny you know i i had friends i had one friend who who during the tech bubble because i probably i think i got my first stock in 96 so yeah so i i invested through it um but i was the idiot with uh i was the idiot with canadian bank stocks and steel mills during the dot-com bubble um that's where most of my money was uh so you I had a friend who turned $50,000 into about $450,000 in nine months in late 1999 and early 2000. Of course, I'm just sitting here going, well, what am I doing? He subsequently turned

that $450,000 into about $8,000. Easy come, easy go, I guess. There's a lot of dross in the 2000 uh nasdaq bubble that rightly got blown up in my opinion um you know everyone knows e-toys and pets.com or i think it's best icon uh but you know things like uh there was a company called 724 solutions um which was an internet company canadian company uh people remember it because it's gone uh the largest company in canada was traded on both the canadian and nasdaq uh nortel networks. Nortel network was at 1.35% of the Canadian index. So if you were a passive investor in Canada at the time, people don't know I'm Canadian. If you were a passive index investor in Canada at the time, you were unknowingly putting one third of your money into the Shopify

of the day, the can't lose growth name of the day. Don't bother looking up Nortel today, it's zero. it's gone for various reasons and I don't want to conflate Shopify's potential end with Nortel's because they're completely different but there there was there was there there's a lot of parallels but I would say a lot of what we see today there's and there's dross out there I'm not gonna name companies but there's dross out there and those companies will probably end the way that draw so the dot-com bubble did i am more concerned about um some of the the great names out there and i and i've used shopify already so and i and you already know i own shopify so you know i will i will talk about the risk to my own stuff because rather than going after anybody else um you know

the great names of the day back in the dot-com bubble uh the cisco's the intel's uh the microsoft These were world changing companies. Right. Microsoft, you know, owned, still owns, owned the software, the operating system business, you know, and it was it was what every computer came with. Intel powered the guts of those computers. Cisco was was the the picks and shovels play was going to build out this new thing called the Internet. you couldn't lose with these high-quality names. The example I always like to use is Cisco. Cisco today is about 40%, 4-0, below its dot-com bubble high. They're about 40% down today, 21 years later. For that period, they've done, I'm going to be roughly right, precisely wrong, they've done about $200 billion in free cash flow during that period. They have spent all of that money, that $200 billion they generated in the service of shareholders through buying back stock. I think

they bought back 30%, 40% of their shares over that time, as well as paying a dividend and raising the dividend on a regular basis. And the stock is still where it is versus its all-time high. Intel has never recaptured its all-time high at the dot-com craze. Microsoft went sideways for a decade and a half. It is, in fact, possible to overpay for the truly great company. And that is where I would suggest the parallels because, you know, look, there's crap companies in every market and they'll have the natural outcome of crap companies. But that's what my fear is for today, is that the great companies of this era, the great companies of the cloud players and what have you, maybe and even a bunch of them are down 30 40 50 percent in the past few weeks so maybe maybe this

is i'm now looking in the rear view already uh or from their all-time highs uh but that that's where i worry that uh maybe some people buying in this market will have will have some regrets um you know and especially when you look at some of the really great uh dominant names you know uh the so-called fang stocks, um, go look at the valuation for Facebook or for alphabet or, or for Amazon or Apple. They're not, they're not bad. So, you know, that's, I'm not talking fang stocks when I talk about, uh, um, the, the, the richly valued names of today,

I'm talking more in the cloud and the tech and, and, and, and the really recent, like a lot of the recent IPOs, you know, they're i i would be worried about them oh don't even get me started on doordash man at one point oh sorry i just i just doordash at one point them and fedex were valued at roughly the same market cap and i'm like this makes complete sense because one of them is a global logistics company that can get you anything anywhere anytime and the other one is a guy in a 96 honda civic you know delivering cold food to your house sure makes sense yeah the uh well the thing i think too cynical oh no it's not the uh interesting difference between now where we

weren't there uh you know we were just kids but in 2000 it seemed like all large cap was at least whether it wasn't as extended as the NASDAQ, but all large cap was one of the most overvalued in history. Now, everything got a giant haircut heading into 0102. This scenario, if these companies, I'm not saying you can predict the future, but if they get a 50% haircut and the other stocks do fine, it's almost like, all right, well, if you had all your eggs in that basket and you say you have a long-term time horizon are you ready to underperform for five years knowing that you're holding some of these things now maybe some people are but that's kind of the concern now we look at it now if you're you can say you're a long-term investor until you're

trailing for price changes sentiment whatever nothing changes sentiment like price so is that kind of how you see like the large caps not the speculative names aren't as there's a big difference there between now and 2000? Yeah, I would say that's fair. Yeah. And also, look, I mean, interest rates, I mean, I hate to be the macro guy, because I'll be wrong. Interest rates at the time, you know, when when the market started falling, the whole concept of, you know, interest rates and asset prices are inversely related. You know, kind of the central axiom of finance, I suppose. You know, that's 10 year bond with six and a half percent, I think ballpark at that time. So,

you know the market had time to prop things up or the fed had time to prop things up uh they that that's that's a weapon that's largely gone for obvious reasons um and and so but that also the whole concept of of inversely related uh interest rates or discount rates and evaluations um you know just to return to a more normal interest rate uh you know i i think that's definitely benefited some of the more speculative names in the last year year and a half uh and and i don't think even if rates just slowly inch up i think this is going to be a lot of people hitting the sell button but again i mentioned a lot of the big the big names the big tech um you know the fang stocks um they're gonna be fine yeah like i i'm not worried about that uh but you saw a lot

of me even like coca-cola i mean buffett has said you know like he he blew coca-cola out the door or he should have blown Coca-Cola out the door in 98 or whatever it was. Yeah. 80 times earnings or something. Yeah. That was probably your signal, but Warren, you know, like now I, I understand, look, you're not going to throw, not going to throw shade on Buffett's holding Coke through that one. You know, the, the guy gets basically his cost basis back every year and a half via dividends and the dividends aren't taxed.

Cause it's all within the Berkshire structure. And you know, he's got a massive tax bill if he sells his chairs and Warren's a collector. Right. Um, but, uh, you know, look, I, uh, a lot of cases he's a collector, not always how those airlines talks doing. Um, but I, I just, I am a fan of, I mean, I'll say something that maybe a lot of people kind of go, what the hell are you talking about? Um, I am a fan of investing as if the market and the macro story

doesn't exist. So we've had a few days here of the NASDAQ going down. A lot of growth investors are kind of either taking their stance and going, oh, we will hold, or some people have gotten scared, as you can tell from outflows and various ETFs. I'm a fan of just like, hey, what's the, I'm going to quote Buffett again, I'm sorry. What are you a fan of if the market closes for five years? Are you okay owning what you own if you couldn't get out for the next five years uh maybe sounds a little weird for a guy who plays with options which of course are um notoriously short-term vehicles uh but it's once once you know and own a story i think you can hold it and you know as long as you know what you're as long as you know what you own and what it's

worth and why um i i think the broader story or the broader market story and the broader market trend kind of and should fade into the background um you know and so it's like okay well i mentioned i own i own paypal to pick a name um i've owned it for a long time literally since the day it was born um it's gone up and down a lot man like you know and it's like okay well i think my thesis is you know x y and z and the you know the sorry x y and z um and the the transition to the cashless economy and the war on cash, as my colleague Jason Moser likes to call it. It's one of the four horsemen of the war on cash. I don't get terribly upset when it's down 20%, 30%, 40%. I don't get terribly excited when it's up 20%, 30%, 40%. I'm not sure I can say that about all

of the stocks that are hanging around out there that have received rich multiples. yeah yeah i'd agree with that i think you're not 20 or 30 percent smarter because the stock would have 20 or 30 percent no in my case it's quite the opposite usually so yeah yeah i like if your if your portfolio went up 100 that means that either you're investing in companies that are compounding their intrinsic value at just insanely high rates in the average market or the risk in your portfolio is higher now. So you have to really understand that. Yeah, I think I've got a decent example of that.

And again, I'm referring back to the formerly, have you guys ever heard of Nortel Networks? No, we're two. We've talked about it before, you and I, but. Yeah, well, so Nortel, again, I mentioned it, and people can draw parallels to certain names in the market today if they want. But like Nortel Networks in, from about 92,

It was spun out of basically Bell Canada Enterprises, the phone company up here. It spun out, I think, in the late 80s, early 90s. From about 1992 through 1998, it routinely traded between 1.5x and 2x sales. Ballpark. Sales quadrupled over that period. I think it was a 5x or 6x bagger over that period. It could be because the valuation never got a a little. The valuation followed the stock, to quote Peter Lynch. In 1999, the valuation, the price-to-sales ratio on Nortel went roughly from about 2x sales to 10x sales, and they roughly doubled their sales. That's a 10-bagger in a year ballpark. right yeah but for the next guy the next guy coming along in 2000 to get the a similar return

that price multiple's got to go you know it five the the valuation multiple you know roughly five x in a year uh and i i'm sure someone's going to pedantically check all these numbers but you know look i'm roughly right i'm not precisely right um but for the next guy coming along he's got to see the price to sales ratio go from 50 from 10 to 50 right that they've still got to double their sales and you've got to have the valuation ratio 5x again and that's a harder not that it can't happen but that's a harder thing to see happen and to make happen for anyone and for any company uh and of course the market valuation is completely outside of things so so i i look at a number of these high growth companies that we see and and i just like

you know i'm i'm glad you like the company i and i own some high value companies as well because overvalued and high valued are two different things um but just be aware and just be aware and be aware of of why you own something and be prepared for that 30 40 50 drop and everyone of course thinks they're prepared for the 30 40 50 percent drop when the stock's going up 20 a month um just just be prepared yeah it'll test you i feel like we could go on forever about this let's let's talk sin stocks uh even some of the names we've been talking about but um i guess my first question is just sin stocks generally why do you think they get such cheap multiple um i don't know if you have any performance numbers or anything on like that

but it's i i don't have any explicit performance numbers i know that um i am a fan of fan sounds bad i'm gonna get in trouble um the the concept of sin stocks it kind of goes back to um your sin might be what you perceive as sin, uh, is quite possibly perfectly fine by me. What I perceive as sin is, is quite possibly perceived by as fine by you. Um, and so the whole concept of sin stocks to me is, is largely, um, it it's subjective morality, not objective morality. For example, tobacco, just to pick the ultimate scenario. I tweeted out a month ago or something like that saying basically, look, I'm long tobacco, debt collectors, student loans, strip joints, subprime finance, and plastic packaging. Am I the bad guy? Because I think

you could have an argument. You guys mentioned Nelnet earlier. Nelnet student loans. Well, when I first found Nelnet and started digging into it and asking people around the floor, have you heard of Nelnet? Like literally every single person's reaction was, Oh, Nelnet, they had my student loan. I hate those guys. Like everybody, you know, has a very negative impression of, or they all have that negative impression there. Tobacco, you know, tobacco is you know, it will, it will kill you. Okay.

I have family members who have died from tobacco. I point out, again, it's going to get me in trouble. I will point out that no one should be engaged in tobacco products. If you got rid of tobacco products tomorrow, I would not complain one little bit. But the fact of the matter is the government's more than happy to take a not small amount of tax revenue off of sales of tobacco products. And it's highly regulated. And it's highly regulated. And because of the perception, it gets that sin, you know, multiple, as we want to call it.

But the thing is, they also have no advertising expense to speak of. uh they they have no r&d expense to speak of really it's beautiful well i mean yeah that's just it and so i i've i've wrote an essay 10 or 11 years ago because i i had the temerity in motley fool options to make a recommendation a bullish recommendation on monsanto you guys you guys you guys familiar with monsanto yeah they get a lot of hate they get a lot of hate um and i had to and i and i said to one of my analysts at the time i said what's the over under on how quick someone on the message board says these guys are evil and he just like yeah go away you know you're he's fine and i said no i'm serious and i think the wreck came out at i said

i'll give you an hour i think the wreck came out at like noon and by like 12 46 the first how dare you recommend this. I'm like, okay, well, look, it is not my, first of all, maybe I take a fairly libertarian approach to this. But look, you are not terribly interested in my ethical and moral positions. Probably we can have a conversation over beers and, but you know, it's not my job to tell you how to think. That is greatly overstepping my bounds. And you know, for a guy recommending stocks or recommending option transactions that will ideally make a profit, you care about one thing, in my opinion. You care that I've understood the company that I'm making the recommendation on and maybe, and then by extension, if it's an option thing,

you care that I know how to use the options to implement the investment thesis. That's it. You don't care about my politics. You don't care about my opinions on regardless you pick the issue of the day uh i suppose we could bundle it all up to politics uh you know my job is to say here's an opportunity where i think we you and i can make money that's it i might i might be liberal i might be conservative i might be communist i might be pick your poison i might be all of those things and more but my job my my responsibility to you is to find a money-making opportunity, period. And as you said,

when we talked a little bit about the financial picture that they present, they're beautiful. Yeah. Right? I'd also add... Sorry, go ahead. The, I don't know, like being an investor

doesn't make you an advocate for the product. Like, I think the ethics is what you do. the money you generate from the investment that's where the ethics should be like that's where the ethical dilemma is like first yeah there's been first party and third party for sure i think colin roche has probably the he just i mean he's not like a a lot of people know who he is but he has like a the best piece that kind of summarizes why you should be thinking like it's kind of weird to think that way um because it is tough at first you're like no why would i invest in that because i don't want to support that but if they don't need a ton of money from you to you know use your

stock as collateral to raise money or do another stock offering it doesn't matter to them if you if you're holding that when's when's the last time ultra you're offering you know like they're not raising additional well i that's just it like we we are we are dealing in the third party market And to go back to that Monsanto example for a minute, and I hope I'm still coming through here. My computer is giving me that, you know, your Internet connection unstable message a couple of times. So hopefully this comes through. We're getting there. OK, cool. OK.

But like Monsanto. So so here is the thing. Right. So Monsanto, you know, gets a lot of hate, as you said. Some of it justified. Some, I would argue, unjustified. I believe they also do some good with their products. frankly. But you are not giving your money to Monsanto. In fact, because it was an options transaction, you don't even get the dividends that Monsanto was paying. So you're not even getting any tainted money into your account. What you got from this, it was a bullish recommendation. So I believe the stock price will go up and this strategy will make you money

via this means um you are making a third-party bet with another options investor the market maker uh but you're you're making a third-party bet you know monsanto is completely it it'd be like you know we're gonna bet on the outcome of the toronto blue jays versus the los angeles dodgers in a baseball game right we're gonna bet 20 bucks i'm gonna take toronto you're going to take la um when the game is over and the money changes hands regardless of who won the la dodgers and the toronto blue jays are completely ignorant of our existence they don't care they're not involved um so you know when you say well i don't want to support something well you're not that's just it in fact if it if it is a if they are a dividend payer and

you do buy the stock um then if anything they're supporting you but that's true but but but again you know like i i said at the beginning you know uh you know in my engineering career i've got a couple of engineering degrees right and it's environmentally focused um you know so you can probably infer uh some political aspects of that uh which doesn't match up with owning a lot of what are called sin stocks but again i i've always gone by the the idea that my personal ethics they're personal they're not yours they're not the next guy on the street uh you may or may not agree with them uh and over beers we can have a chat about any number of subjects but in my official capacity as someone who's supposed to be recommending opportunities to make money

uh i believe that i do you if you are a member of whatever motley's pool service i'm working with if i believe i have a duty to give you the best idea that make money and my personal ethics cannot come into that um i i feel quite strongly about that you might say i have an ethical opinion about that um and so you know if i think that you know this company over here is the best opportunity, the tobacco company, for example, then I believe the ethical choice is to put it in front of you. If you don't like it, that's fine. Your ethics are also yours and they're personal. If you literally sit there and go, I can't handle this, that's perfectly fine. The beauty of a Motley Fool service is it could be another stock pick in a couple of weeks.

You know, but but recognize that a lot of people, you know, will find problems with you can find problems with practically any company. Right. This this this company, this company offers subprime financing to to subprime customers. Well, but they also have taken care of their people and their stakeholders and their community. This company offers, you know, student loans. But, oh, but wait, they, you know, they let, you know, how many people, you know, afford college? This company, they, you know, they provide tobacco products. Oh, but wait, the tobacco products is also, there's some bleed over into the marijuana space, which, of course, became this, you know, everyone hated tobacco, but wanted to go into marijuana. Well, you know, there's some crossover companies there, fools. Sorry, folks, force of habit. You know, and you can generally, you know, again, I don't want to pick on any company in particular, but, you know, there are companies that will cloak themselves in, you know, perceived righteousness, where I think the management practices are anything but. Yeah, I think we all got, I think we all are on the same page. I'm not saying which ticker. Tickers.

uh so you know i mean we were going to talk about a company called rci hospitality you know if we want to roll into that uh rci hospitality as you guys know is is uh used to be called rick's cabaret which is what the rc stands for um rick's cabaret is a publicly traded strip joint company uh and so you can understand where some people uh would take umbrage with that I can understand it. Uh, I am, you know, I have no, I have no particular ethical concerns about a strip joint. I kind of find them a little sad and pathetic to be honest with you, but, uh, you know, but it's my,

my significant other has been trying to drag me to one for a couple of years and I'm like, no, I'm good. Thanks. Um, you know, but she's a, she's a fun girl. Um, but you know, like I understand why people would be upset about that. And so it's okay. Fine. You don't have to invest in them, but, But if I told you that the CEO has been there forever and, you know, basically kind of found religion, so to speak, about capital allocation and that, you know, the CEO of this company, which, again, is a publicly traded strip joint company, they also have a restaurant concept, which they're building out. And so maybe that becomes the predominant business in a few years and that would be great. um but you know the ceo at this company uh you know i guess read the book the outsiders

four or five years ago and i was gonna say yeah he sounds like he uh he found he found he found religion man like he he uh uh you know and and and i i've said this before to to some folks around the office but i i think the way that they have outlined their capital allocation strategy what they will do with their cash flow they generate is probably one of the most comprehensive coherent and just plain logical things like if we aspire to own companies with open and transparent management with with great capital allocation um ethos and and and history uh you know how do you square that because as an investor, that's what I'm looking for. And oh, but he does so running a company that is a publicly traded strip-toying company. So it's an interesting conundrum,

I think. And again, I understand completely why some people wouldn't own that company. But I think that if you do value things like capital allocation and management who has a large meaningful stake in the business and is interested in in his uh fiduciary duties to to the stakeholders and the shareholders um you could do a lot worse man it makes me think like if you if you invest with like libertarian views and just see it as consenting adults as customers like you've probably done pretty well for yourself as an investor yeah whether it's rci hospitality are all chair over the years. Yeah, well, let's move into RCI.

You mentioned it, I think, a little bit, but I think we need to maybe introduce the company more to the background. So the stock has kind of muddled around for two decades. Can you give a little background on what happened there? And then maybe talk about what changed because it's kind of getting a lot more love in the markets as nothing changes sentiment like price,

but it's gone, I don't know the exact numbers, but it's been on quite a good run. So what changed? Yeah, it's gone from about $12 last summer after coming down from a previous high, I think in the 40s. It was about $12 last summer. I think it's about $60 right now, $60, $65. I really mean it when I say the CEO got religion. And the religion being capital allocation. He might have another religion for all I know. But no, I mean, I think that that was really the moment. Yeah, because you're right. It did muddle around for years. And look, it's not. Again, it's kind of a it's a business that I kind of think is icky. You know, frankly, the nightclubs, I'm not interested. I'm too old to go to nightclubs and buy the bottle service and whatever. I'm not interested in, you know, really what they're selling. But I understand that some people can be. but it was really the moment of the cash of the allocation the capital allocation that really changed and started laying out here's what we're going to do with the cash that we generate because whatever you think of the business it generates a lot of coin and then they've also got as i

mentioned this uh this restaurant segment they call it bombshells it's supposedly a military themed um restaurant i will kind of like a it's kind of like hooters a bit or it is not it is not kind of like hooters it's basically it it is to military as hooters is to owls okay okay okay so you know it's uh you know and look there's no end of restaurants you can go to but you know these things are there's not a lot of them i think there's about 10 they're all in texas in the major centers, you know, Houston, Dallas, Austin. But they're starting to franchise this business and they're going to do another 10 probably in the next two or three years.

They've already got their first franchisees lined up. So, you know, I really like franchise businesses. It's nice when someone else takes the operational risk and you take 6% of their sales after selling them a system. That's really nice. um you know and and and bombshells does uh you know significant alcohol sales which of course there's some nice uh some nice margins on that um and and so i think management said they believe they can get to 80 to 100 locations so so i think we'll see some pretty significant um expansion

opportunities there uh the nightclubs they tend to you know uh they tend to go in and buy uh if it makes sense uh because the you know the dirty little secret no pun intended uh with with a strip joint is uh most cities don't really want them around we'll call it a nightclub or a gentleman's club i suppose um you know and so if you if you have an incumbent club you might be grandfathered into your location uh you might have a local government effective monopoly because they won't grant a new license for a for a competitor across the street so you kind of have that market to yourself um and if i can diverge for a little bit here i'm gonna steal from uh my friend bill man when he says that we were we were talking about the wwe you know the wrestling guys uh

we've talked wwe a while ago a couple weeks ago i think um you know and in that industry the the ceo you know vince mcmahon has basically rolled up the entire business himself and and you know they they kind of own north american wrestling now and the way bill put it was like you know they they basically took the mountain that no one else wanted uh and no one else realized they might want and so i kind of look at that with the nightclub segment here with rci is that you know locally they kind of got a local granted government enshrined or government ring fenced monopoly in many of their locales um do we like monopoly businesses or not like i i get that it's not i mean i i again i am i don't think anyone should own this company or any company if they

are uncomfortable with the product like i i really don't there's there's plenty of fish in the sea as they say and you know you have all kinds of opportunities um but you know if you just look strictly at you know so they they've got the bombshell segment they've got the nightclub segment uh both of which are throwing off significant cash and they've kind of laid out this really um this really interesting capital allocation strategy which is basically like look we we will buy new clubs but we'll pay three to four times evida so not overpaying uh they generally prefer to get the seller to finance some of the sales so you take some seller financing back. They buy the real estate, which is why there's a lot of debt on the balance sheet. It's

all mortgage debt backed by real estate. And they aim to get, I think, about a 25%, 30% cash on cash return. And then they use the cash flows from those clubs over time to pay off the debt that is 70% of cash flow to pay off the debt that's associated with the new club. Organic growth tends to be in the in the restaurant space the bombshell stuff uh they pay back they pay they pay a dividend they buy back shares uh provided and i really like this they buy back shares if the free cash flow yield is above 10 so in other words if the stock price has been knocked down far enough that the company can have a free cash flow yield of 10 but they also say oh by the way they're very and i'm sorry for making this parallel they're very buffetesque because buffett of course says you

know berkshire's got how many billions of dollars of cash in the balance sheet but buffett has said look we'll buy back stock but we're keeping 20 30 billion dollars period on the balance sheet because we will always be a fortress rci has said the same thing we'll buy back stock if it's below a 10 percent free cash flow yield and as long as we've got 16 million dollars of cash on our balance sheet you know it's obviously a lot less than uh than a than a berkshire you know because it's a considerably different sized company. But, you know, $16 billion on RCI's balance sheet is what's RCI, a $550 billion company, or sorry, million, not billion, million. You know, it's, I like the way they think. I like the way that they've said, we are looking to maximize

investor we're looking to maximize investor returns here because well because he read that book I guess but you know that's good for

that's good for shareholders now look there were some governance issues which is what drove the stock down about 12 bucks like I said last summer I think it might have gone below 10 You know, there were there were things there were things that were not disclosed to the SEC's liking in terms of internal controls, as well as I believe there are some related party transactions that, you know, the transaction flowed through the financial statements, but they weren't explicitly explicitly laid out. we do know that rci has taken steps to improve that governance

apparently to the sec's satisfaction i mean there's not much more we could say about that in terms of they either have or they haven't and and they claim they have and the sec is backed off so the sec is satisfied so there's always a chance that someone's doing something at any company that's not that's cool but from what we know understand now the sec uh you know is satisfied with the measures that rci has taken right the uh well i think we're running on time yeah uh that i mean that pitch was this good we had a few more questions in rci so maybe uh you know investors uh take a look at everything uh but we're gonna wrap things up uh so we got our two final ones

we ask everyone what is one financial saying that you disagree with jim oh dear financial sayings that i disagree with um i'm gonna say that you can't play too high a price for quality because as i mentioned earlier uh with the examples from the dot-com bubble oh yes you can um you know i i'm not i i also said that overvalued and highly valued are not the same thing so you you can pay a high valuation for a great quality business. But sometimes you can pay too much. And so when people tell me, well, you know, I'm a long-term investor and yeah, I probably overpaid, but I'll be happy in the long-term. Again, I'll point to Cisco. If you bought at the high in 2000 Intel, if you bought at the high in 99, 2000 it's now over two decades later, you still haven't made

your money back. You still holding, you still long-term investor. So that's, that's, I guess, probably the one i disagree with most yeah i think we'd i think we'd be on the same side um last question i'm boring i'm sorry no no it's good what is one piece of advice you have for anyone that's considering a potential career in investing uh i got a lot actually um read widely disagree with other people but don't be disagreeable uh in other words think different think for yourself be because you know look i anyone can calculate insert financial ratio you want to talk about here right you know anyone can you know calculate all these wonderful growth things or whatever like that but but think different and and don't be afraid to to go into

areas where um other others are fearing to tread kind of thing like some of the uh some of the most fun investments i've made uh not the greatest like sometimes but some of the most fun ones because well like what about this this is an interesting idea you know i mean we we were we were excited about uh uh as you guys know look i i recommended gamestop before gamestop went stupid um you know now we got out of it too once it did go stupid and we thanked the market for their money um but you know at five and nine dollars i think i was i think i put it internally in our database of work at around five bucks and i recommended it i think just north of nine um you know it's like i get it this is the next blockbuster it's going out of business um

what if it doesn't let's go back and look at what blockbuster was does this actually look like what gamestop is today this is like six nine months ago um oh it really doesn't and here are the reasons why uh so so my thing is you know don't be afraid to to to think differently don't be afraid to kind of challenge orthodoxy because you can do that without being a jerk don't be a jerk it's never good to be a jerk um but you know like you know think for yourself because i think you'll have i think you'll have more fun in investing and uh you know and then i would also say avoid avoid investment banking because it'll murder you uh seeing those golden golden don't make a lot of money, but everybody I know who went into, yeah, everyone I know,

everyone I know who went into investment banking, I don't think any of them lasted two years. They just, it was so, it was a lot of work. They got well-paid, but they, they just, they were miserable. And you know, it's life, life is short as they say, and life's too short to be miserable in my opinion. All right. I think that's a good way to wrap it up. Yeah, that's it. That's that's that's the that's the coda right there, guys. That's perfect. All right. Always fun to talk, Jim. Thank you for joining us. Cox Panoramic Wi-Fi includes advanced security to help protect all your connected devices. You'll get real time alerts like this one.

So you don't have to worry about malware or when your kid downloads a song from a shady link. and now all your computer can play is red color red color where are you all blocked thanks to advanced security included with cox panoramic wi-fi advanced security must be enabled in the panoramic wi-fi app restrictions apply all right welcome back in thanks again jim gillies for coming on the show next we're gonna hit hot water um i got some good ones okay do we want to do uh so we don't spoil each other's because i know we're trying to change it up do we want to just go back and forth so you do one i do one you do one i do one sure uh we can do that uh for me we work uh they are set to spack uh but in their uh one of their public filings the

company stated as follows the company also exited all of its non-core ventures and streamlined head count by 67 percent from its peak in september 2019 what a way to spin layoffs yeah they you're streamlined we're streamlining we're non-core assets we're gonna start buying like shares now they they can't they're still hemorrhaging money but yeah giving up the wave pool company is probably smart um adam newman was a crazy man they can do like uh an apprentice spinoff with adam newman saying you're streamlined you know kind of like trump yeah i don't know yeah i don't know if uh if i'm gone now though he is gone he is wild i think he'd work i mean speaking of that he'd probably work on tv i mean mostly you know he's got a big uh he's got a big personality but

did you see the hbo uh preview oh they have a documentary for him coming out i did not so has some words well you know with that he will be uh fired up i i mean he's never uh he's never bad on tv either but the what's what what's your first hot water okay hot first one uh it is the tiger cub from asia uh his name is huang i think uh which we can make we can make some crude jokes but i'm not you can think of the jokes yourself uh nobody could have seen this coming uh guy had like 10 billion maybe i think 20 billion maybe an aum as a family office and 80 billion in buying power 80 billion buying power yeah he he really didn't check over that buying power on robinhood was actually money you know he got confused i think a lot of people do when it says buying power

That's really your margin power. But yeah, he was 5x levered using swaps to stay off the books. Totally shocked here. I guess I was trying to understand what swaps were. I'll say I was reading some stuff. Still don't get it, so I'm not going to try to explain it. But basically, the only thing I did get is that the way he used it was, one, he used an investment bank like Goldman Sachs or Morgan Stanley.

And two, it's a way to invest where basically you're investing in the entity, kind of like an option. but it stays off the books so no one knew he had these positions and that's why Viacom and what Discovery and that ticker I always see GSX which seems like kind of a fraud. Was Farfetch on there? Maybe yeah that might have been just some collateral but the things I talk how to take out of this is one Goldman always wins as we know squiddy as I think a lot of people on Twitter like to call them they always win two these are the people the sec and congress should be like having on hearings like citadel uh i don't know is they're just sitting there like yeah we'll

make these orders for you but these are the people that are actually no roaring kitty is doing damage yeah roaring kitty's doing major damage i mean yeah the what's his um name uh vlad vlad seems a bit over his skis when we you know when he talks sometimes but i mean he's not he he seems fine and then ken griffin yeah he's worth a lot of money but they provide good value like these are the people that are 5x levered that are i think are the ones that there should be regulations on um and third yeah it's interesting that he blew up but i well well it's interesting but it's not surprising and you know you mentioned vlad so that caters into my next hot water do you have anything else that you had to say uh i was gonna say does this remind you of the end of margin

call yeah kind of and i think there was a charlie munger quote that i saw today there's three three l's that can ruin a man ladies liquor and leverage and he also says my loss is your gain like sorry but uh if you've listened to will emerson on margin yeah that's what i felt like the goldman sax and morgan stanley desk was like um but also quang if you feel yeah if you feel bad for him i would say don't because he's a big donor to an anti-gay non-profit so yeah i think i'm kind of happy that he's blowing up um interesting oh yeah the only serious question i have is as a long only person how do you think about things like this i love blow-ups it's exciting how in the carnage get get good businesses at cheap hopefully get some limit order about viac but yeah yeah

whatever those businesses i think gsx i mean there's a lot of smart people that think gsx is a fraud so who knows what will come out of that but i think it just shows yeah limit orders it can be smart you know get some of those outstanding uh but robin hood has filed to go public confidentially but they announced it they announced that it's confidential so that's right that's right all right ironic i guess but well it's like an anonymous donor uh but everyone knows like he uh who is it uh just some rich person they you know bill gates anonymously donated to blank well it wasn't anonymous anymore uh but first of all i think the last thing robin hood needs is to be under the public eye any more than they already are but uh what would you bet

over under, on average count size, $20,000. Maybe we'll get a chance to say it in the S1. Yeah, well if they don't disclose it, I would say I don't know, pretty low. But if they do disclose it, I would say, yeah, it's got to be below $20,000. But this is average, not

median. Yeah. I'd say below $20,000. I don't know. It depends if they count accounts like ours who are just dormant with no money in them. That kind of would weigh in on it a bit. But uh yeah i mean i don't know they have i'm gonna go over you're gonna go over leverage well it depends how they define things like that um it's not a gap number obviously so i don't think they

have to but we'll see maybe actually well they have you should be able to yeah the aum right well they they don't have to give you assets but they're not managing the assets but the assets that are on their books yes yeah they will have to do that but some of it might not be customer deposits i think they probably have to do that and they also probably will give out user numbers but again we don't know how many of those are active i'm looking forward to these beautiful first few pictures on the s1 oh yeah it's gonna be great democratizing finance they're gonna show a really diverse group of people talking on their phones all smiling super cheerful and they're gonna be like robin had helped me become a degenerate gambler no uh but it's apparently

only going to go out at 50 times sales so are you in or gosh are you in i wouldn't i would never buy this i i am typically pro send stocks and i would never buy this oh yeah i mean the long term the long term yeah there's a lot of questions long term for the viability of the business so what do you uh what else do you have okay carvana so good blog from scott morton i don't know who that is but um yeah it was good blog so if you're listening thanks uh for writing it so it outlines one there's been a lot of self-dealing at the company so related party transactions are big at carvana that's a one red flag two these self-dealings have been i think in the nine figure range three uh executives have been selling stock daily while the stock's gone up like a

thousand percent this year to the company or four excuse me can't count the company is still hemorrhaging money they can't stay alive without raising outside capital and five the father who the company is self-dealing to i think it's the ceo's father or maybe the founder's father i'm not exactly sure is a felon you can't make this stuff up there's a that's a lot of red flags um but hey it's been one hell of a hell of a stock i don't know i'll give you a bigger red flag it goes past their headquarters it's in phoenix yeah and it's a really really nice building red flag it's too nice yeah it's way too nice for the building that's what too much leasing costs too much yes yes that's what the there was a red flag with that for yext too and it's right by asu's

campus carvana rent yeah also a red flag why would you want to go close to as because they want their employees to party yeah exactly i i don't think that's ideal but i don't know carvana i don't know anything there might be some solid bull cases out there and obviously the stock's done well so if but as just an outsider stocks that have done well that don't deserve it yeah that's true the yeah just as an outsider looking at these i just would i don't know how you how you own this thing maybe i'm missing the bigger picture but i just don't see it don't check our books bro yeah don't i don't know no uh everyone's uh everyone care about accounting or you want to make money yeah people are saying that people are also saying the russ hanneman quote from

silicon valley dude you don't want to be revenue you know or you don't want to make money or else they're going to ask for more profits or they're also saying uh there'll never be enough yes the other thing from silicon valley that again is a big joke but people do take it seriously where they're like dude we're going to make it up in volume and i think that's it's pretty indicative of this whole market honestly if you could describe it as like a person-esque market right now i think the most apt description of the pockets of this stock market are it's a russ hanneman market we're just living in it i think there were some quotes that got way too taken out of context from our margin is my opportunity people negative margin is a great opportunity

yeah we'll just go negative anytime there's like a low margin business they're like this is great we're gonna steal the market we're going low cost on purpose they're scaling not just bad unit economics yeah negative margins it's a moat but it's a huge moat the uh then also the you don't just want to what's munger say you don't just want a great business at a good price you want to or sorry you don't want a fine business at a great price you want a great business at a fair now we're at a fine business at what now people just say like anything's a fair price yeah quality quality at all costs dude you just don't get it man the uh yeah but we get it for yeah yeah they well it seems like yeah it's good businesses some of these businesses are obviously

good but they're at terrible price it's like good businesses at terrible prices you know what i mean and it's just why would you want to play that game it's the fair value people are willing to pay all right anyway um arc is in hot water because the arc space exploration etf you know that one yeah i had this one too um so they own a chinese company with a product called the space pod makes sense right yeah uh well the space pod is supposed to be a good uh food delivery robot um and it has nothing to do with outer space so i think someone may have uh missed on that one yeah just saw the word space pod other top holdings you might be i might be stepping on your thunder here other top holdings include netflix and jd.com it wasn't a top holding but yeah netflix was jd.com was a

top holding netflix wasn't jd or netflix wasn't a top holding it is a holding uh which i guess they make space shows though so you ever watch lost in space this show is really good what about uh amazon what did they was that in there too owned blue origin i don't it's not any sense do they own their own 3d printing etf you see what this is called this is called an etf squared no uh that's a bad joke but i did see that they own their second largest holding is their own etf it's it's a flywheel effect yeah all right whatever i guess i'm just sexist it's okay it's not it's just this stuff is just stop like i have no whatever move on what's your what's your last one okay coca-cola consolidated's bottler or sorry sorry governance coca-cola consolidated

is not coca-cola it is coca-cola's bottler now this is from their proxy i believe and i quote the board requires the ceo to use the company's corporate aircraft whenever reasonable for both business and personal travel which that's an interesting uh that's an interesting you know use of the uh shareholders you know money and uh as a classic one of the best falls on twitter jim o'shaughnessy said to be fair the board quote requires it no fighting the powers that be which if you saw that on a proxy statement what would be What would be your thoughts? I don't know.

I feel like a bunch of management teams do it. Well, yeah, but they don't specifically outline that they require it for personal travel. I guess that's true. Well, you know, that bottler could be – he might not be safe in first class. Yeah, that's true. Yeah, that's bad. But, yeah, that's all my hot waters. If we want to move on to buy, sell, hold.

I got one more. Tesla or Bitcoin hodlers. Hold on for dear life if you don't know what hodl means. I guess they're now synonymous with each other, but you can officially buy a Tesla with Bitcoin. I'm sure a lot of people saw that. Here's the catch. If you request a refund, they can choose to pay you back in Bitcoin or dollars depending on what happens to the price of Bitcoin. So let's say you pay for a car with whatever, a half of Bitcoin, whatever it is, and it drops 50%.

they can pay you back that Bitcoin at a 50% decline. If you ask, yeah, for a refund, yeah. Heads I win, tails you lose. Yeah, I'm on the same page with you there. But as well, I mean, you know, what's fascinating to me is that this currency, I don't know, I've never paid capital gains tax on a currency before, which is quite fascinating. if you make a purchase in bitcoin you're gonna have to pay uh capital gains didn't know uh if

you sell if well you have ever sell oh i i mean if you have if you buy a tesla then yes you have to sell right i mean i don't know i didn't know what trans transactional currency forces or like or whatever government body has you pay capital gains on i i was unaware of this uh but i also i honestly think you would you're going to look into it like not you specifically people are going to look into it too i have fair confidence that when they're buying in bitcoin they buy in bitcoin convert it to dollars buy the tesla with dollars the the car and then it's pay you back and give you the tesla they're they're just converting it it's like uh russell when he got paid in bitcoin quote unquote it is uh i mean it's brilliant brilliant on tesla's part

this might be the highest margin part of their business other than yeah true true yeah because they win no matter what if people decide to pay them in bitcoin they win um that's true that's true yeah as long as there's a refund the buy sell hold the theme this week is ways to go public so it's not stocks uh the three direct listing ipo or spac which one are you ipo and well okay direct listing if and only if the company didn't do around 50 below two months earlier like roblox and a bunch of other companies which just makes it that same conundrum of the insiders getting early or not the insiders the big banks getting early so i'll go direct listing first and then i'll go ipo and then spack uh about 80 rungs down because if everyone knows this by now but the

spacks the warrants the dilution all that stuff it's just not i don't know it's just not you're buying money at it you're buying cash also masquerade a lot of parts of the business oh yeah well what's weird is you know what's a fascinating thing is that all these spacks coincidentally are projecting that revenue is going to double by 2024 who would have thought All these businesses are going to grow at way faster than GDP, and management thinks it's a high likelihood. It's crazy. And, yeah, SPACs are there at the bottom of the list there. Yeah, I don't know.

Do you have any thoughts on direct listings? No, IPO done well. It's great. But direct listing, I would say the stocks that I like the best, the companies that I like the best, have chosen to go direct listing. What are those two? I mean, it's a small sample size, small Roblox and Spotify, right? those are the two yeah i like those management teams that's i mean there's you like companies that ipo'd yeah that's true all right anecdotal evidence uh you want to go first i can i can uh

i watched the keynote uh from intel's new ceo he's only been there for like a month i had in the background and it's an industry it's a bit you know i don't understand the industry that well but when i watched it and it's a good watch he's got a lot of energy i think intel trading out like it was at 10 times free cash flow or whatever it was the last two years that we might look back on that and think that was a huge mistake because they got a lot of things going for them right now yeah they're a little behind like taiwan semiconductor but this guy has energy which whatever i think it's good you gotta have a leader if you're trying to transition out of a stagnate stagnating period um they're telling a great story and it looks like they have a roadmap to

eventually become the taiwan semiconductor of the western world and it seems like they got the government backing them there's a ton of western companies that want to back them and there's not really anyone that's going to be able to compete with them on this scale so it seems like and again this is industry i don't know well they have a huge advantage so we'll see but yeah it seems like a lot of smart people that i follow that uh know the semi space well are all kind of bullish on intel yeah it did have quite the recovery though right yeah i mean it's trading at like i don't know 15 times free cash flow right now i could be wrong but it's a little higher now it's still under the market multiple and it isn't it's definitely a large cap i think the market

caps out 250 billion dollars but yeah a lot of smart people thought it was a great risk reward opportunity they do have to execute and it's going to be tough to tell unless you're an industry expert whether they are executing but it seems like the government has almost said yeah you're too big to fail you're almost like a defense contractor where we need the semi-production in the western hemisphere um i i don't know it seems like there's a lot of margin of safety there and dan lobe yeah even though he told him to outsource the foundry thing uh so he went he his ideas they did the exact opposite except you know firing the ceo well they fired the ceo but they he brought in he brought in the new guy didn't he i don't know if he did i mean they own

like one percent of intel but his ideas or third point's ideas intel didn't follow any of them so which is you know but i mean you know the activist i guess did their job and the new guy here seems really uh he seems strong so i don't know feel you know uh are we alternating or you want to yeah that's all okay my uh i'm in a new apartment and you know usually when you go into a new apartment you buy things on amazon i didn't buy anything on amazon in fact but uh when physical retailers target target yeah a little fred meyer who's owned by kroger so i think revival of revival of the physical retailers yeah it's back amazon's dead in the water well look yeah great good anecdotal evidence anecdotal evidence on my part i've been using amazon a lot so well so this

the stock will probably clearly clearly yeah it's clearly it's a good investment or clearly in your case but i don't know no i mean i don't know amazon's experience isn't as good as it used to Yeah, but we all know that. Yeah, I think there is something to be said for Target's convenience and prices actually being really competitive. Yeah. Amazon's usually the low price point, but I don't know. Target with the furniture, and I also...

Well, Amazon's furniture is a lot more convenient because they just throw it on my front door. But I don't know. I don't know how I feel about ordering furniture that I haven't actually tried out. I was comfortable. but i thought you said your futon sucked oh i got that at target i got some stuff at amazon i got my bed at amazon it worked really well all right well uh what do you have your second one

second one i was gonna say robinhood ipo um i was gonna say we work spec uh that was gonna be mine but you talked about that under the hot water uh the only other thing i had was a theory with this it's not necessarily an investable theory more of kind of this could happen where all this stuff the the SPACs the you know the IPO is going up 100% a day the stuff I believe is going to all fizzle out once a individuals get bored which it looks like that is already happening with the call option volumes declining be these lockups expiring on SPACs over the next few months i think that's just that's a good formula for kind of you know this stuff fizzling out it doesn't have to crash necessarily but just kind of you know this uh what do they call it the

the hot market it's not necessarily a bubble or anything you know like all that stuff is just it can't go on forever it's not a self it's not a perpetual motion machine where i don't think it'll be one time though i think yeah it's just over the next few months as the lockups kind of come in there's some things that i mean the irrational things are already crashing virgin galactic's down 52 or whatever baller was down still got you know there's a lot more out there and 50 can it can fall 50 two more times there are still definitely pockets of irrationality but i would say at large some of the really really irrational things have already fizzled out don't you think yeah yeah i don't know things can fall a lot farther tesla's still

a 600 billion dollar company yeah i mean that's obviously the that's the elephant in the room yeah i don't know well all i know is that hopefully some quality companies get a haircut if and it's not a guarantee if the baby gets thrown out with the bath water that's kind of how like if you're an individual it seems like it's the way to to play it but don't just buy the dip willy-nilly oh it fell five percent generational buying opportunity oh my god it fell ten percent well it was there like three weeks ago on the way up so don't don't anchor to the high price but there i think forced liquidation and stuff like that can be can you know there can be opportunities i think yeah just referencing that all-time highs and saying how far down is it it's probably not

the good way to go no attention to none i mean yeah you got to take into account valuation and whether the business is good don't just buy the dip willy-nilly just because someone goes falls 90 or 60 or whatever doesn't mean i don't know anchoring can be a powerful tool and your mind can work uh get warped into that all right uh my second one is kind of a few different anecdotals but uh at my apartment at my new apartment there's this construction site going on across the street every morning at like 5 45 and it makes me happy that i'm not working construction these people get out in the cold and they're out there working and it made me think infrastructure bill procore autodesk trimble these are all companies i would want to own if

this infrastructure bill is real secondly isn't that like the one area of spending that everyone actually is like yeah please i think so yeah the only time i've seen a um for watching mccall uh not feedback negative feedback on the infrastructure bill was pomp the bitcoin guy um but he prices the s&p returns in gold which when he said that i just i couldn't i couldn't deal i don't know that's just ridiculous but you know yeah he doesn't like it because he thinks the government's you know debt's ballooning or whatever which i guess maybe you know there's some good arguments that it is but dollars dying dollars dying yeah no one's gonna trust us our aircraft carriers with nothing but that's another that's another thing infrastructure

yeah i mean everyone agrees should be great autodesk let's go altria too sneaky one for that um yeah i mean yeah no i mean it's true yeah there is some stereotyping but yeah it's not a stereotype stats are stats yeah all right well you have any more uh yes okay i was gonna do robinhood ipo so i guess this is the last one what do you think about this i got a proposition for you i'm gonna read this newswire or yeah business what does that think business press or something i don't know newswire i can never get that right uh musk metals acquires the quote elon lithium property in quebec musk metals corp quote musk metals or the company cse musk that's their ticker is pleased to announce that it has entered into an agreement to acquire a hundred percent

interest in the prospective elon lithium property that spans over 245 hectacres heck uh i don't know how to say that heck you know hectacres you know like if it's an acre but it's larger i can't i can't ever say that word in lacorne and feedmont townships of quebec uh this is not associated with who you're thinking of tesla or elon musk but what a news release trying to just flood in the algos or the you know the clickbaity things like six times there yeah anyone that puts i feel like they're just hoping for the zoom ticker catastrophe to happen yes yes what he raised i mean your approximation you're how close you are to elon musk is or anything that he says or if you use words that he uses apparently you're worth more so this company is trying to use it to their

advantage maybe they go up 10x and uh they do a nice equity raise that would be some unique fundraising for sure uh but uh obviously they're kind of it's probably fraud but yeah all right well i think that's gonna do it uh thank you jim gillies for coming on the show uh am i blanking on anything no i mean check out the history financial market show we're not gonna blabber about it each week it's on our different feed um check out sound investing like we always say seven ten dollars off with code ccm yep uh we are not financial advisors here at chit chat money so anything we say is not financial advice or recommendation general partners at arch capital may have positions insecurities discussed on this podcast so keep that in mind thank you guys for

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